Fall 2000 — Volume 2 Issue 3

Housing and Homeownership on American Indian Tribal Lands: Barriers, Progress, and the Promise of New Initiatives

By Lopa Kolluri and Kristopher M. Rengert

As of 1994, there had never been a conventional mortgage loan originated on the Navajo Nation, the largest Indian reservation in the United States. With a landmass of nearly 27,000 square miles and a population of approximately 160,000, this reservation, like much of Indian Country, had been largely ignored by the mortgage market that flourished throughout the rest of the country during the 1900s.

In 1996, the Navajo Partnership for Housing (NPH), a local nonprofit corporation, was founded with the mission of expanding homeownership on the reservation. In less than four years, through a number of partners and creative programs, NPH has generated approximately 40 mortgage loans on the Navajo Nation.

This case draws attention to a number of important factors confounding housing and homeownership in Indian Country. Historically, housing development on tribal lands depended on inadequate federal programs, with very little involvement by private market actors. This has begun to change during the late 1990s, as a number of innovative initiatives have emerged from native, public, and private sources. These initiatives address the considerable barriers from decades of isolation and disinvestment and legal issues stemming from the unique characteristics of tribal land ownership that continue to hamper efforts to pursue housing and homeownership in Indian Country.

Homeownership in Indian Country has historically faced a number of barriers, many of which derive from the unique relationships Indian tribes have with the U.S. government. Native Americans residing on reservations in the United States are American citizens, but their tribes are recognized as domestic sovereign nations with treaty relationships with the U.S. government. This relationship gives tribes limited sovereignty over their lands, while the government holds in trust what is often their most valuable resource: their land and its natural resources.

This trust status limits the type of economic activity for which Native lands can be used. Generally, trust lands cannot be leased without the approval of the federal Bureau of Indian Affairs (BIA), a process that can take months or years, despite recent improvement. Nor can Indian tribes or individuals sell trust land, because the BIA holds title.

Tribal jurisdiction issues also create barriers to economic activity, as non-Indian entities often hesitate to enter into contracts on land where local and state courts have no jurisdiction. Consequently, private sector housing development is rare on tribal lands.

Poor housing conditions are among many hardships confronting residents of American Indian reservations. According to a recent study by the U.S. Department of Housing and Urban Development (HUD), housing problems of American Indians are considerably more severe than those of non-Indians in all parts of America. The study, based on the 1990 census, found this particularly true on reservations and other tribal areas, where 28 percent of all Native households are overcrowded or lack plumbing or kitchen facilities. Comparatively, the percentage for all U.S. households is 5.4 percent.

In addition, 44 percent of Indian households in tribal areas have a housing affordability problem, indicated when households pay over 30 percent of their income for housing expenses. In comparison, 23 percent of all U.S. residents have a housing affordability problem.

The majority of Indian homeownership housing on tribal lands was created by the HUD "Mutual Help" Program. Although it was phased out in the 1990s, the program provides homeownership units to lower-income households who make monthly payments of 15 to 30 percent of their income. Mutual Help housing boosts the homeownership rate on tribal lands to 68 percent, but homeownership rates are much lower outside of this program.

The National American Indian Housing Council estimates that the unmet demand for homeownership on tribal lands is 210,000 units, due in part to the poor availability of mortgage financing. HUD describes two categories of demand for private mortgage financing in tribal areas: the "in-place market" and the "mobility market."

The in-place market consists of Native American households living in tribal areas who would access mortgages if they were available. This includes higher-income Native American owners in units that are overcrowded and/or have physical deficiencies as well as higher-income renters. HUD analysis showed that the potential ownership market among these households ranged from a low of 10,700 households to a high of 30,600.

The considerably larger mobility market includes Indian households outside of tribal areas who might move to tribal areas if mortgages were available. While this availability would add to demand, there are a number of other factors, such as access to jobs and school quality, that would affect the migration of Native Americans back to the reservations.

There is also a shortage of housing units and mortgage financing for homeownership by moderate- and upper-income Indian families. While several initiatives have been created to improve housing and homeownership opportunities on tribal lands, formidable gaps exist in housing supply on tribal lands.

Making the issue more complicated is the tremendous diversity of conditions on tribal lands, ranging from extremely poor and isolated reservations to relatively affluent areas located nearer to metropolitan labor and housing markets. These differences require diversity of solutions, flexibility in federal programs, and creativity by local partners working to improve conditions on tribal lands.

Responding to these pressures, a number of actors-mortgage lenders, federal agencies, and secondary market institutions-have developed innovative programs in partnership with tribes and Indian individuals interested in pursuing homeownership. The following discussion focuses on several major initiatives by federal agencies, private sector entities, and tribes and tribal organizations.

Federal Government Programs
A variety of federal programs administered by HUD, the Department of Veterans Affairs, BIA, and the Department of Agriculture's Rural Housing Service have been a primary source of housing on most tribal lands. Using grants, subsidies, loan guarantees, and insurance, they have provided assistance for owner-occupied and rental housing. Yet much of the housing stock on tribal lands remains substandard and overcrowded, indicating the continued need for more and better housing.

During the late 1990s, the federal government began to change its approach in Indian country, moving from its traditional role as direct housing provider to developer of programs and policies that enhance local flexibility and autonomy. In 1996, Congress passed the Native American Housing Assistance and Self-Determination Act (NAHASDA) that provides block grants to tribally designated housing entities. The program allows tribes to acquire existing housing on the reservation for tribal members to rent; subsidize homeownership for tribal members; and mix and match funds, underwrite risks, and enter unique partnerships.

To reduce regulatory and bureaucratic impediments to homeownership on reservations, HUD in 1998 started two pilot projects called "One Stop Mortgage Centers" on the Navajo Reservation in the Southwest and on the Pine Ridge reservation in South Dakota. Intended to streamline the mortgage-lending process on Indian reservations, these one-stop centers are local nonprofit intermediaries that try to provide easier access to the home-buying process. They also create products to assist homeownership, such as affordable mortgage packages and counseling programs. While they have increased homeownership rates in their territories, it is not yet known whether the methods can be replicated on other reservations.

Private financing for homeownership has been scarce in tribal communities for a variety of reasons. Many tribal lands are geographically isolated from urban economic centers, and many are also socially and economically isolated. The private sector's perceived risk, due in large part to their inexperience in working in Indian Country, is a major barrier to mortgage financing on Native lands.

Another barrier is the complexity of tribal sovereignty and tribal trust land issues. While few lenders have been willing to deal with these issues, this is changing as new initiatives aim at lessening legal and bureaucratic hurdles. Most of these initiatives take advantage of federal mortgage loan guarantees via the HUD Section 184 and Federal Housing Administration Section 248 programs, which became available on tribal lands in the mid-1990s.

Creative joint initiatives between federal agencies, private sector housing market entities, and tribal governments and housing entities have also met with some success in the last couple of years. One of these is a partnership between PMI Mortgage Insurance Company, private lenders, Freddie Mac, and several tribes in Oklahoma. This initiative works through the creative use of NAHASDA funds, a risk-sharing arrangement between the tribes and PMI, and the use of nontraditional underwriting criteria. The average loan under this program is $70,000, with one third of the loans financing new construction and the rest for the purchase of existing homes. So far, PMI has insured $5.1 million in loans under this program.

Fannie Mae recently joined in a similar initiative with PMI, private lenders, and several tribes in Oklahoma and Wisconsin. This initiative will generate mortgage loans for purchase by Fannie Mae on both fee simple and trust lands.

Fannie Mae also has developed a set of model legal documents-flexible templates that provide a legal framework for mortgage lending on tribal lands. These documents, for tribal use, address the legal requirements for sale of mortgage loans to the secondary mortgage market. HUD adopted Fannie Mae's legal documents as the basis for the documents used in the One-Stop Mortgage Center initiative.

Native Solutions Tribal government initiatives and local community efforts will be necessary to increase access to homeownership in Native communities. Tribes will need to take a lead role in establishing the legal infrastructure to facilitate private sector mortgage lending on Native lands. Several tribes already have taken this important step, and others are expected to follow.

Some tribal housing entities have implemented complex, innovative financing strategies to create homeownership opportunities. One is the use of Low-Income Housing Tax Credits (LIHTCs) to develop units for homeownership. Outside of Indian Country, the LIHTC program is exclusively used for rental housing-the program requires that up to 60 percent of the units developed with LIHTC funding be occupied by lower-income renters for at least 15 years. To adapt this program for homeownership, the same household would have to rent the lower-income unit for 15 years. This is an unlikely scenario in most of the United States, where households tend to be more mobile, but some tribes have found this model appropriate.

Combined with other financing, such as NAHASDA grant funds, some tribal housing entities are using LIHTC financing to leverage private investment to create lease-purchase homeownership opportunities. While the specifics vary, generally residents in this program lease their units for 15 years with payments that are equivalent to the mortgage payment that is then assumed at the end of the lease period.

Tribal organizations also have the ability to spur economic development to help create wealth needed to sustain homeownership on reservations. Such wealth-creation strategies are essential for creating demand for homeownership. Gaming and other tribal and native-owned enterprises represent significant segments of many reservation economies and have contributed to employment opportunities on reservations.

Prospects for the Future of Homeownership on Tribal Lands New partnerships between tribes, banks, private companies, and secondary market players are making mortgages more accessible for Native Americans. More flexible public sector programs are facilitating these partnerships. So far, however, the success stories are few, and replicating them is challenging because of the diversity of historic, cultural, political, and economic influences on reservations.

Current estimates suggest that there are fewer than 2,000 home mortgage loans on trust lands in America. But as tribal governments incorporate legal frameworks to encourage homeownership, and as private lenders gain comfort in working on tribal lands, there is likely to be a dramatic increase in mortgage lending activity.

An additional cultural barrier remains, however, in that for many tribes and Indian individuals, the "American dream of homeownership" is not an ingrained ideal. Increased financial literacy and homeownership education will convince some additional tribes and individuals that homeownership is an appropriate tenure choice see sidebar).

Regardless of the tenure choices Indian households make, a growing number of innovative programs are working to ensure homeownership opportunities are available. As these initiatives continue to develop, we look forward to the point when homeownership becomes a true option for those Native American individuals who choose to take that route.

Lopa Kolluri is Senior Community Finance Consultant and Kristopher M. Rengert is Senior Research Fellow with the Innovation Team at the Fannie Mae Foundation.


Native Americans are being offered increasing opportunities for homeownership, but many of them are not financially prepared for it. For some, the issue might be an incomplete understanding of finance, banking, and the credit process. For others, blemished credit or simply lacking a credit history might be the barrier. To help build financial skills in preparation for homeownership, the Fannie Mae Foundation has partnered with First Nations Development Institute to develop a culturally appropriate consumer financial skills curriculum-Building Native Communities: Financial Skills for Families.

The unique curriculum provides adult financial skills education though a Native values framework embracing community, traditional resource management, the interconnection between generations, folklore wisdom, and historical experience. The 18 hours of interactive training include sessions in Building in a Healthy Economy, Developing a Spending Plan, Working with Checking and Savings Accounts, Understanding Credit and Your Credit Report, Accessing Credit, and Taking Out a Loan.

The curriculum is being piloted in both Fond du Lac and Navajo communities through the Summer of 2000. While distribution systems for the curriculum are still being explored, tribal colleges, nonprofit organizations, and community development financial institutions working in Native communities are being proposed as channels for delivering the curriculum. "Training of trainers" sessions will be conducted at national and regional tribal conferences starting in the Winter of 2000.