Thank you, Chairman Johnson and Members of the Committee.
I want to thank you for inviting me to testify on the state of homeownership on tribal lands and to commend you, Chairman Johnson, for your leadership on this issue. Without the attention of Members of Congress, public and private sector efforts to expand homeownership opportunities to the Native American community would not be successful.
I am pleased to be here today to discuss Fannie Mae’s commitment to expanding homeownership in tribal communities and the steps we are taking to overcome the barriers to capital access on tribal lands.
As this Committee is keenly aware, Fannie Mae’s mission is to expand homeownership, with a special focus on helping underserved Americans overcome their unique barriers. Our role among financial institutions – and what sets us apart – is that we provide private capital to all communities, at all times, under all economic conditions, at the lowest rates in the market. Finding ways to create affordable housing opportunities for Native American families living on tribal lands is one of the toughest challenges to our mission. Native American families are one of the most underserved, impoverished minority populations in the country. Native American homeownership rates are substantially below the national average, ranging between 33 percent and 55 percent, and Native Americans are six times more likely than any other ethnic group to live in substandard or crowded housing. Stubbornly high levels of poverty and unemployment are significant barriers to conventional credit, as is the legal complexity of mortgage lending on Native American lands.
Fannie Mae has embraced this challenge, and we are committed to working with Congress, Native American tribes, the Bureau of Indian Affairs, the Department of Housing and Urban Development, the U.S. Department of Agriculture, mortgage lenders and other housing leaders to increase mortgage financing opportunities for Native Americans. We believe firmly that our housing finance system can and must do more to ensure that Native Americans have an equal opportunity to obtain mortgage financing.
Fannie Mae’s Commitment to Native American Borrowers and Communities
Fannie Mae’s first formal effort with tribal communities began as part of our Trillion Dollar Commitment – a commitment to invest $1 trillion to serve 10 million underserved families — low- and moderate-income families, minorities, new Americans as well as residents of central cities and urban areas. Through our Native American Housing Initiative (NAHI) we committed for the first time to purchase HUD and USDA guaranteed mortgages on tribal lands.
We increased our efforts to expand housing opportunities for Native Americans in 2000 with Fannie Mae’s American Dream Commitment-- a ten-year, $2 trillion pledge to increase homeownership rates and serve 18 million targeted families by 2010. This effort includes a formal strategy to address the unique housing needs of Native Americans, one element of which is a commitment to invest at least $350 million to serve 4,600 families and to expand our network of partnerships to include 100 tribes on trust and tribally-restricted land.
We are well on our way to achieving these goals. Here are some of our accomplishments:
While delivering these quantifiable results is necessary and important, it is not sufficient to achieving our goal to increase housing opportunities for Native Americans. Some of the most important work we and others have done, and will continue to do, centers on building trust and developing relationships that will allow us to be successful in these communities for the long run. That is why a fundamental piece of our approach to serving this community has been working to build a lender base that understands the challenges of tribal communities. The gains we have made are made possible by working collaboratively with tribes and lenders to understand the needs of these communities and to overcome some of the barriers to capital access – and there are many – that block the economic development of Native American communities.
I would like to share with you some of the issues Fannie Mae has faced in our efforts to bring the American Dream of homeownership to first Americans, and what we are doing to meet these challenges.
Economic and Infrastructure Barriers
The most stubborn barrier to capital access in Indian Country is the lack of economic opportunity. Poverty rates are 26 percent for Native Americans, over double the national average of 12 percent. The unemployment rate for tribal communities is 50 percent. The annual household income of Native American households is less than $8,000. And, in many tribal communities, the economic base is negligible, leading to substandard infrastructure. Many Native American reservations and tribally designated lands suffer from a limited housing stock and a lack of road and utility infrastructure to support new housing.
Against this backdrop, it is not surprising that estimates of the Native American homeownership rate range between 33 percent and 55 percent, well below the national rate of 67 percent, and that Native Americans are pessimistic about the lending process; a 2000 survey by the Treasury Department found that 65 percent of tribal members viewed conventional home mortgages as "difficult" or "very difficult" to obtain. While it is not clear how many mortgages there are on Indian lands that are held in trust, a joint report by Treasury and HUD found that in 1999 there were only 471 home mortgages on Indian lands overall, even though an estimated 38,000 families residing on Indian lands had sufficient income to qualify for a mortgage.
Obviously Fannie Mae cannot single handedly overcome these difficulties. As Chairman Johnson and Members of this Committee recognize, the federal government must play a role in working with tribes to create self-sustaining economies by bringing private companies and tribal governments together. Fannie Mae can help by doing what we do best: developing the tools that expand access to homeownership. Homeownership is a key driver of economic growth and revitalization. It promotes commercial investments and infrastructure improvements, which in turn reinforce homeownership. By expanding homeownership for Native Americans, we can not only provide families with better housing, but also with the power to raise capital, accumulate wealth, and build a more secure financial future.
Fannie Mae is taking a two-pronged approach to promoting homeownership in tribal communities: first, by developing the right products to optimize Native American access to homeownership, and second, by expanding housing capacity on tribal lands.
Product Development. Fannie Mae is working with our lender partners to tailor lending products to meet the needs of tribal members who lack the resources to qualify for traditional financing. In 1999 we launched our Native American Conventional Lending Initiative (NACLI), designed to make conventional lending possible for Native Americans on tribal trust or otherwise restricted lands. Through this initiative, the full range of our low down payment mortgage product options, as well as specific accommodations responsive to the unique circumstances of Native American borrowers, are available to lenders working on tribal lands.
Fannie Mae has also customized its suite of Community Lending mortgage products to respond to the unique needs of Native American communities. Our Community Lending products are designed to help borrowers overcome the two primary barriers to homeownership — lack of down payment funds and qualifying income -- through lower cash requirements for down payment and closing, reduced qualifying income requirements, and higher acceptable debt-to-income and loan-to-value ratios than required for traditional conventional mortgages. To this product line we have worked with tribes to add features such as homebuyer education, down payment assistance programs and intervention programs for borrowers who get into difficulty.
As of the first quarter of 2002, we have established relationships with sixty lenders to make loans to Native Americans on tribal lands. Some of our major partners include Countrywide Home Loans, First Mortgage Company, J.P. Morgan Chase, Wachovia Corporation, and Washington Mutual.
Additionally, Fannie Mae uses automated underwriting to bring our most flexible underwriting options to Indian Country. The Chickasaw and Choctaw Nation of Oklahoma and the Aluetian Housing Authority in Alaska have developed the capacity, using our Desktop Originator technology, to act as a loan origination source, expanding availability of low down payment loans to tribal members.
Housing Capacity. Second, Fannie Mae is partnering with public and private resources to address some of the infrastructure challenges to expanding housing capacity. Fannie Mae has worked with tribes to support new construction through investments in low income housing tax credit investments, collateralized revenue bonds and HUD guaranteed Native American Housing and Self Determination Act (NAHSDA) Title VI loans. Fannie Mae LIHTC investments helped create 156 units of housing in 2001, and we have an additional 232 units in the 2002 pipeline.
We have also begun developing a secondary market option for development loans guaranteed by HUD under Title VI of NAHSDA, purchasing the only loan yet sold in the secondary mortgage market --a $412,000 loan supporting the Pojoaque Corporation in New Mexico, and working with other partners to ensure a ready outlet for loans originated under this program.
In South Dakota, Fannie Mae has made a five-year, $3 million commitment to the Pine Ridge Reservation, which includes a $250,000 venture capital investment to develop 14 single family homes and, in partnership with PMI and First Mortgage Co., a $100,000 revolving loan fund for more new home construction. As part of this commitment, we also invested $500,000 in the Lakota Fund, the Community Development Financial Institution that is helping to create small business and new jobs at Pine Ridge-- the first step to creating new homeowners.
I would also like to acknowledge the work of Elsie Meeks, the next panelist. It was with her support and cooperation that Fannie Mae made this commitment, and I would like to thank her for her work on this project.
Legal & Regulatory Barriers
Perhaps the greatest single obstacle to increasing homeownership in Indian Country is the legal framework governing tribal lands. Trust land is inalienable, being subject to transfer restrictions imposed by Indian treaties, Acts of Congress and proclamations of the Secretary of the Interior, and is generally subject to the jurisdiction and laws of the tribe, which is protected by sovereign immunity. Tribal sovereignty generally entails the right to govern, adjudicate disputes, and be immune from lawsuits. While some tribes have fully developed commercial codes, others maintain a tribal council or executive body as a legal enforcement mechanism, and some have no court system at all. As a result many lenders have concerns about the enforceability of contractual obligations and of the legal remedies available. Some lenders have been unwilling to provide capital in the face of such legal uncertainty.
Even for those willing to lend, the legal environment creates many additional hurdles. For example, there is a very limited market from which lenders can obtain data for the purposes of determining property values, and the restrictions against alienation further diminish market values. In addition, the making of a home loan on tribal land generally requires the tribe to be a party to the transaction and contracts related to the property that require the tribe to be a party are not enforceable unless the Federal Bureau of Indian Affairs (BIA) approves the contract. The BIA, as administrator of trust lands, also has to provide title status reports on land covered under any mortgage.
Addressing the legal issues such as tribal sovereignty and tribal court jurisdiction is a prerequisite for increasing the flow of capital to tribal lands. But it is not an easy task, since each tribe is sovereign and acts independently.
Tribal governments have recognized this and have taken steps to clarify tribal sovereignty and sovereign immunity, particularly regarding business and housing development, but resolving this issue requires partnership from the private and public sectors. Fannie Mae has worked with HUD, the USDA and Treasury to support tribes in creating standardized documents and model legal ordinances to support government guaranteed and conventional mortgage activity.
In fact, in April we made a major announcement that we hope will minimize what has been a significant barrier to lending on tribal lands: Fannie Mae will no longer require tribes to make limited waivers of their sovereign immunity and we will also provide for the mutual consent to tribal court jurisdiction over conventional lending initiatives on tribal trust land.
We believe that these modifications to our legal policy that simplify and streamline the implementation of appropriate structures for tribal governments will encourage our lender partners to expand their efforts to serve the Native American community. Addressing this issue should go a long way towards building a better relationship between the lending community and tribal governments and improving housing opportunities for Native Americans on tribal lands.
Another major barrier to homeownership in Indian Country has been simply communication. For years, Native American communities have been told how to solve their problems but given few opportunities to participate in developing the solutions. Fannie Mae recognizes each tribe as its own sovereign nation, with unique housing challenges and that a one-size-fits-all approach to expanding homeownership will not work with tribal communities.
As a result, we are working to create an open dialogue between individual tribes in an attempt to gain greater understanding of each tribe and the challenges it faces. In April 2002, we convened the Northern Great Plains Native American Housing Summit, which brought together housing officials from 18 Native American tribes in the Northern Great Plains, representatives from the North Dakota Indian Affairs Commission, the South Dakota Tribal Affairs Commission, the North Dakota Housing Finance Authority, USDA Rural Development, the Federal Reserve Bank of Minneapolis and the National American Indian Housing Council to build stronger relationships and improve communication among the stakeholders. The Summit included a financial literacy course, workshops on a variety of homeownership-related issues and a strategic planning session to identify key areas of focus for Fannie Mae and tribal leaders to work together to expand Native American homeownership.
The final barrier to capital access for Native Americans we have identified is education. Many Native Americans do not have banking relationships, and in many Native American economies, financial transactions have long been conducted in cash. As a result, many Native Americans lack an understanding or familiarity with banking, credit reporting and loan qualification process and standards. And unsurprisingly, they have difficulty obtaining credit through traditional means. Native Americans have had the highest conventional loan denial rate of any ethnic group every year since 1994; in 1999 the conventional loan denial rate stood at 43.2 percent.
This lack of familiarity with bank practices and products also leaves many Native communities vulnerable to unscrupulous financial practices that undermine communities’ efforts to build financial assets. In 1999, the National American Indian Housing Council found that 68 percent of its survey respondents were victims of predatory lending.
One of the products that Fannie Mae has tailored to help those with impaired credit is our Timely Payment Rewards mortgage. This product helps borrowers obtain affordable housing finance, while simultaneously helping to repair their credit. Under this mortgage a borrower who makes 24 on-time mortgage payments is eligible for up to a 1 percent rate reduction, effectively saving them up to $60,000 over the life of a $100,000 mortgage.
We also believe that improving financial literacy can be a significant help. To this end, Fannie Mae provides the sole funding for the Fannie Mae Foundation, for which I also serve as Chairman. As a result of Fannie Mae’s financial support, the Foundation undertakes many activities to improve financial literacy of Native Americans.
Most recently the Foundation partnered with First Nations Development Institute to develop a financial literacy curriculum entitled Native Communities: Financial Skills for Families. This curriculum is dedicated to promoting economic understanding and personal financial literacy among American Indians. Released in November 2000, this curriculum provides training about financial products and personal financial management and is a unique tool to help Native Americans build on their own knowledge and develop personal financial skills while embracing Native traditions and values. Since its release, over 18,000 copies of the Building Native Communities workbooks have been distributed. In addition, the Foundation, First Nations and its key partners – including the Federal Reserve, HUD’s Office of Native American Programs, and the National American Indian Housing Council -- collectively have sponsored 33 "train the trainer" workshops in 30 different tribal communities across the country, reaching 476 instructors who will offer financial education courses to their tribal members.
In addition, the Foundation and its partners -- the Enterprise Foundation, the Ford Foundation, HUD, and the Neighborhood Reinvestment Corporation (NRC) – announced two days ago that they will provide a grant of $200,000 to the National Congress of American Indians to develop a national homeownership curriculum designed for Indian Country. This initiative will build on the One-Stop Mortgage Center Initiative developed by the Department of Treasury and HUD whose purpose was to identify barriers and promote homeownership opportunities in Indian Country. The materials will incorporate successful components of existing local programs to create a national homeownership education model that is easily accessible to tribes and tribal nonprofits nationwide.
Fannie Mae’s and Fannie Mae Foundation’s Ongoing Efforts to Serve Native American Communities
Finally, I would like to briefly highlight for you some of the ongoing efforts of Fannie Mae to expand homeownership in tribal communities. First, Fannie Mae is moving aggressively toward the goal outlined in the $2 Trillion American Dream Commitment of investing at least $350 million for 4,600 Native families and expanding our relationships to 100 tribes for Native Americans on trust and tribally restricted land.
Second, we are continuing to collaborate with tribal communities and lenders to build relationships necessary to overcome the barriers to capital access in Indian Country. To this end, we have created an internal Native American Business Council, which will work to expand our capacity to make tangible investments that increase affordable housing opportunities on tribal lands throughout the country. Some of the goals of this Council include the following:
Fannie Mae Foundation
The Fannie Mae Foundation will continue its work on providing financial literacy training to all Native Americans. It is also working on a comprehensive analysis of the conditions of Native American tribal communities entitled "Economic and Housing Development Conditions, Constraints, Strategies, and Data Sources in Indian Country" which will be published in 2003. This report, which will be a significant advancement in the housing community’s understanding of the current economic conditions on tribal lands, will include the following:
I hope that with these commitments, Fannie Mae will begin to make progress in expanding homeownership for Native Americans. We recognize we have a long way to go, and we will continue to listen closely to Indian Country leaders. Combined with our knowledge of mortgage finance, we believe that we can create long term partnerships with tribal leaders to address the tough housing and economic challenges facing Native American communities today.
I want to thank Senator Johnson for his leadership and for his commitment to engaging in this process. He has shown immense dedication to serving the Native American communities in his state. I know he has been a champion of developing infrastructure in Indian country and has been very active in helping tribal members efforts to revitalize their communities. I look forward to working with him to make these changes happen.
Thank you, and I would be happy to answer any questions.
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