- By Mark Fogarty
- Real Estate
A government lending program for Native housing and infrastructure has been underused for a generation, despite its extensive flexibility and a 95% guarantee of lender outlays.
The Department of Housing and Urban Development (HUD) Title VI program, authorized in 1996 by Title VI of the Native American Housing Assistance and Self Determination Act, has consistently underutilized its annual lending authority in the two decades since it was started, attendees of a webinar produced by the Seminole Tribe of Florida’s Native Learning Center heard last week.
While the government authorizes money to support differing levels of lending authority for the program each year, “We’ve never run into a situation where you can’t get a Title VI loan because the nationwide money ran out,” said Joel Smith, senior vice president and chief credit officer of Native American Bank, Denver.
“That’s typically not a challenge,” agreed Adam Rose, director of partnerships and growth at Kansas City, Mo.-based Travois. “There’s been enough credit authority out there where tribes can get the guarantees they need.”
“The allocations change from year to year for how much HUD can provide guarantees in total,” Smith elaborated. “It could be $30 million across the country year to year. It varies. There’s a total cap.”
Asked why the program has not been tapped for all of its lending authority in the face of great housing need, Smith answered that some tribes are wary of amassing debt.
“Not all debt is good debt by any means,” he said. “Some tribes are averse to having any debt. That’s probably the reason the program is underutilized.”
Smith agreed and said that there also are non-debt grant programs available, like the Affordable Housing Program of the Federal Home Loan Bank System, which tribes can use to finance projects. “There are a lot of tools. There doesn’t have to be any debt load,” he said. “And that’s great.”
But Smith said a lack of knowledge about the program is also a factor. “A lot of this is just familiarity or awareness. Not every housing authority director or staffer out there even knows this exists, still,” he said.
Rose and Smith were presenting the National Learning Center webinar as a way for tribes to get to know Title VI better as another potential tool to access capital for tribal housing. And they told the webinar the loan has many favorable qualities.
The Title VI loan is tied to the Native American Housing Block Grant (NAHBG) and goes to a tribe or a tribally designated housing entity (TDHE), rather than an individual Indian. The formula for the maximum Title VI loan amount a tribe can ask for is the tribe’s “need” assessment amount in its yearly NAHBG grant, times five.
There are scores of uses for the loans, attendees heard. Title VI can be used for construction of new homes or rehabs, infrastructure, building community facilities, architect and engineering plans, and financing costs.
The loan term is flexible, up to 20 years, and repayment terms are also flexible, either monthly, quarterly or annually. The money can be used in conjunction with other funds, including equity from a grant of Low Income Housing Tax Credits. It can also be used as “bridge” money to keep a project going until other scheduled money comes in.
Lending can be extended to projects with residents who have up to a maximum of 80 percent of area median income (AMI), while LIHTC generally limits a project’s residents to 60 percent AMI.
The lender has 95% of its outlays guaranteed by HUD. Some lenders ask for an additional five percent collateralization, perhaps in cash, but land is never used as collateral.
If the loan is defaulted on, HUD will pay off the balance and recoup its expense from future years of the tribe’s Native American Housing Block Grant.
HUD does not keep up-to-date totals for Title VI loans on its website. Between the launch of the program in 1999 and February 2016, the last year data was reported on the website, 87 tribes had been extended loans for a total of $221 million. That averages out to just five loans a year, for an average total volume of $13 million per year over the 17-year period.
Rose sketched out an example of a project that used Title VI money to fill a gap in its plans for a housing development.
The Seminole Nation of Oklahoma received $700,000 for its “needs” assessment under NAHASDA, meaning it was eligible for a Title VI loan five times larger than that, or $3.5 million.
For $11.8 million in anticipated project costs, the tribe had $7.1 million in LIHTC equity and a $1.65 million contribution from the tribe under its belt. It borrowed $3 million with a Title VI loan to make up that gap, and that was well within its Title VI limit of $3.5 million.