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Residential Department: BackSpace: February 2015



The history behind a niche loan for Native Americans

There is a close link between a modern loan program and an atrocity done to Native Americans 177 years ago.

In 1823, the state of Georgia wanted to evict the Cherokee tribe from the state to give tribal land to white settlers. When the Cherokee resisted, the State Legislature passed a law stripping the Cherokee people of their rights in the state.

The Cherokee sued Georgia in the U.S. Supreme Court, but lost. The ruling in Cherokee Nation V. Georgia, however, set the legal tone for how tribal land is treated under U.S. law.

Chief Justice John Marshall wrote, “They occupy a territory to which we assert a title independent of their will, which must take effect in point of possession when their right of possession ceases; meanwhile, they are in a state of pupilage.”

To this day, the federal government acts as a sort of conservator for tribal land, holding title to tribal land “in trust” for the tribes.

But because no one can encumber land held in trust by the federal government, mortgage lenders historically stayed away from tribal lands. In 1992, the U.S. Department of Housing and Urban Development (HUD) tried to fix that problem by offering the Section 184 Indian Home Loan Guarantee Program, which allowed a legal workaround for the trust issue.

The program originally applied only to reservation land, but nearly a decade ago HUD expanded it to include nontribal land to increase the scope of lending to Native Americans.

  "Knowing tribal land and working through all the trust-land
issues — that can actually make a transaction drag out for months."
Grant Gaertner, national sales manager, First Tribal Lending  

Still, Section 184 is a small part of the lending world. HUD has guaranteed about 26,000 loans since 1992, equal to about $4.1 billion in volume. The program is only available in 24 states, plus parts of 13 more. For a state to be eligible, a federally recognized tribe participating in the program must reside there.

Complicated but rewarding

Originating loans guaranteed by the Section 184 program may be more complicated than originating other types of loans. The process involves verifying tribal status and ancestry, and managing the loan along with HUD, the Bureau of Indian Affairs and various tribal governments.

“It’s a huge challenge, a huge learning curve,” says Grant Gaertner, the national sales manager for First Tribal Lending, which specializes in Section 184. “Knowing tribal land and working through all the trust-land issues — that can actually make a transaction drag out for months.”

Marketing Section 184 loans is also challenging. Finding data on potential borrowers for direct-mail campaigns, for example, is difficult. Often, lenders will rely on word of mouth within tribes, Gaertner says.

The upside, Gaertner says, is helping to build communities. Section 184 also applies to commercial construction loans, which helps develop tribal land that might not have any infrastructure. In addition, the program applies to modular homes and renovations.

Cyndi Carver, a Realtor with John L. Scott in Issaquah, Washington, has sold homes on tribal land and underwritten Section 184 loans, which she did in a previous job at Bank of America.

When Carver sells homes on tribal land — she has two reservations in her territory, inhabited by the Muckleshoot and Tulalip tribes — she advises sellers to be patient. Selling on tribal land usually takes a while. Nontribe members can buy on tribal land, she says, but it is less secure.

“Even if somebody has cash, they’re afraid of putting it into that property — because what if all of a sudden [the tribe] wants to call that land back?” Carver says.

Peter Ryu, a lender at Priority Home Lending, also in Issaquah, called the Section 184 program “very limited,” but a good alternative for Native Americans to Federal Housing Administration or rural development loans.

The downpayment on Section 184 loans is as low as 2.25 percent, Ryu says, and as low as 1.25 percent on loans below $50,000. A bigger benefit is low mortgage-insurance premiums: Section 184 borrowers pay an upfront guarantee fee equivalent to 1.5 percent of the loan. This past November, HUD installed a 0.15 percent monthly mortgage premium, the first premium in the program’s history.

Gaertner suspects that 2014 could be a record year for Section 184. He says that in recent years, the program has fluctuated, but generally upward,to steady volumes between $600 million and $700 million per year.

No 184 in Georgia

Heading back to 1832, about a year after the Cherokee lost its first Supreme Court case, the Supreme Court ruled in a separate case, Worcester v. Georgia, that only the federal government has authority to deal with tribal lands. That ruling further solidified Marshall’s “in trust” principle.

The U.S. government then was firmly in favor of removing tribes. In 1830, President Andrew Jackson had eagerly signed the Indian Removal Act, dooming any tribe living east of the Mississippi River to eviction.

With their bayonets out, the U.S. Army removed the Cherokee from Georgia in 1838. Along the forced march to Oklahoma, now called the Trail of Tears, 4,000 Cherokee died.

As of September 2014, HUD had guaranteed 11,336 Section 184 loans in Oklahoma where the Cherokee still live, the most in any state (Arizona was No. 2 at 1,686). Georgia had zero. The state is not eligible for the Section 184 program. 


Neal McNamara was a chief reporter with Scotsman Guide Media. For questions about this article, call (800) 297-6061 or e-mail

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