Homeownership is about a 50/50 proposition for Native Americans. More specifically, about half —an estimated 57% — of Native people own their own homes. That's around 15 percentage points lower than white households. The huge disparity is due to a number of widely known challenges, from complex land laws to lack of access to capital.
That’s starting to change, as lenders across the country respond with slow, careful maneuvers thanks to a bevy of federal support and a growing understanding of the factors that keep many Natives from accessing traditional loans, says Simone Beaty, director of Single Family Affordable Lending at the Federal Home Loan Corporation, commonly known as Freddie Mac.
Even with the slow push of capital into Indian Country, the fact remains: there are too many borrowers and not enough capital. In response, Freddie Mac launched a new mortgage loan product meant to bring fresh capital into Indian Country, as Tribal Business News previously reported. The new HeritageOne loan product is designed to help lenders provide low-interest loans to Native borrowers trying to purchase a primary residence. That market is small, but growing, Beaty said.
“We want to attract just a bigger diversity of lenders. There's no guarantee that a big lender may come in,” Beaty said. “This is a very small market, tailored to a very specific population, but we’re trying to make it as attractive as possible to make lenders give a second look at this segment.”
Beaty spoke with Tribal Business News to discuss the ins and outs of the HeritageOne loan, as well as the research that eventually led to its creation. This interview has been edited and condensed for clarity.
What’s the response to HeritageOne been like so far?
Beaty: Since we've launched, there definitely has been a buzz by some lenders who waited for it to be launched so they could be engaged and contract with us to be able to offer it. There was already a small lender community that would show up to forums we participated in, that wanted more offers and solutions that fit their needs to continue on and expand their footprint on lending in Indian Country, so we’re just seeing them come out and support the new product now that it’s launched.
When you say “small lenders,” who do you mean?
At the end of the day, a lot of these lenders tend to be small and regional. Some of them are Native lenders — they could be a (Native) CDFI, a credit union. Some of these lenders have been there for years, originating loans for their immediate market needs, based on their community.
How did these smaller lenders — and bigger ones -— figure into developing HeritageOne?
We started this whole process and journey back in 2017, (when we) launched a duty-to-serve plan. We wanted to do some outreach to understand and learn the market. We've been on the ground to understand the business, to make sure if we tried to create something, it would work for this market [Native American housing borrowers.]
There's not a whole lot of large lenders in this segment, so we polled with lenders before we actually went to market on what's working, what's not working, and what are things we'd have to contend with as we launch that we would not necessarily be able to change?
What did you discover during that research?
One of the big issues that came up for us is the timeline to originate can be extensive. Timelines can exceed a year and that's typically tied to get the final certified status report. Sometimes that process is quick and speedy if reconciliation of these records is seamless between the tribe and the Bureau of Indian Affairs, but other times it’s not.
Because there’s some red tape involved, that process can take longer?
Unlike a regular mortgage where you hire a title company relying on the records in the court system and making sure there aren't any restrictions on the title, this interaction requires a couple different third-party touchpoints that don't exist in a normal process. That includes the tribal government and the Bureau of Indian Affairs.
To say nothing of lands held in federal trust and their associated complexity.
Yes. On trust land, or restricted fee-lands, lenders have to get tribal approval to lend on land they own before the lender can do anything on the origination side. Then that lease has to be coordinated with the Bureau of Indian Affairs, and the transaction has to be recorded.
Every time one of those transactions occurs on an individual lot, it has to be recorded, or that whole reconciliation can get a bit messy. That takes coordination and that takes time, and so sometimes there are systemic issues with getting that final report once a lender gets to the BIA to determine whether or not you have a clear title.
What other barriers did you find?
The other issue we ran into that seemed to be a consistent barrier is finding qualified appraisers, then once those appraisers are found, making sure they had all the tools they need to build an opinion of value.
One of the things we have heard is that we definitely need more training and education in this space, so appraisers know what they're doing with requests and how they're coming up with an OOV (opinion of value). We may not be able to control the title status reports, but in the appraisal space we saw there was an opportunity to join in with the appraisal trade. We knew appraisal costs were high in the space, and that could disincentivize lending.
Can you give some more detail on what “high appraisal costs” look like?
Lending in rural areas, like many tribal reservations, can require a little more effort on behalf of the appraiser. They have to drive out there, back and forth sometimes, and that can ride up the cost of an appraisal to sometimes around $1,000. That affects the final price of the lending piece. To offset that cost, HeritageOne includes a $600 credit for appraisals. Sometimes, with the use of our automated underwriting tools, you can skip the appraisal altogether, but if you have to get one, the cost is offset.
How do these things come together to widen the market in Indian Country?
We’ve tried to make this product attractive from a consumer side and a lender adoption side, and these are the things that we’ve been touting since we released the product, and we’re hoping that we see a response from Indian Country. We absolutely need lenders, any time we create something, and our success is dependent on the lending community to take up our offerings.
There’s no guarantee that big lenders may come in, but we think with the tools and the way we’ve shaped our offering, this provides a low-down payment solution for borrowers from federally recognized tribes.
