Federal housing officials that are in place to monitor and control thousands of government-backed mortgage loans worth millions of dollars have not handled these loans correctly for Native Americans. According to the Office of Inspector General (OIG) review for HUD's Office of Loan Guarantee (OLG) did not provide adequate oversight of the Section 184 Indian Home Loan Guarantee program, resulting in an increased overall risk to the program.
“This lack of oversight and high incidence of poorly underwritten loans has the potential to negatively impact the financial standing of Native American communities,” the Office of Inspector General said.
HUD is authorized to guarantee loans made by private lenders to Native Americans, Indian housing authorities or tribally designated housing entities, and tribes under the provisions of Section 184 of the Housing and Community Development Act of 1992 and as amended by the Native American Housing Assistance and Self-Determination Act of 1996. Section 184 home mortgage loans may be used, both on and off native lands, for new construction, rehabilitation, purchase of an existing home, or refinance.
The Inspector General’s office reported that HUD wrongfully guaranteed 3,845 loans totaling more than $705 million that were not underwritten in accordance with program guidelines. This will equal $77 million in loans on an annualized basis that have a much higher risk of loss in the first year
According to the OIG, 95 statistically sampled loans guaranteed from January 1, 2010 to July 31, 2014, determined that 32 of 95 loans had material underwriting deficiencies that should not have been approved for Section 184 loan guarantees. The OLG did not adequately monitor, track, and evaluate participating lenders to ensure that loans were underwritten according to Section 184 processing guidelines.
“One of the Section 184 program goals is to increase the marketability and value of Native American assets and strengthen the financial standing of Native American communities,” the OIG said. “However, the lack of oversight and high incidence of poorly underwritten loans has resulted in borrowers who obtained mortgage loans that would not have otherwise qualified. If HUD does not strengthen its oversight, there will continue to be an increased risk of default and foreclosure which has the potential of negatively impacting the financial standing of Native American communities.”
The Office of Inspector General recommends that the Deputy Assistant Secretary for Native American Programs develop and implement policies and procedures:
- For monitoring, tracking, underwriting, and evaluating the Section 184 program, resulting in $77 million in funds to be put to better use.
- For standardized monthly delinquency reports.
- To deny payments to lenders for claims on loans that have material underwriting deficiencies.
- To ensure that OLG uses enforcement actions available under 12 U.S.C. (United States Code) 1715z-13a(g).
- Request indemnification for the loans that had material underwriting deficiencies, resulting in $2.5 million in funds to be put to better use.
- Request statutory authority to indemnify poorly underwritten loans.
- Obtain support for one loan, which lacked documentation required for loan approval.
- Ensure that only underwriters that are approved by OLG are underwriting Section 184 loans.