SAN FRANCISCO ? There is a sea change starting to occur in the nascent effort to make mortgages to American Indians on and near their homelands. Rather than stressing the “exceptional” nature of finance in Indian areas, one new emphasis is on normalizing Native lending through standard programs and channels.
The implications are enormous: the blending of previously square peg-round hole Indian loan volumes into the most successful mortgage system in the world, one that has made homeowners of more than 68 percent of all Americans. It also leads the way to use of more private mortgage finance, as opposed to the government-guaranteed loans that have dominated tribal mortgage finance so far.
PMI Mortgage Insurance here, for instance, has begun to use automated underwriting to qualify borrowers in its many tribal programs – using the same loan programs used by many in the dominant culture.
PMI now runs Indian borrowers from tribes in Oklahoma, Alaska and elsewhere through Desktop Underwriter, the automated underwriting system of Fannie Mae, the semi-federal mortgage agency that last year handled 41 percent of the nation’s products, $2 trillion in mortgage volume. And it uses Fannie Mae’s standard loan products, the same as are used all over the country.
Neither Fannie Mae nor PMI is a lender, but are part of that super-efficient mortgage system. Fannie Mae buys loans from the actual lenders, giving them more money to make additional loans. PMI insures loans if the borrower is unable to make a 20 percent down payment (as most are not). Fannie Mae will buy all loans generated through PMI Indian programs.
According to Jean Garrison, PMI’s Indian country representative, the speed of AU can lead to increased volumes of Indian mortgages because of the speed of approvals, which is in minutes rather than days or even weeks previously.
But what of those Indian borrowers that don’t fit into the mortgage business’ cookie cutters? According to Garrison, Fannie Mae’s NACLI (Native American Conventional Lending Initiative) loans include flexible underwriting. These include the Timely Payments loan, where a borrower with less than perfect credit gets an automatic decrease in interest rate if she makes her payments on time for the first 24 months. Fannie also includes as a standard loan a popular product in Indian country – a 3 percent down mortgage in which the borrower needs only come up with one percent, while the tribe or another entity contributes 2 percent.
If a borrower doesn’t fit even the flexible underwriting standards, there are still ways to qualify. So for example with the Saginaw Chippewa tribe of Michigan, which PMI anticipates doing a program with soon, its members get significant per capita payments from gaming which would be assigned to guarantee repayment of the mortgage.
The Saginaw Chippewa loans will be done with Flagstar Bank, both on and off tribal trust land, and Garrison anticipates a volume of a couple of hundred loans.
PMI is getting ready to announce a similar deal with the Menonimee tribe of Wisconsin. The lender there will be Associated Bank, and Garrison thinks 100 loans may close in the first year of the program. The first couple of loans are set to close next month.
Other PMI initiatives forthcoming include ones in Louisiana, Washington and Oregon states. It also contemplates doing something on the Pine Ridge reservation of the Oglala Lakota in South Dakota through its “Gateway” rehab program.
In Oklahoma, one of PMI’s original tribal partners, the Chickasaw Nation, has announced that it is expanding its mortgage program to Chickasaws around the nation. It is also switching over to the Fannie Mae DU program, with lender First Mortgage of Oklahoma City.
PMI’s original Indian deals in Oklahoma were mostly with Washington Mutual Bank and Freddie Mac, Fannie Mae’s cousin and competitor. They were not quite standard conventional program, though, since there was a risk-sharing arrangement in which the tribe would pledge money to be used in case of defaults. (In the Chickasaws’ case, it was more than $200,000.)
“We all want to get to a place to say Native Americans shouldn’t have to pay a premium for mortgages because they’re Native Americans,” said Garrison. “They should have access like any other borrower.”
PMI is currently considering whether to dismantle those risk-sharing arrangements, freeing up the tribal money.
