Summary of Budget Request

1. Summary of Budget Request

The Budget proposes an appropriation of $3 million in budget authority to support loan guarantees of $36.9 million. Funds requested will support approximately 425 loan guarantees. This program is authorized by Section 184 of the Housing and Community Development Act of 1992, Public Law 102-550, enacted October 28, 1992, as amended by Section 701 of the Native American Housing Assistance and Self-Determination Act of 1996, Public Law 104-330, enacted October 26, 1996, and Title VII of such Act.

2. Changes from 1996 Estimates Included in the 1997 Budget

The appropriated subsidy is obligated when the loan is approved and outlayed from the program account to the financing account to earn interest and serve as a reserve for defaults when the approved loan is guaranteed and disbursed to the family, tribally designated housing entity, or beginning in 1997, an Indian tribe. This loan guarantee program was initiated at the end of fiscal year 1994 resulting in minimal use of the program during the first year. However, second and subsequent years reflected dramatic growth. Use of the appropriated subsidy increased from 2 percent in 1994, the first year of operation, to 98 percent in 1996 and is expected to reach 100 percent in 1997 and remain stable thereafter. Outlays for 1996 were originally estimated at $2 million. The decrease is attributed to both the startup of a new program and to the pipeline of obligated loans awaiting Bureau of Indian Affairs (BIA) lease approval. BIA is the holder of title information for all reservation areas with the exception of Alaska and Oklahoma for which title land is on a fee simple basis. BIA must do a time-consuming title search and additionally, as is often required, seek agreement from all other parties with even a small interest in the land in order to approve a long-term lease for the land on which the home will be built.

3. Changes from 1997 Budget Estimates

The late start of the program in the first year of operation and the pipeline of obligated loans awaiting BIA lease approvals are expected to reduce the current 1997 outlay estimates from the estimate in the 1997 Budget by $1.6 million.

Explanation of Increases and Decreases

The increase of $1 million in 1998 outlays over the 1997 estimate reflects the surge in commitments during fiscal year 1995--the second year of program operation--and is expected to remain at a steady level into fiscal year 1998.

Indian Home Loan Guarantee Fund

Program Description

Funding for this program provides loan guarantees for Native American families and tribally designated housing authorities (formally Indian housing authorities) to purchase, construct and/or rehabilitate single family homes on restricted land and in designated Indian areas. It has made possible the private financing of home mortgages which would otherwise not have been possible because of the unique legal status of Indian land.

Private financing for the purchase of homes in Indian Country was almost non-existent prior to the implementation of this program in September 1994. The Section 184 Indian Housing Loan Guarantee Program has provided homeownership opportunities for more than 915 Native American families since that time.

Due to the unique legal status of Indian lands, lenders had been hesitant to take the risk of providing home financing where legal title could not be used as collateral. In addition, most lenders were unwilling to take the risk of going into tribal courts in the event of defaults; in fact, most tribal courts did not even have foreclosure laws on the books. As a result of this program, by fiscal year 1996 there were 50 banks lending in Indian Country and 70 tribes which had established legal procedures for processing foreclosures and evictions.

Implementation of this program provided an opportunity, for the first time, to truly leverage private dollars with federal dollars to create housing opportunities in Indian Country, where Federal subsidy programs have historically provided 100 percent of the construction cost of new units built on reservations. This program will allow private financing to cover construction costs while Federal dollars are used only to guarantee payment in the event of a default.

Unlike the traditional subsidy programs, this program does not target low-income families. However, it will provide opportunities for families currently living in subsidized units to build or purchase their own homes if they are financially capable. This "attrition" will create additional housing opportunities for families needing assisted housing. This is the housing cycle that has been operative off reservations for decades. If funds were provided in the conventional Indian housing development program, $3 million would provide funding for less than 30 units, as compared to the anticipated 425 guaranteed loans anticipated to be supported with the same dollars in 1998.

This program has brought the Native American community together with the lending community to create exciting new opportunities for both. True homeownership is now available to Native Americans living on Indian lands, and lending institutions have found a new client group to serve. This new relationship allows Native Americans to be included in achieving the national goal of creating 8 million new homeowners by the year 2000.

Program Accomplishments

This program was implemented towards the end of fiscal year 1994. During the latter part of 1994 and the end of fiscal year 1995, 480 loans were guaranteed. During 1996, 455 loans were made and approximately 435 are expected to be guaranteed in fiscal year 1997. The 1998 request for $3 million of budget authority will allow 425 additional home mortgages to be guaranteed. The Department intends to guarantee over 2,000 loans by the end of fiscal year 2000.

Fiscal Year 1998 Performance Measures

In addition to providing loan guarantee activity to support homeownership for over 2,000 Native American families, the Department is working closely with tribes to institute legal procedures which enhance homeownership. Currently, only 25 percent of the tribes have sufficient legal procedures in place to allow loan guarantee activity. The Department intends to remove this barrier to homeownership by increasing the percentage of tribes participating by five percentage points each fiscal year, reaching 40 percent at the end of fiscal year 1998 and 50 percent by the end of fiscal year 2000.