Mortgage lenders who have shied away from extending home loans to American India ns because of difficulties caused by land restrictions may now have a new market niche to c onsider. To make private financing for mortgage loans more widely available for Indiansan d to simplify the often-ticklish process of extending loans for homes on Indian landHUD has approp riated $1 million to capitalize the Indian Housing Loan Guaranty Fund and issued an interi m rule that alters regulations to better facilitate the home lending process. The program, the Indian Loan Guaranty Program, was established in Section 184 of the Housing and Community Development Act of 1992, but no funding was appropriated for the p rogram until 1994 when it received $1 million. The appropriation capitalized the until-recent ly- dormant guarantee fund and will allow HUD to extend $7 million in loan guarantees. HUD will guarantee up to 100% of unpaid principal and interest under the program , and will allow loan terms of up to 30 years, including shorter-term loans where they may be beneficial to the borrower or lender. No adjustable-rate loans will be permitted, however. The program is designed for loans made to Indian families or Indian housing auth orities to construct, acquire or rehabilitate one-to- four family dwellings that are standa rd housing, and are located on trust land or land located in an Indian or Alaska Native area. The pr ogram becomes effective Sept. 19; comments are due by Oct. 17. Selling mortgages on Indian land has traditionally been a problem for lenders, m ostly because of the legal status of such areas. These lands, held in trust by the United States, are inalienable. But what has made them cumbersome and impractical for conventional mortgage lenders is that in most cases, the titles to individual plots do not transfer and liens do not atta ch. The interim rule addresses these problems and sets out several innovations to th e program. The program: Allows loans to be made by any HUD- or VA-approved lender, or any lender which i s supervised, approved, regulated or insured by any agency of the federal government; Permits loans to be secured by any collateral authorized under federal, state or local law and Provides that before HUD will issue any commitment or guarantee, and the tribe h aving jurisdiction must certify that it has adopted and will enforce procedures for ev iction of defaulted borrowers. The private lending market has also been reluctant to provide mortgage money in Indian areas, HUD said, because of the lack of awareness of the availability of mortgage insur ance by both borrowers and lenders. Another limiting factor was that the existing guaranty program did not allow ins urance of construction loans and adhered to the underwriting, mortgage credit and appraisa l standards of the non-Indian, single-family mortgage insurance program, a provision that may n ot be appropriate in such areas, HUD added. In altering the guarantee program slightly, HUD may have also been addressing so me troubles expressed by some bankers involving discrimination in mortgage lending to Indian s. The South Dakota Bankers Association, in a comment letter sent to the Office of the Comptr oller of the Currency in June, asked the agency to expand the fair lending policy statement t o recognize the uniqueness of the sovereign, political and legal issues involved in lending on I ndian land.
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