The most frequently cited reasons in the literature4 for the lack of home ownership on Trust Lands are: Native Americans not meeting the income requirements, the unique problems regarding tribal land status, tribal sovereignty, and getting a clear title from the Bureau of Indian Affairs. These same reasons for the lack of home ownership are impediments to higher use of VA’s NADL program.
In 1989, Congress mandated5 that VA and the Department of the Interior conduct a study on the use of VA’s Home Loan Guaranty program benefit by Native American veterans. The study’s report6 listed certain impediments to program usage, which were the same
impediments listed in a recent 2002 GAO report.7 In the 12 years between the two studies, it appears that little has changed in terms of the reasons why Native American veterans living on Trust Lands do not use the VA Home Loan Guaranty program or the NADL program.
Interviews with Native American veterans during the 1990 VA study provided three groups of reasons why a Native American veteran living on Trust Lands might not use the VA loan program:
Ź Independent Reasons: These include a veteran using other Federal housing programs, using tribal funding sources, building a home from personal funding sources, acquiring a home on non-Trust Land, acquiring a home without purchasing it, having no current need for a VA home loan, and using conventional financing.
Ź Structural Reasons: These include a veteran having insufficient income,
applying for a VA loan and being refused, having an inappropriate site for home, and having unstable income.
Ź Operational Reasons: These include a veteran misunderstanding the nature of the benefit, not knowing where to obtain information, not being able to complete
4
Manchester, P. B. (2001). Mortgage Lending on the Pine Ridge Indian Reservation. Cityscape: A Journal of Policy Development and Research, 5, 317-325.
Case Studies on Lending in Indian Country. Housing Assistance Council, 1996.
Barriers to the Development of Housing for Native Americans. Housing Assistance Council.
Abariotes, A., Myers, S., & Poupart, J. (1995). American Indians and Home Ownership. The American Indian Research and Policy Institute.
Assessment of the Utilization of VA Home Loan Benefit by Native American Veterans Living on Trust Land – Final Report. November 28, 1990. Department of Veterans Affairs Contract Number V101(93)P-1203. Native American Housing: VA Could Address Some Barriers to Participation in Direct Loan Program (GAO 02 654).
Rumbelow, H. (2002, October 13). Washington Post, p. A03.
5
Public Law 101-237, Section 312.
6
Assessment of the Utilization of VA Home Loan Benefit by Native American Veterans Living on Trust Land – Final Report. (November 28, 1990). Department of Veterans Affairs Contract Number V101(93)P-1203.
7
Native American Housing: VA Could Address Some Barriers to Participation in Direct Loan Program (GAO 02 654).
the application package, not being able to obtain a Certificate of Eligibility, feeling it took too long to process a VA home loan, and not knowing how to apply.
Another important reason was that Trust Land status does not allow the land to be used as security for the loan. Because of this, private lenders see Trust Land mortgages as riskier since they cannot use the land as security for the loan and may think they will not get their investment back in the event of a foreclosure. Additionally, lenders do not have the policies and structures in place to work with the intricacies of lending to tribal or community
ownership. Due to these factors, the lenders view lending on Trust Lands as higher risk, with costlier and more time-consuming foreclosure processes to deal with. The lender and veteran can experience additional problems with the time involved in making the loans, from visiting the tribal area to gaining approval for the transaction from the Secretary of the
Department of the Interior.
The 1990 VA study concluded that the most significant reason that the VA loan program was not being used more on Trust Lands was the high risk nature of the loan because the land could not be used as security and the lender would not have any way to foreclose on the property should default occur. The study offered alternatives for restructuring the VA loan program to better meet the needs of the veterans and lenders. These alternatives were different based on the study group of Native Americans (i.e., American Indians, Alaska Natives, Native Hawaiians, and American Samoans) and type of Trust Lands involved. After evaluating the alternatives, the study provided program recommendations for each study group:
Ź For American Indian veterans, the study recommended that the tribal
government provide a guaranty to supplement VA guaranty, thus creating a 100 percent guarantied loan.
Ź For Alaska Natives, the study recommended VA work with Alaska’s Department of Community and Regional Affairs to improve access to VA loan program by veterans living on Trust Lands.
Ź For Native Hawaiians, the study recommended VA work with Hawaii’s Department of Hawaiian Home Lands.
Ź For American Samoans, the study recommended that VA monitor HUD’s efforts to institute lending in the islands and then modify VA’s program based on HUD’s working model.
The 2002 GAO report cited above provided a review of VA’s Direct Home Loans for Native American Veterans Living on Trust Lands in response to a request from Congress, which has a potential interest in making the program permanent when it is up for reauthorization in 2005. The final report addressed these questions:
Ź Does a disparity exist in participation in the program between Native American veterans and Native Hawaiian and Pacific Islander veterans, and if there is a disparity, what is the reason for it?
Ź What actions has VA taken to meet outreach, assessment, and reporting requirements specified in the direct loan program’s authorizing legislation? GAO reports that Native Hawaiians and Pacific Islanders have received five times as many loans as Native Americans since the program began. The reasons for the disparity stem from problems with Native Americans obtaining a meaningful interest in the land, a lack of infrastructure on the Trust Land, and insufficient income and credit histories to qualify for a loan. Native Hawaiians do not have these problems because they are able to lease the land, they receive assistance with infrastructure from the Department of Hawaiian Home Lands, and the economy supports incomes that are sufficient to qualify for a loan.
Native American veterans often have had problems obtaining a meaningful interest in the land they wish to use for their home because of fractionated allotments. Land fractionation is a problem on many Trust Lands and occurs when ownership interest passes through generations of heirs, resulting in a large number of people owning smaller shares of the original land. When this occurs, the veteran has to get all parties with an ownership interest in the property to give him an undivided interest in a portion of the property. In contrast, veterans who have obtained leases rarely have this problem because leases rarely involve fractionated interests.
The lack of infrastructure is another significant problem in obtaining a loan on Trust Lands. Since most of the land is remote, often no basic infrastructure exists, and it can cost more than $20,000 per home to provide the necessary systems. Native Hawaiian veterans do not experience problems related to infrastructure, since the Department of Hawaiian Home Lands provides eligible Native Hawaiians with infrastructure funding. In one case, the funding was as much as $50,000 per lot for sewer, water, and electrical services.
As with any loan, the veteran is required to meet basic income and credit requirements, with the individual or household income sufficient to make the mortgage payment on the home. Using 1990 Census data, GAO found that Native Americans had an average annual income of $16,800 and Native Hawaiians had an average annual income of $26,600. The
combination of insufficient income and unacceptable credit history appears to be more of a barrier for Native American veterans than for Native Hawaiian veterans.
Another of the barriers that GAO found was the $80,000 loan limit set by the legislation. VA has the authority to raise the limit for a geographic area if it is determined that the average housing cost in the area is higher than the national average. VA increased the loan limit in Hawaii, the Pacific Islands, and Washington to $120,000, and to $100,000 for one tribe in New Mexico. VA has issued increases in loan limits wherever it has been necessary to do so, based upon submitted loan applications. The negative impact of this is that many people do not know that the loan limit can be increased, and therefore, if they cannot find a home for under $80,000 they use another program. Other Federal programs (such as two administered by HUD and two administered by Department of Agriculture through its Rural Housing Service) providing mortgage assistance on Trust Lands had loan limits between $144,000 and $278,000, and the average guaranteed loan was $102,000 in 2001.
GAO reports that another barrier could be the veterans’ lack of understanding about the home buying process. The Director of VA’s Honolulu field office partners with local housing authorities who provide assistance in the mortgage and home buying process through counseling and education. There are similar organizations on the Trust Lands in the Continental United States, such as HUD’s One-Stop Mortgage Center, but VA Regional Loan Centers have not partnered with them. The Phoenix and St. Paul Regional Loan Centers have had little contact with the One-Stop Centers and have not used them to identify, educate, and assist prospective buyers. GAO reports that an official at a One-Stop Mortgage Center in Arizona estimated that as many as 200 Navajo veterans had visited the Center for information on home ownership, but they did not receive complete information about the VA loan program because the Center’s staff was not familiar with it.
GAO concludes that barriers exist in the use of the program. Some are out of VA’s control and others are not. Barriers within VA’s ability to control are the $80,000 loan limit, which may be inhibiting use on some Trust Lands; partnering with local housing organizations to provide information to veterans; and assessing the outreach efforts to make sure that they are effectively reaching the target audience. Barriers outside of VA’s control are problems with obtaining meaningful interest; lack of infrastructure; and insufficient income and credit histories.