Loan Wars: Indian Mortgage Program Pushes Back Against Criticism

Mark Fogarty

A federal Inspector General’s office has rapped a popular American Indian mortgage program, alleging lax underwriting. But the guarantor of the loans, the Department of Housing and Urban Development’s Office of Native American Programs, has pushed back hard against that assessment.

The HUD Inspector General has alleged ONAP’s Office of Loan Guarantee “did not provide adequate oversight of the Section 184 program, resulting in an increased overall risk to the program, including guaranteeing 3,845 loans totaling more than $705 million that were not underwritten in accordance with program guidelines. On an annualized basis looking forward, this is equivalent to $77 million in loans that have a higher risk of loss in the first year.”

Claiming that the OLG did not adequately supervise the mortgage program (which has extended more than $4.5 billion in credit through more than 28,000 loans since 1995), OIG said “a review of 95 statistically sampled loans guaranteed from January 1, 2010, to July 31, 2014, determined that 32 of 95 loans had material underwriting deficiencies.

“The OLG did not adequately monitor, track, and evaluate participating lenders to ensure that loans were underwritten in accordance with the Section 184 processing guidelines,” according to the inspector general’s report. “This lack of oversight and high incidence of poorly underwritten loans has the potential to negatively impact the financial standing of Native American communities.”

In addition, the inspector general said HUD did not satisfactorily review enough of the lenders and loans in the program, which guarantees 100 percent of a lender’s outlays. “For fiscal year 2014, OLG conducted monitoring reviews of three lenders, but only eight loans were reviewed of 3,447 loans originated by 128 lenders,” the report stated.

The Inspector General’s report recommends a slew of corrective actions, including a standardized monthly delinquency report format and a policy for denying payments to direct guarantee lenders for claims on loans that have material underwriting deficiencies.

Rodger Boyd, HUD assistant deputy secretary for Native programs, rebutted the OLG report by saying its statistical sample was too small and didn’t correlate with actual program losses.

Boyd, Navajo, said that claims on the program from inception to March 31 of this year come to 662 loans for $114 million. That is about 2.5 percent of total loans, and less than the amount HUD has received in fees and the guarantee amounts provided by Congress.

Many of the losses came during the years after the financial collapse of 2008, Boyd wrote in his reply to the inspector general.

He also said OLG has initiated an increase in premiums to reduce risk to the agency.

Boyd did acknowledge “there is significant room for improvement in this area.”

According to tables in the report, HUD 184 loans made in 2014 and 2015 have shown no claims at all, despite OIG’s fear of higher first-year losses in the program. For 2013, about $200,000 of claims have been made on just two loans out of more than 3,000 made.

HUD does not make section 184 loans directly but through authorized lenders. Individual Indians, tribes and their housing entities are eligible for HUD 184s. HUD also administers a second lending program, Title VI, often used for development or infrastructure costs of housing projects.

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