Norwest Mortgage's location here couldn't be better. But more than a year after it opened shop on the Navajo reservation, the company is still waiting for customers to line up for home loans.

The problem is the bureaucratic gauntlet that borrowers and lenders must run to close mortgage loans on tribal trust land.

Of all the product lines offered at the branch, mortgages "have the most red tape," said Marty Hatathlie, who was the sole loan officer until he quit recently for personal reasons. It is "extremely difficult to get anything through."

Bobby Lowe, 52, a self-employed barber and a homeowner since mid- December, lives in one of the 30 new homes in the Ganado Acres subdivision, 30 miles west of Window Rock. He plans to open his own barber shop by enclosing the open-air garage of his home.

But Mr. Lowe wasn't able to get a mortgage from a bank, and the housing shortage on the reservation kept him on the tribe's waiting list for eight years.

His financing finally came from the tribe's mutual help program. The former HUD program lets homeowners pay back according to their income at a rate of 15% of their adjusted income for up to 25 years.

Despite the red tape, Norwest is one of a handful of banks that has made mortgage loans on the Navajo reservation. The call to address the needs of the underserved communities is being heeded by big lenders, including Washington Mutual Inc., which is becoming active on Northwestern reservations, and by smaller banks near reservations.

Most of the Navajo Nation's land is held in trust for the tribe by the federal government, which means title cannot be transferred in the event of a foreclosure.

The reservation, with more than 17 million acres-nearly 27,000 square miles-touches parts of New Mexico, Arizona, and Utah, and is roughly the size of West Virginia.

Noting its population, of more than 250,000, Native American housing advocates compare it to an entire city being left without a full range of financial services.

Because of its size and the need for housing, the Navajo reservation has been selected as one of two national sites for a federal program-the one- stop mortgage center initiative-led by the departments of Treasury and Housing and Urban Development.

The initiative came under an executive order from President Clinton last August. It will also be tested on the Pine Ridge reservation in Pine Ridge, South Dakota, of the Oglala Lakota Sioux.

"Our housing need here is just tremendous," said Chester Carl, executive director of the Navajo Housing Authority, the tribal government agency that addresses housing needs. "We have over 30,000 families that need homes."

Since December 1997, when the Norwest outlet opened for business, the lender has closed six loans on the reservation It hopes to close up to 30 a year.

"Any other location in the United States, you'll find that the longest it takes for a mortgage company to record a loan is 48 hours, and traditionally they are done within 24 hours," Mr. Carl said. But Norwest's loans took much longer to close because of the steps required for making a loan on tribal trust land.

And the lending ground to a halt in June because of a disagreement between the Navajo Nation and HUD's Office of Native American Programs.

Norwest "is set up to do HUD 184 mortgages and, at this point in time, the Office of Native American Programs is not issuing the guarantees at the Navajo Nation," explained John Lucero, a community development sales representative for Norwest Mortgage.

The tribe wants to be able to terminate a lease at any time without notifying HUD or without HUD approval. Though the Navajo Nation and the Office of Native American Programs are working on the language of the lease-hold agreement, there is no immediate solution in sight to the dispute, Mr. Lucero said.

Norwest says Mr. Hatathlie's departure was unrelated to the impasse, but that it will not hire a replacement until the issue is resolved.

The biggest obstacle to mortgage lending is the home-site issue, which allows for an encumbrance on the property. If the issue had not come up, "we'd be making mortgages all day long," Mr. Lucero said.

The mortgage loans made so far by the Wells Fargo & Co. unit have depended on techniques that were not "in the manual," Mr. Lucero said- including pulling interested parties into a conference room to break the bureaucracy.

"The size of the government here is so overwhelming," Mr. Lucero said. "The borrower was not the problem; it was the system and working within the system."

Norwest hopes the one-stop mortgage program will create "the blueprint that could be used in the different tribal trust land areas," nationwide, said Mr. Lucero.

Ultimately, the goal of the program is to establish a team of mortgage bankers, tribal officers, and government agency officials who are committed to cutting the red tape and facilitating mortgage lending on tribal trust land.

On reservations, the mortgage process requires hand-holding because it is in the "infant stage," Mr. Lucero said. "All of this is a learned behavior. The mortgage concept is so new."

To help educate customers, Norwest has been developing advertising spots and a radio program for the Navajo Nation's radio station. The plan is to target young families with a 15-minute, twice-a-week program to discuss mortgages, credit reports, checking and savings.

In place of a traditional banking system, about 130 trading posts do business on the reservation. They allow customers to pawn jewelry, rugs, or other crafts for a percentage of their worth, creating what amounts to a bank account.

But cars and access to modern supermarkets have made the Navajo Nation a "post-trading post society," said Martin N.Gerwitz, community bank president for Norwest Bank. "We're in the process of moving to a regular banking society," he said.

Mr. Gerwitz estimates that 75% of the Navajo Nation doesn't bank anywhere, and that a large percentage don't speak English and use thumbprints instead of signatures. But he said more people are putting money into checking and savings accounts, as the culture slowly adapts to traditional banking.

The recent merger between Norwest Corp. and Wells Fargo means the company will have eight branches on the Navajo reservation: four traditional branches that have been Norwest branches, and four in "Bashas," a chain of grocery stores on the reservation where Wells Fargo had a presence.

Norwest offers auto loans, unsecured loans, and commercial loans to the tribe and to tribal enterprises, Mr. Gerwitz said. Norwest began making these type of loans in July 1996. The bank has made $27.1 million in loans through December 1998, of which $10 million are consumer loans.

Norwest acquired its branches on the Navajo reservation when it bought Citibank's Arizona operations in November 1994. Total deposits at the bank were $39.7 million in 1994 and they have grown to $64.4 million, Mr. Gerwitz said.

"Norwest has been able to provide a lot of banking services that other banks can't provide," Mr. Carl said, including an extended credit line to the Navajo Housing Authority. Though the bank's branches are still used primarily for checking and check cashing, Mr. Carl says Norwest has been "the most aggressive" bank to operate on the reservation during his tenure.

"The root of the problem is how does a Native American, a Navajo, build equity in their life and start a business?" Mr. Gerwitz said.

The answer, he says, is home equity loans. The mortgage bank has already closed home equity loans on "checkerboard" or fee-simple land reservation, and hopes to expand this program under a new master-lease program on tribal trust land.

The new master-lease arrangement must still be approved by the Navajo Nation. Mr. Carl said it would allow the tribe to reassign a lot to someone else should the homeowner default on the mortgage; provide small-business opportunities; and speed up the process.

The opportunities the lease provides "might bring Indian professionals back" to the reservation, Mr. Carl said.

Meanwhile, the Navajo Housing Authority is trying to take itself out of the role as middleman between borrowers and banks and to open the door for banks to play "a greater role in the economics of the Navajo Nation," Mr. Carl said.

Efforts are afoot to educate families about taking out loans from banks and to help families play an active role in the design of their own home.

Mr. Carl is frustrated that the only loan marketed on the Navajo reservation has been the HUD section 184 loan guarantee program.

"Families have already shown the responsibility to make payments on vehicles, on mobile homes, they've done it for years and years, why not do it on homes? The whole key to that is to build a home that has value," Mr. Carl said.

A mortgage payment would be less than a car payment for Native Americans on the reservation, added Mr. Lucero. With the lease arrangement on the reservation, borrowers only have to pay for the costs of a house, not the land, he said.

In the Northwest, Washington Mutual has about 26 tribes in its service area and has closed 39 loans on individual and tribal trust lands since 1994, said Beth W. Castro, vice president and manager of community reinvestment program development for Washington Mutual in Seattle.

The thrift relies on FHA loans, conventional portfolio loans, and manufactured home loans for lending in Indian country. The Federal Home Loan Bank of Seattle has been a key partner in sponsoring affordable- housing grants, Ms. Castro said.

First National Bank of Farmington, in northern New Mexico, has also been making mortgage loans on the Navajo reservation, but has encountered frustrations with the ever-changing bureaucracy.

"There's a lot of unknowns, even if you get past the legal issues of foreclosure and eviction," said Cathy Coleman, assistant vice president for CRA and commercial loans at the unit of First Place Financial Corp.

Mortgage lenders and banks are "going to have to take a risk and find what's going to work, how it's going to work, and find the best reasonable way of providing loans in Indian Country," Mr. Carl said.

"Once they do that, then there is a gold mine at the end of that trail and there are opportunities for monies to be made."

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