WE’RE HEARING about Section 184 loans. Last week when President Obama signed the latest bipartisan budget extension through September of this year it included over $12.2 million in funding for a mortgage loan guarantee program known as the Section 184 Indian Home Loan Guarantee program. These mortgage loans are guaranteed 100% by the office of Loan Guarantee within HUD’s Office of Native American Programs. Since the inception of the program in 1992 through 2010 over $2 billion in mortgage loans have been guaranteed.
These Section 184 loans are designed to promote homeownership for American Indian and Alaska Native families. The loans can be used to purchase a home, for refis (including cash out refis), rehabs and new construction. HUD is again accepting loan applications under the program and anticipates turning out loan approvals by April 15, 2013. There had been a moratorium on refis through the program starting in September of last year due to the federal budget sequestration issues but fortunately the moratorium on refis is over.
This loan guarantee program is designed to facilitate a lender’s security for the loan because the land in question is typically held in trust by the U.S. government for the benefit of a particular tribe or individual Native American. The land cannot be foreclosed so, to encourage lending, the guarantee program was set up. What happens is an individual Native American borrower leases the land for 50 years from a tribe and mortgages to the lender the 50-year lease and home on the land but not the land. The borrower pays a 1% loan guarantee fee as a closing cost which can be rolled into the mortgage.
The Section 184 loans allow for low downpayments. In fact a downpayment of only 2.25% is needed on a purchase loan over $50,000 and 1.25% for a purchase loan under $50,000. The interest rate on the loan is based on market rates and not the borrower’s credit score. The interest rates are fixed (no ARMs allowed) and a borrower does not have to pay PMI.
Currently Section 184 loans are available in 37 states and will probably expand. It turns out that the most loans have been originated in Oklahoma followed by Hawaii, California, Arizona and Wisconsin. HUD has a handbook and rules for appraisers to follow. There are loan limits and a loan “floor” or minimum. The loan limit is the lesser of 150% of the current median home price or the conforming FHA limit of $417,000. The median home price is a value obtained in the American Community Survey.
Due to many tribal areas being in remote locations the median housing values in these areas are low. To compensate for this HUD applies a loan limit floor so that the loan limit would become the greater of 150% of the current median home price or $271,050 (65% of the current conforming FHA limit). Note that the loan guarantee cannot exceed the appraised value of the home.
Finally it should be noted that the Section 184 loans can be sold or assigned and a secondary market for these loans exists. According to HUD, many national lenders, Fannie and Freddie, Ginnie Mae and some state housing agencies buy Section 184 loans.
Correction: Refinances are not available under the HUD 184 program.
Based in Chelsea, Mich., John McDermott is a real estate and elder care attorney who represents both consumers and businesses. He can be emailed at
