mfa 184 program

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Eric Schmieder
NM Mortgage Finance Authority
NM Tribal Homeownership Coalition
866 583-6041 Toll Free
505 767-2233 Direct
505 228-8670 Cell
eschmieder@housingnm.org
WHY SECTION 184?
 Available on Tribal Trust, Individual Allotted Trust or
Fee Simple land in Indian Operating Areas (All Fee
Simple in NM)
 Low down payment (2.25%)
 Flexible underwriting standards
 No credit scores (good credit history required)
 One qualifying ratio (41%)
 1.5 % Loan Guarantee Fee (Financeable)
 No mortgage insurance
 No income restrictions
 Published Loan Limits
2
Reservations
Indian Removal Act of 1830
Relocate tribal communities to Indian
Territory
1860 Reservation Policy
More Pressures on Indian Territory
Relocations to small geographical areas
3
4
Assimilation
1880-1934
Interior Sec Carl Schurz (1880) “The policy is……to
dissolve….their tribal cohesion and merge them in
the body politic”
Day and Boarding schools
BIA oversight increased
Dawes Act of 1887 Allotments to individuals
Convert to fee simple after 25 years
5
Changes
1934-1953
Indian Reorganization Act
Reversal to Strengthen
tribal institutions
Repealed Dawes Act
1953-1970
Termination
100 Tribes targeted
Relocation
12 major cities with
relocation centers
6
Self-Determination
1975-present
Indian Self Determination and Educational
Assistance Act (1975)
Native American Housing and Self
Determination Act (1996) NAHASDA
7
HUD 184
1992 Section 184 indian Housing Loan
Guarantee Program
Substandard Housing
Overcrowding
Help for Higher Income tribal members
New Markets
Housing in Indian Areas
8
LAND OWNERSHIP IN INDIAN COUNTRY
•
Program requirements and processing
procedures vary depending upon land
status
•
Types of land ownership:
1.
2.
3.
4.
Tribal Trust with an approved lease
Land Assignment
Allotted Trust with BIA approval
Fee Simple within an Indian Operating Area
(usually off reservation)
9
10
Sovereign NM Pueblos
Almost all land is owned by the tribe in fee
simple estate
But Federal Trust responsibility applies
Traditional Land Assignments
HUD Homes
Leases must be approved by the BIA
Leasehold Mortgage must be approved by
the BIA
11
1. TRIBAL TRUST LAND
• Land or interest in land held in trust by
Bureau of Indian Affairs (BIA) for a Tribe or In
NM Fee Simple but subject to BIA Trust
Responsibilities
• Land itself may not be encumbered or
alienated (leasehold)
• Generally no property taxes or land cost
12
LENDING ON
TRIBAL TRUST LAND
 Leasehold interest must be established
between borrower and tribe
 Parties to Lease:



BIA
Tribe
Borrower
 Title Status Report from BIA
 Preliminary with lease
 Final with lease/mortgage
13
Jemez 184 Home Loan
14
30 Year old Home goes to DC
15
184 Expansion
In 2005, the Pueblo of Jemez petitioned the
Office of Native American Programs to
expand the service area of the 184 loan to
all of New Mexico
Now any enrolled member of a recognized
tribe can use the 184 loan for purchase on
fee simple land in New Mexico
16
3. FEE SIMPLE LAND
• Estate in land that is absolute or unrestricted except for
government rights
• Owner can dispose of land
– Subsequent sale of home and/or foreclosure; land and home
sold together
• Within Tribe’s operating area for housing (see map slide)
• Title Policy is required
• A “regular old loan”
17
184 PROGRAM OPTIONS
1. Purchase
2. Purchase and rehabilitation
3. Single Close New construction:
– Manufactured on permanent foundation
– Modular and stick built
4. Rehabilitation
5. Refinancing (Including cash-out)
18
ELIGIBLE BORROWERS
 American Indian or Alaska Native
individual or family:
• Owner occupant
 A Tribal Housing Entity (TDHE/IHA)
• Rental, sale or assumption
 A Tribe:
• Rental, sale, or assumption
19
San Felipe Built 28
Homes with Section 184
20
PROPERTY REQUIREMENTS are
STANDARD FHA
• Single family (1-4 units)
• Permanent foundation
• Infrastructure
21
184 PARTNERS
• Real Estate Brokers
• Builders
• Lenders
• Tribes
• Tribal Housing Authorities (TDHEs)
• Bureau of Indian Affairs (BIA)
• HUD 184 Program Staff
22
WHAT DOES THE TRIBE DO?
FOR LAND LOCATED ON THE RESERVATION:
• Develops and implements procedures for:
– Foreclosure
– Eviction


Priority of lien
Leasing
•
•
•
•
•
Provides land
Infrastructure
Financial assistance
Completes Land Status Form
Conducts environmental reviews
•
http://www.silverbulletproductions.com/completedprograms.html#Lincoln-Canes
23
WHAT DOES THE LENDER DO?
• Lends the money!
• Explains homeownership and
the 184 mortgage loan process
• Processes the loan, prepares the loan package
• Serves as liaison between borrower and HUD
24
WHAT CAN
Real Estate Brokers DO?
 Create a niche market for the underserved
Native American population.
 Serve as liaison between borrower, builder,
lender, and the Tribe’s Housing Authority.
One of the biggest obstacles to homeownership is finding a
trustworthy advisor who can guide a borrower through
the home buying process. Real Estate Brokers who help
buyers overcome such obstacles will stand to gain in the
coming years as the Indian population and their buying
power increase rapidly.
25
DO NATIVE AMERICANS NEED A Real
Estate Broker?
Whether they buy or build, the home buying
process can be dramatically simplified with the
help of a qualified Real Estate Broker. Real
Estate Brokers:
•Know the local money market
•Understands the mortgage process and can assist
•Can make sure the borrower gets the best loan
product
•Are familiar with local down payment assistance
programs
•Are familiar with local builders, subdivisions, and the
contract process
26
WHAT IS THE MARKET?
American Indian and Alaskan Native US
Population
Source: U.S. Census Bureau 2001
Contact list for Tribes and their Housing Entity:
 www/hud.gov/offices/pih/ih/codetalk/onap/map/sw.xls
27
20 Cities with Largest Urban Indian Population, Among Cities
With Populations of 100,000 or More in 2000
MARKET cont.
In the U.S., there
are 245 places with
100,000 or more
populations.
“Race Alone”
refers to
individuals who
reported only one
race.
“Race Alone or in
Combination”
refers to
individuals who
reported only one
race together with
those who reported
that same race plus
at least one other
racial category.
28
WHERE TO MARKET
 Property must be in a designated Indian Operating Area
 See our website for approved counties in remaining states 29
New Mexico
The HUD Office of Native American Programs 184 Loan is now available on all Fee
Simple land in New Mexico.
The following Reservation Lands are also approved:
Pueblos: Cochiti, Isleta, Jemez, Laguna, Nambe, Pojoaque, San Felipe, Ohkay
Owingeh (San Juan), Sandia, Santo Domingo, Santa Clara, Tesuque, San
Ildefonso, Zia and Zuni.
Tribal: Jicarilla Apache, Mescalero Apache, Navajo Nation
30
HOW TO MARKET
•Add a Section 184 Loan Guarantee website link to your
website
•HUD has brochures and handouts
that can be reproduced
•Contact the tribe’s housing authority to offer your
services
http://portal.hud.gov/hudportal/HUD?src=/program
_offices/public_indian_housing/ih/homeownership/184
31
NM Section 184
Production
7/14
New Mexico
FY2013
FY2012
FY2011
695 $109,999,593
121 $20,201,807
174 $28,406,409
106 $17,448,461
111 $17,066,796
Fee Simple
455
$78,814,395
107 $18,478,529
128 $22,631,601
99 $16,529,594
63 $10,489,009
Allotted
2
$274,115
Tribal Trust
238
$30,911,083
1
$76,915
13
$1,616,313
46
$5,774,808
7
$918,867
1
$95,253
47
$6,482,534
32
CHOOSING A LENDER
TO WORK WITH
Use these questions to help you decide:








Are you a Section 184 approved lender?
How long have you been originating Section 184?
How many Section 184 loans have you originated?
Do you have experience with any certain tribes?
Have you worked with any homebuyer assistance programs?
Are you familiar with the Tribe’s Housing Assistance programs?
Do you work with appraisers experienced with Section 184 in my
area?
Do you have the capacity to administer an escrow account for the
one-time construction closing?
33
LOAN PROCESS
BORROWER QUALIFICATIONS
AND
THE MORTGAGE LOAN PROCESS
34
GET STARTED
• Real Estate Broker informs client of options
for loans
• Real Estate Broker helps borrower contact a
Section 184 participating lender
• Borrower provides lender with a copy of their
Native American ID or enrollment card
35
Pre Qualifying
• Most lenders will prequalify
• Provide recent check stub(s) or other
income verification
• Release for credit check
• Monthly Gross Income
• Monthly payments on Credit Cards,
Installment and Real Estate
36
BE PREPARED
Standard checklist of items to start the process.







Tribal Affiliation (Enrollment) Card
Employment history (2 years)
Recent year-to-date pay stub
Prior year W-2 forms
Self-employed – Tax returns (2 years)
Two months recent bank statements
Monthly debt information
37
Tribal
Enrollment
•
Forms of evidence of Tribal Enrollment:
•
Photo Tribal ID card that includes name of tribe,
enrollment number, tribal member name
• Letter notification on tribal letter head that includes
enrollment number, tribal member name
• NO CDIB cards
 NOTE: Unusual forms of enrollment can be sent to HUD/ONAP for
review and approval
38
3 C’s

CAPACITY. The ability to meet your
payments.

CAPITAL. Savings and assets for
collateral.

CHARACTER. Credit history.
39
CAPACITY

41% debt-to-income ratios (guide):


Determines if borrower(s) has the ability to repay the
mortgage
Compensating factors allowed when 41% guide is
exceeded.

Liabilities:


Recurring obligations
Contingent liabilities


Projected obligations
P.I.T.I (Principle, Interest, Taxes, Insurance)
40
COMPENSATING FACTORS

Payment history

Savings history

Job prospects

Overtime

Nontaxable income adjustments.
41
CHARACTER
 Credit History:

HUD is concerned about a borrower’s
overall payment pattern. Lenders look for:
Borrowing and payment habits
 Previous and existing credit
 Judgments, collections and liens


Lenders must investigate all major
indications of derogatory credit and give the
borrower an opportunity to explain in
writing.
42
CAPITAL
Cash Investment:
 Difference between the mortgage loan and the cost to acquire the property
 Minimum investment: 1.25% to 2.25% based on maximum mortgage amount
Down payment sources :

Savings
Cash
Gift
401K
Investments

MFA









Secured funds
Sale of personal property
Sweat equity
Land
Home buyer assistance programs
Tribe / TDHE financial assistance: 2nd mortgage


Gift from tribal funds
(No restriction on use or amounts)
Grant from NAHASDA funds 43


Security agreement
Value in infrastructure
43
CLOSING COSTS
• Expenses incurred to borrow money
– How can they be paid?
• Added to the purchase price
• Financed (secured loan)
• Prepaid
• Paid by buyer or seller
44
FINANCED COSTS
When calculating the acquisition cost, lenders may add allowable
closing costs to the sales price or contractor’s price. The costs are
those to be paid by the borrower and must be typical and reasonable,
and may include:
•Loan origination fee, not to exceed 1%, or 2.5% if involves construction
draws
•Appraisal and inspection fees, including borrower home inspection fees
•Actual cost of credit reports
•Deposit verification fees
•Cost of title examination and title insurance
•Document preparation (if performed by a third party not controlled by the lender)
•Property survey
•Attorney’s fees (if the attorney is not an employee of the mortgagee)
•Recording fees
•Test and certification fees (such as water and environmental tests)
•Settlement fees (if not an employee of the mortgagee and an independent company)
45
LOAN AMOUNT
• Mortgage Caps:
– No mortgage may exceed 97.75% of the appraised value, excluding
closing costs (98.75% for if value is 50,000 or less)
– All mortgages are capped at 1.5% of the FHA limit for the area
• Loan Amount is Lowest of:
– 184 Loan limits for county
• http://portal.hud.gov/hudportal/HUD?src=/program_offices/publ
ic_indian_housing/ih/homeownership/184
LTV ratio: 97.75% or 98.75% of appraised value
– Acquisition cost (sales price + closing costs):
• 97.75% or 98.75%
46
Seller contributions (or interested third party) are not subtracted from
the sales price, but are limited to six percent of the sales price before a
dollar-for-dollar reduction is required. Seller contributions include:
•Payment of closing costs normally paid by the buyer
•Discount points
•Interest rate buy downs
•Prepaid and escrow items collected at closing
•Payments of mortgage interest (but not principal)
•Loan guarantee fee.
Excluded from the six percent limit on financing concessions are
unplanned permanent buy down points resulting from a shift in
interest rates during the period between the date of the sales contract
and the date of loan closing. The sales agreement must provide for
specific financing terms that could not be met, due to a change in
market conditions.
47
REVIEW
Membership of Recognized Tribe--ID Card
1.5 Point Financeable Guarantee Fee
2.25% Downpayment
41% Total Debt Ratio (43% with compensating factors)
MFA Eligible

Rate

Downpayment & Closing Cost Loan
No Income Limits
All Fee Simple Properties in NM
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