Detailed Information on the
Indian Housing Loan Guarantees Assessment

Complete an independent, comprehensive evaluation of the program in FY '08.

Measure: Guarantee 1,000 Section 184 loans.

Explanation:Provides access to private mortgage financing for Indian families that would otherwise have difficulties securing financing because of the unique legal status of Indian lands. This is an indicator of volume of homeownership loans for Native American families.

Measure: Issue $120 million of Section 184 loan guarantee authority (dollar amount based on 1,000 loans times $120,000 average loan cost.).

Explanation:The total amount of guaranteed Section 184 loans.

Measure: Maintain a foreclosure rate for the Section 184 program of less than 4 percent for fiscal year 2006.

Explanation:The foreclosure rate on all guaranteed Section 184 loans remains less than 4%.

Measure: Guarantee 2,000 loans, totaling $300 million annually, by fiscal year 2011

Explanation:

Measure: Maintain a foreclosure rate of less than 4 percent through fiscal year 2011.

Explanation:

Measure: By September 2011, reduce the average processing time for a Section 184 loan to 90 days or less.

Explanation:By 2011 the average amount on time (in days) to process a Section 184 loan is less than 90 days. The total processing time is from issuance of the preliminary letter of acceptance to the date the loan is guaranteed.

Is the program purpose clear?

Explanation: The HUD Section 184 Indian Housing Loan Guarantee Program is designed to encourage private sector lenders, approved by the Office of Native American Programs, to provide financing for new construction and the purchase and/or rehabilitation of existing single-family homes by providing a federal guarantee of 100 percent of the outstanding principal and interest due on a mortgage loan in the event of a borrower's default. The loans are secured by a leasehold interest on tribal trust or restricted lands and deed of trust on fee simple land. The Section 184 program supports the President's initiative to increase minority homeownership by 5.5 million families by the year 2010.

Evidence: According to 12 U.S.C. § 1715z-13a, subpart (a) Authority, the purpose of the HUD Section 184 program is "To provide access to sources of private financing to Indian families, Indian housing authorities, and Indian tribes, who otherwise could not acquire housing financing because of the unique legal status of Indian lands, the Secretary may guarantee not to exceed 100 percent of the unpaid principal and interest due on any loan eligible under subsection (b) of this section made to an Indian family, Indian housing authority, or Indian tribe."

Does the program address a specific and existing problem, interest, or need?

Explanation: Native Americans have traditionally had difficulties securing mortgage financing on tribal trust and individual allotted lands because of land title and legal jurisdictional issues. Private financing for the purchase of homes in Indian Country and tribal areas of operation was almost non-existent before the implementation of this program in September 1994. The Section 184 program addresses a number of specific issues related to land status, tribal laws (eviction, foreclosure and priority of lien ordinances), tribal court systems, and borrower characteristics commonly found in underserved communities (such as a general lack of financial sophistication, limited or poor credit histories, and non-traditional employment status) that have been historic impediments to homeownership in Indian Country.

Evidence: During the 5-year period from 1992 through 1996, lenders made only 91 conventional home purchase loans to Native Americans on trust lands. (GAO/RCED-98-49) The Section 184 program greatly reduces the credit and collateral risks for the private sector lenders by providing a 100 percent guarantee of mortgage loans made to Indian families living on either tribal trust, allotted, or fee simple lands. Over the past 10 years, 1,109 Native American families have obtained financing on tribal trust or individual allotted lands using the Section 184 program. The loan guarantee gives the lender the choice of underwriting credit files or submitting the application to HUD for review and the credit decision. In the event of default, the lender has the option to proceed with foreclosure or assign the loan to HUD for payment. The Section 184 program has produced 3,255 loan guarantees totaling $361.5 million over the past 10 years. The land status breakdown of the Section 184 program loan activity is as follows: 962 trust land, 147 allotted (individual trust), and 2,118 fee simple transactions (loans from Oklahoma and Alaska represent 1,358 of the 2,118 fee simple total). It is important to note that the States of Oklahoma and Alaska have been recognized as Indian areas for purposes of this program.

Is the program designed so that it is not redundant or duplicative of any other Federal, state, local or private effort?

Explanation: The Section 184 program is unique. The Office of Loan Guarantee administers the program under the direction of the Office of Native American Programs for the express purpose of creating homeownership opportunities for Native Americans living on tribal trust lands and in designated Indian areas. Other federal agency-sponsored and conventional lending programs result in higher costs to the borrower in the form of increased down payment, monthly mortgage insurance premiums, and possibly higher interest rates than the average Native American family can afford. The Section 184 program uses a manual underwriting system that is sensitive to the social and cultural characteristics of Native Americans without compromising prudent underwriting standards.

Evidence: The Office of Native American Programs was established to address the housing needs of Native American families, taking into account their distinctive social and cultural needs. "In addition to legal impediments, there are unique economic and social aspects of Native American communities that challenge traditional lending practices. Native Americans on reservations have more limited credit histories than other applicant groups, are less likely to hold liquid assets, and have less knowledge and experience with financial transactions, making credit approval using traditional standards less likely." 'Bank Lending to Native American Applicants' Cyree, Harvey, and Melto, Journal of Financial Services Research 26:1 29-54, 2004; and The Community Development Financial Institution Fund Study 2001. During fiscal year 2005, the U.S. Department of Agriculture, Rural Development, made loans to Native Americans totaling approximately $50 million under the 502 Direct (Subsidized) and 502 Loan Guarantee program. The Section 184 program guaranteed $76.8 million during the same period. The Native American mortgage loans under the Rural Development 502 programs are one aspect of the products, whereas the HUD Section 184 program has a sole purpose of serving Native Americans.

Is the program design free of major flaws that would limit the program's effectiveness or efficiency?

Explanation: The Section 184 program is a loan guarantee product; thus, the program relies on data provided by private sector lenders, appraisers, and closers. The loan files are reviewed and underwritten by loan guarantee specialists. In addition to general underwriting criteria, the loan guarantee specialists monitor the interest rates and fees charged to ensure the costs are in line with market pricing. The performance of the loan portfolio is monitored through quarterly servicing reports and monthly reporting for delinquent loans. The program relies on a statutorily prescribed 100 percent federal guarantee to facilitate investment of leveraged private sector capital in underserved Native American communities. A high guarantee level, however, weakens lenders' incentives to minimize claims by insulating them from the bulk of costs associated with defaults.

Evidence: The Section 184 program demonstrates that a federal loan guarantee program can be used as a market development vehicle to stimulate mortgage lending activity without creating unnecessary risk for the federal government. Loans made under the Section 184 program have created new housing opportunities where federal subsidy programs historically provided 100 percent of the cost of new unit construction. This program succeeds because HUD employs a hands-on, early intervention approach to the monitoring of the Section 184 program. Lenders are required to participate in program-specific training to become program-eligible lenders (without regard for Title II direct endorsement status). Lenders can become direct guarantee lenders after successfully submitting sufficient test cases to demonstrate their capacity to underwrite to HUD standards. Lenders and appraisers are selected from approved lists and the quality of their submissions are underwritten and scrutinized with every submission. Servicing lenders are required to submit quarterly payment histories on all Section 184 loan files. The purpose of all collection efforts is to bring a delinquent mortgage current in as short a time as possible, to avoid foreclosures to the greatest extent possible, and to minimize losses. A successful servicing strategy treats each delinquent mortgagor individually, and based on the circumstances involved, custom tailors a foreclosure prevention workout plan that will be successful in curing the delinquency and preventing a foreclosure. The servicing lender must certify compliance with the program's delinquent servicing guidelines when filing a claim. As of May 2006, HUD has received 31 claims against 3,227+ loan guarantees since 1994. The actual loss experience for the program is less than 43 basis points. Circular A-129 establishes principles for federal credit programs, including preferences for less than 100% guarantees.

Is the program design effectively targeted so that resources will address the program's purpose directly and will reach intended beneficiaries?

Explanation: The Section 184 program was created and enacted to address the problems associated with a long history of lenders refusing to offer private-market financing on trust or restricted Indian lands on reservations, former reservations, individual Indian allotments, and other traditional Indian areas. Eligible borrowers are limited to tribes, tribally designated housing entities, and individual tribal members. The loan application process requires that the borrower provide documentation to the lender in the form of a tribal identification card, which is copied for the file.

Evidence: Legislative and regulatory requirements limit access to the program to Native Americans. The Section 184 program regulations (24 CFR 1005, Attachment B) require tribes to have the proper legal infrastructure in place as a prerequisite to participate in the program on tribal lands. This requires participating tribes to memorialize that decision by enacting a tribal law, ordinance, resolution or similar affirmative act. The tribe must also provide copies of its approved eviction, foreclosure, and priority-of-lien ordinances, as well as a copy of an approved tribal lease that meets the standards established by HUD and the Bureau of Indian Affairs for leasehold mortgage lending on trust or restricted Indian lands. Federally recognized tribes may elect to solely serve members within their approved Indian areas off tribal trust land by providing a tribal resolution defining the service area where the tribe intends to serve members on fee simple lands. "The success of the 184 program is partly due to the legal framework that provides recourse for lenders to recover their investment in the event of default. The 184 has removed many of the barriers to their historical willingness to originate mortgages in Native American territories." -"Section 184 Indian Housing Loan Guarantees Provide Strong Security to Single-Family Mortgage Revenue Bond Program," Moody's Investors Service Global Credit Research August 2000.

Does the program have a limited number of specific long-term performance measures that focus on outcomes and meaningfully reflect the purpose of the program?

Explanation: According to 12 U.S.C. § 1715z-13a, subpart (a) Authority, the purpose of the program is "to provide access to sources of private financing to Indian families, Indian housing authorities, and Indian tribes, who otherwise could not acquire housing financing because of the unique legal status of Indian lands, the Secretary may guarantee not to exceed 100 percent of the unpaid principal and interest due on any loan eligible under subsection (b) of this section made to an Indian family, Indian housing authority, or Indian tribe." The Department has established three specific long-term performance goals for the Section 184 program. The goals are focused on annual increases in the number loans guaranteed, the dollars invested in Section 184 loan guarantees, and the performance of the loans in the loan guarantee portfolio. The program supports an annual performance goal at the Departmental level and has established a long-term goal of guaranteeing 2,000 loans, totaling $300 million annually, by 2011.

Evidence: See the Strategic Plan, the Annual Performance Plan Data, the Section 184 Loan Guarantee Spreadsheet, and the Claims Report, on the Measures Tab. The Spreadsheet shows loan activity by state, by land status, and by year for 1998 through April 2006.

Does the program have ambitious targets and timeframes for its long-term measures?

Explanation: The Department has established a long-term goal of producing 2,000 loan guarantees, totaling $300 million annually, by 2011. The goal is realistic and consistent with the track record over the past 6 years. The loan guarantee production has grown from 89 loans totaling $9.8 million in fiscal year 2001, to 634 loans totaling $76.8 million in fiscal year 2005. Year-to-date loan guarantee numbers for fiscal year 2006 (as of May 10, 2006) are 655 loans guaranteed totaling $92 million. HUD is projecting an annual growth rate of 18 percent over the period of 2007 to 2011 to meet the long-term goals for the Section 184 program.

Evidence: See the Strategic Plan, the Section 184 Loan Guarantee Spreadsheet, and the Claims Report, on the Measures Tab. The Spreadsheet shows loan activity by state, by land status, and by year for 1998 through April 2006.

Does the program have a limited number of specific annual performance measures that can demonstrate progress toward achieving the program's long-term goals?

Explanation: The Section 184 program has established annual performance measures in two important categories within the realm of mortgage finance: 1) to increase the level of loan guarantee activity annually, and 2) maintain a foreclosure rate below 4 percent. This goal addresses the Department's desire to meet the unique needs of underserved Native American communities without compromising the integrity of the program by exposing the Department to unnecessary risks. The Section 184 program has maintained a foreclosure rate of 1 percent or less since the inception of the program.

Evidence: See the Strategic Plan, the Annual Performance Plan Data, the Section 184 Loan Guarantee Spreadsheet, and the Claims Report, on the Measures Tab. The Spreadsheet shows loan activity by state, by land status, and by year for 1998 through April 2006.

Does the program have baselines and ambitious targets for its annual measures?

Explanation: The Department establishes annual and long-term goals each year. The goals project the level of activity for the Section 184 program over the next 2 years based on the loan guarantee production in the present year. The Office of Loan Guarantee works with the Office of Native American Programs' Performance and Planning staff to develop goals that reflect market trends. This methodology relies on the current market conditions to project the anticipated growth rate of the program. The percentage of increase year-over-year since fiscal year 2001 has been as follows: fiscal year 2002, + 70 percent; fiscal year 2003, + 63 percent; fiscal year 2004, + 129 percent; fiscal year 2005, + 23 percent; and fiscal year 2006 as of May 2006, + 90 percent. In addition, the Office of Loan Guarantee collaborates with HUD Field Offices to establish target goals by region and state that are based on anticipated growth, new marketing initiatives, and tribal reporting. The objective is to create ambitious goals that are realistic and achievable.

Evidence: See the Strategic Plan, the Annual Performance Plan Data, the Section 184 Loan Guarantee Spreadsheet, and the Claims Report, on the Measures Tab. The Spreadsheet shows loan activity by state, by land status, and by year for 1998 through April 2006.

Do all partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) commit to and work toward the annual and/or long-term goals of the program?

Explanation: Collectively, the Section 184 partners have individual goals related to increasing the number of safe, adequate and decent housing units, increase minority homeownership, reduce the processing time for title status reports, and other internal financial goals tied to loan production. The Section 184 loan guarantee program does not provide direct lending services. The program relies on a network of lenders and external partners to originate the loan applications. The external partners for the Section 184 program are tribes; lenders; Government Sponsored Enterprises such as Ginnie Mae, Fannie Mae, and Federal Home Loan Banks; State Housing Finance Agencies; Community Development Financial Institutions; and other federal agencies that provide services in Indian Country.

Evidence: A tribe, tribally designated housing entity, or a sub-recipient of Indian Housing Block Grant funding that plans to access the Section 184 program using Indian Housing Block Grant dollars is required to document the use of the Section 184 loan guarantee funds in Title II, "Financial Resources" of its Indian Housing Plan. Individual lenders have loan production quotas to support their business decision to participate in the program. The Office of Loan Guarantee tracks and reports on lending activity by state, tribe, and lender. HUD has regular interaction with the government-sponsored entities to discuss program requirements that can enhance their ability to serve their lenders more effectively. HUD collaborates with industry trade groups that represent rating agencies, investment and mortgage bankers, and state housing finance agencies to keep in touch with the mortgage investors needs because access to capital is the fundamental purpose of the program. HUD has a Memorandum of Understanding with USDA and the Bureau of Indian Affairs that established the goal of reducing the processing time for a title status report to 30 days. This agreement addresses a fundamental impediment to financing homeownership on tribal trust and restricted lands. The ability to obtain a leasehold interest in a property is predicated upon timely receipt of a title status report.

Are independent evaluations of sufficient scope and quality conducted on a regular basis or as needed to support program improvements and evaluate effectiveness and relevance to the problem, interest, or need?

Explanation: There were two noteworthy independent evaluations of the Section 184 program conducted over the past 6 years. Moody's Investors Service provided a Special Comment (report), "Section 184 Indian Housing Loan Guarantees Provide Strong Security to Single-Family Mortgage Revenue Bond Programs," and in the Journal of Financial Research 26:1 29-54, 2004, "Bank Lending to Native American Applicants: An Investigation of Mortgage Flows and Government Guarantee Programs on Native American Lands." Ginnie Mae, Fannie Mae and the Federal Home Loan Bank of Bank of Chicago each monitor Section 184 loans purchased for modeling and comparison purposes to determine the risks associated with the Section 184 program relative to other federally subsidized loan programs and conventional loans.

Evidence: The Office of Loan Guarantee uses the feedback and data collected by independent agencies to assess the progress of the Section 184 program and monitor trends in the overall mortgage business. The Moody's Investor Service's comments provide a useful tool for the Office of Loan Guarantee when marketing the program to state housing finance agencies for inclusion in single-family bond pools. Moody's Special Comments indicated that the "HUD Section 184 loan presented no greater credit risk than any other government loan guarantee to a state Housing Finance Agency's loan portfolio, given the depth of the Section 184 federal loan guarantee and the healthy performance of the loans to date." These comments reaffirmed that the credit criteria established by the Office of Loan Guarantee result in a loan guarantee that is consistent with industry standards.

Are Budget requests explicitly tied to accomplishment of the annual and long-term performance goals, and are the resource needs presented in a complete and transparent manner in the program's budget?

Explanation: Steps were taken in fiscal year 2005 to bring the funding level of the Section 184 program in line with anticipated demand for the program. The Department cooperated with Congressional action to rescind $33 million of surplus credit subsidy from the Section 184 program. The rescission significantly reduced the carryover funding and aligned the loan guarantee authority with the anticipated demand for the Section 184 program. The Department reevaluated the Section 184 budget request process linking the credit subsidy request to the strategic goals. The budget request for the Section 184 program is linked directly to the Department's goal for loan commitments or the obligation rate for the program. HUD's annual goals and performance measures are published each year to maintain transparency.

Evidence: According to the authorizing statute, "The authority of the Secretary to enter into commitments to guarantee loans under this section shall be effective for any fiscal year only to the extent that amounts in the Guarantee Fund are or have been made available in appropriation Acts to cover the costs (as such term is defined in section 661a of title 2) of such loan guarantees for such fiscal year. Any amounts appropriated pursuant to this subparagraph shall remain available until expended." During the early years of the Section 184 program, little was known about the Native American mortgage market. Studies and research indicated that Native American communities faced acute housing shortages, were underserved by conventional mortgage lenders, had limited access to credit, and were less likely to use traditional banking services. The credit subsidy rate for the Section 184 program was established at 8 percent, indicating a relatively high rate of risk. The Section 184 program received level funding in the range of $5-6 million annually. The program was clearly underused; consequently there was a significant carryover of subsidy dollars each year. The loans originated performed extremely well, which led to a reduction in the credit subsidy rate (2.42 percent in fiscal year 2006). When the lower subsidy rate was applied to the carryover credit subsidy balance, the available lending authority exacerbated the situation. The current budget request is a byproduct of the anticipated loan obligation rate for the Section 184 program. See the Strategic Plan, the Annual Performance Plan Data, the Section 184 Loan Guarantee Spreadsheet, and the Claims Report, on the Measures Tab. The Spreadsheet shows loan activity by state, by land status, and by year for 1998 through April 2006.

Has the program taken meaningful steps to correct its strategic planning deficiencies?

Explanation: During the second quarter of fiscal year 2004, the Office of Public and Indian Housing worked with the Office of Native American Programs to develop a marketing strategy that increased the direct outreach of the Section 184 program in Native American communities. Program policy changes were made to increase access to the program. The Office of Loan Guarantee altered its training materials to emphasize the use of loan guarantee programs in project-based planning.

Evidence: ONAP implemented a marketing strategy that redefines the roles and responsibilities of the Office of Loan Guarantee and Field Office staff. The model incorporated employees' solution-oriented responses to our client base at the local, regional and national levels. The marketing strategy a) focuses the attention of the staff on increasing the awareness of the financial markets, b) establishes a working relationship with the Mortgage Bankers Association and the National Council of State Housing Agencies; c) improved the quality of marketing materials by making brochures and handouts more informative and focused on client needs; d) provided targeted training to attract new lenders and engaged the real estate community to assist Native American homebuyers; and e) increased the use of direct guarantee by qualified lenders for transactions on fee land. The Department made two significant changes to the Section 184 program: a) permitted tribes to request an expanded service area for the program to include areas outside the tribes' recognized service area, and b) allowed families wishing to accelerate the purchase of their Mutual Help homes to access the equity in the homes by treating the transaction as a refinance rather than a purchase. HUD made a concerted effort to improve the type and quality of the education provided to tribes, tribally designated housing entities, and tribal members. By doing so, HUD provides the tools to help its beneficiaries become homeowners. The Office of Native American Programs combines loan guarantees with consumer education to increase access to mortgage capital and create more informed consumers. Since the implementation of the Section 184 team concept, $190 million of the $356 million in loan activity has occurred.

Does the agency regularly collect timely and credible performance information, including information from key program partners, and use it to manage the program and improve performance?

Explanation: HUD regularly collects timely data on borrowers, loan volume, source of loans (land status, tribal affiliation), payment histories, defaults, foreclosures, return on the sale of foreclosed properties, as well as other information necessary to improve credit subsidy estimates, monitor compliance with program guidelines, and detect fraudulent lenders and/or appraisers.

Evidence: Bi-weekly reports are produced that track the life cycle of mortgage applications (issuance of case number, loan commitments, loan closings, and loan guarantees) by region, tribal affiliation, land status, lender, and interest rate. The program office provides monthly obligations and expenditure data to the Public and Indian Housing Budget Office and the Office of the Chief Financial Officer. The Office of Loan Guarantee reports monthly on the status of all lender assignments of mortgage loans, homes, foreclosures, and the disposition of properties. The Office of Loan Guarantee underwrites ??98 percent of the Section 184 loan submissions. The Office of Loan Guarantee performs self-monitoring reviews of loan file submissions issues to scrutinize interest rate charges, unusual credit issues, loan package quality, and other unique developments associated with applicants, lenders, appraisers, and related industry trends.

Are Federal managers and program partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) held accountable for cost, schedule and performance results?

Explanation: The Office of Loan Guarantee holds lenders, servicers, appraisers, and other contractors accountable for their actions. Depending on the nature of the issue (violation of policy or regulation), HUD can request that file errors be corrected, reject the loan, remove the lender or appraiser from the approved list, and seek sanctions. The same is true for tribes. The ability to access the Section 184 loan guarantee program is predicated on compliance with all of the statutory, regulatory and policy requirements. The Department holds periodic meetings with the Bureau of Indian Affairs to discuss title status report issues. The ability to secure title is one of the biggest obstacles for conventional lenders on tribal trust land. HUD played an instrumental role in the development of the new policy with the Bureau of Indian Affairs regarding processing of title status reports, which will result in a significant reduction in the processing time of loan guarantee certificates.

Evidence: 12 U.S.C. § 1715z-13a (g) "Disqualification of lenders and civil money penalties," outlines the standards of performance by lenders and corresponding penalty for non-compliance. In general, if the Secretary determines that any lender or holder of a guarantee certificate under subsection (c) of this section has failed to maintain adequate accounting records, to adequately service loans guaranteed under this section, to exercise proper credit or underwriting judgment, or has engaged in practices otherwise detrimental to the interest of a borrower or the United States, the Secretary may?? a) refuse, either temporarily or permanently, to guarantee any further loans made by such lender or holder; b) bar such lender or holder from acquiring additional loans guaranteed under this section; and c) require that such lender or holder assume not less than 10 percent of any loss on further loans made or held by the lender or holder that are guaranteed under this section." HUD may also impose a civil money penalty on such lender or holder in the manner and amount provided under section 536 of the National Housing Act [12 U.S.C. 1735f-14] with respect to mortgagees and lenders under such Act. As of May 2006, the Office of Loan Guarantee has taken one enforcement action and denied a second lender from participating in the Section 184 program. The first action involved the termination of a contract to process and underwrite loan guarantee files for the Office of Loan Guarantee. The decision to terminate the contract was made after an on-site review of the contractor's files, policies and procedures. The contractor's practices were not consistent with HUD's expectations. The second case involved a lender that was denied approval to participate in the program after reviewing its application. The application led HUD to seek clarification on some procedural and disclosure issues and determined that the lender's action plan did not meet standards. Another example of policy actions involves participation of mortgage brokers as Section 184 lenders. All brokers are required to be FHA-approved lenders or else an FHA correspondent or wholesale lender must be found that will sponsor and take responsibility for the actions of the mortgage broker. The Department has executed two Memoranda Of Understanding with federal agencies, one that addresses expediting the title status report process, and an Interagency Memorandum Of Understanding to secure clean drinking water and the sanitary disposal of human waste. These memoranda set standards and require actions to improve conditions on reservations.

Are funds (Federal and partners') obligated in a timely manner, spent for the intended purpose and accurately reported?

Explanation: The Section 184 program expends funds in a timely manner and spends them for the intended purpose. HUD has seen a dramatic increase in the obligation rate of the Section 184 program since fiscal year 2003. Obligations have increased annually as follows: fiscal year 2003, $39 million; fiscal year 2004, $61 million; fiscal year 2005, $102.5 million; and fiscal year 2006, as of May 2006, $109 million. Lenders have 60 days to deliver closed loan files for loan guarantee from the date of closing. Title status reports issued late by the Bureau of Indian Affairs have caused delays that exceed the Section 184 program delivery schedule.

Evidence: HUD tracks the efficiency measure components associated with processing loan applications. The program office provides monthly obligations and expenditure data to the Public and Indian Housing Budget Office and the Office of the Chief Financial Officer. This data is incorporated in the obligation and spending report (SF-133) and tracked against budget projections. The loan guarantee production has grown from 89 loans totaling $9.8 million in fiscal year 2001, to 634 loans totaling $76.8 million in fiscal year 2005. The loan guarantee activity since fiscal year 2001 has been as follows: fiscal year 2001, $9.8 million; fiscal year 2002, $16.7 million; fiscal year 2003, $27.2 million; fiscal year 2004, $62.3 million; fiscal year 2005, $76.8 million; and as of May 10, 2006, $92 million. There is a present backlog at the Bureau of Indian Affairs of 150 title status report requests with pending loan guarantee certificates totaling $14.5 million.

Does the program have procedures (e.g. competitive sourcing/cost comparisons, IT improvements, appropriate incentives) to measure and achieve efficiencies and cost effectiveness in program execution?

Explanation: HUD tracks and monitors trends related to the effectiveness and efficiency of the Section184 program in comparison to industry standards and practices. The Office of Native American Programs maintains a current business plan to project and anticipate the impact of market forces on the efficiency of the Section 184 program operation during periods of contraction and expansion to gauge the effectiveness of its policies and procedures. The Office of Loan Guarantee incorporates current and future staffing and technologies requirements in its business plan. The Office of Loan Guarantee tracks loan delinquencies, defaults, and foreclosures relative to the performance of other federally insured and loan guarantee programs, as well as conventional lending programs.

Evidence: The Office of Loan Guarantee makes periodic adjustments to the Section 184 program. The Department performs periodic workload analyses and collects data each quarter via the TEAM reporting system. The Section 184 program involves a high percentage of special needs borrowers; therefore, it is logical that the Section 184 program uses a manual underwriting process in the computer age. The Office of Loan Guarantee has been tracking the decline in credit quality of federal loan portfolios since the advent of automated underwriting programs. Greater efficiencies (lower point of origination costs to the lender) are achieved through automated systems, but the byproduct is a deterioration of loan quality as a result of adverse selection. HUD collects quarterly P&I payment history and reviews the data prior to submission of the quarterly collections reports to the Public and Indian Housing Budget Office. The delinquency rate continues to be low and number of Section 184 assigned loans and properties represents less than 1 percent of the overall loan portfolio. The Section 184 program requires lenders to perform loss mitigation and early intervention techniques before loans are assigned or foreclosures occur.

Does the program collaborate and coordinate effectively with related programs?

Explanation: The Section 184 program is an attractive investment vehicle. In addition to Ginnie Mae pools, Section 184 loans are purchased and placed in State Housing Finance Agency bond pools, the Federal Home Loan Bank Mortgage Partnership Finance?? Program, Fannie Mae mortgage-backed securities and other whole loan pass-through vehicles. HUD works closely with the National Financial Education Coalition to improve training and increase the availability of financial education in Native American communities.

Evidence: The Department has entered into a Memorandum Of Understanding with the Bureau of Indian Affairs and the United States Department of Agriculture to reduce the processing time of mortgage transactions on tribal trust land by shortening the time it takes to obtain a title status report. The memorandum resulted in a new policy at the Bureau of Indian Affairs that established a 30-day target for processing certified title status reports. Over time, this measure should significantly improve the ability to finance Section 184 loans on trust lands. The diverse secondary market that has been developed for the Section 184 program is resulting in better pricing for borrowers. In June 1996, the Housing Assistance Council's "Case Study on Lending in Indian Country," stated, ". . . that a secondary market is still needed to enable banks currently holding loans within their own portfolio to revolve them in order to increase their pool of funds, to improve their terms (for example, Associated Bank would like to extend fixed-rate mortgages, but cannot afford to hold them in its portfolio), and to allow for greater creativity in designing a program most suitable to the needs of a particular tribe and/or area." Today, clients that were limited to 5-year balloon mortgages or risked-based pricing are now able to obtain 30-year fixed-rate mortgages at a market rate of interest. Ginnie Mae purchases the largest market share, estimated to be ??45 percent of Section 184 loans originated. Native American borrowers are becoming more informed consumers thanks to the efforts of Native American homeownership and credit counseling programs located in tribal communities throughout the country. These initiatives are helping to spread the word and reduce the number of predatory chattel loans obtained by Native Americans each year.

Does the program use strong financial management practices?

Explanation: The program has financial management and review measures that track loan performance and facilitate early intervention loss mitigation measures. Sound financial principles begin with prudent underwriting criteria. The borrowers are evaluated in accordance with the policies and procedures established for the program. After closing, servicing financial institutions are required to submit a quarterly collections report that provides P&I history and quantifies late payment fees. The Section 184 program receives a monthly tracking report from lenders with delinquent accounts.

Evidence: The application process is a manual process (with the exception of four lenders approved to underwrite files under direct guarantee authority). HUD manually reviews the loan applications and routinely requests additional clarification on questionable files and denies or defers marginal cases that do not meet the program criteria. HUD tracks program changes made by FHA and USDA to ensure that the program's policies and procedures are consistent with the competition. HUD collects quarterly P&I payment history and reviews the data prior to submission of the quarterly collections reports to the Public and Indian Housing Budget Office. The delinquency rate continues to be low and the number of Section 184 assigned loans and properties represents less than 1 percent of the overall loan portfolio. The Section 184 program requires lenders to perform loss mitigation and early intervention techniques before loans are assigned or foreclosures occur.

Has the program taken meaningful steps to address its management deficiencies?

Explanation: HUD routinely monitors cost and performance data to ensure efficient operations. HUD is working with a third party consulting firm to improve the IT data collection capabilities of the program. HUD has taken steps to increase the accessibility of the program within tribal communities. During 2004, the Office of Public and Indian Housing worked with Field Offices to develop a marketing strategy that increased the direct outreach of the Section 184 program in Native American communities. Program policy changes were made to increase access to the program. HUD altered its training materials to emphasize the use of loan guarantee programs in project-based planning.

Evidence: HUD is taking the necessary steps to convert the existing database to the "Access" application, which will enhance the reporting capabilities significantly. The efficiencies gained from the new database will increase the productivity of the Section 184 staff. HUD shares loan origination data with Ginnie Mae for inclusion in its new loan model program. The Ginnie Mae model will help HUD track its performance relative to other federal loan guarantee programs and possibly provide data that will assist HUD and the Office of Management and Budget with credit subsidy modeling. HUD implemented a marketing strategy that redefines the roles and responsibilities of the Office of Loan Guarantee and Field Office staff. The model incorporated employees' solution-oriented responses to the client base at the local, regional, and national levels. The marketing strategy a) focuses the attention of the HUD staff on increasing the awareness of the financial markets, b) establishes working relationships with the Mortgage Bankers Association and the National Council of State Housing Agencies c) improves the quality of marketing materials by making brochures and handouts more informative and focused on client needs; d) provided targeted training to attract new lenders and engaged the real estate community to assist Native American homebuyers; and e) increases the use of direct guarantee by qualified lenders for transactions on fee land. The Department made two significant changes to the Section 184 program: 1) permitted tribes to request an expanded service area for the program to include areas outside the tribes' recognized service area, and 2) allowed families wishing to accelerate the purchase of their Mutual Help homes to access the equity in the homes by treating the transaction as a refinance rather than a purchase. The Office of Loan Guarantee made a concerted effort to improve the type and quality of the education provided to tribes, tribally designated housing entities, and tribal members. HUD provided the tools to help its beneficiaries become homeowners. Since the implementation of the Section 184 team concept, $190 million of the $356 million in loan activity has occurred.

Is the program managed on an ongoing basis to assure credit quality remains sound, collections and disbursements are timely, and reporting requirements are fulfilled?

Explanation: The program has financial management and review measures that track loan performance and encourage early intervention loss-mitigation measures. Sound financial principles begin with prudent underwriting criteria. The borrowers are evaluated in accordance with the policies and procedures established for the Section 184 program. After closing, servicing financial institutions are required to submit a quarterly collections report that provides P&I history and quantifies late payment fees. The Section 184 program receives a monthly tracking report from lenders with delinquent accounts.

Evidence: For example, the application process is a manual process (with the exception of four lenders approved to underwrite files under direct guarantee authority). Loan guarantee specialists manually review the loan applications and routinely request additional clarification on questionable files and deny or defer marginal cases that do not meet the program criteria. HUD tracks program changes made by FHA and USDA to ensure that the program's policies and procedures are consistent with the competition. HUD collects quarterly P&I payment history and reviews the data prior to submission of the quarterly collections reports to the Public and Indian Housing Budget Office. The delinquency rate continues to be low and the number of Section 184 assigned loans and properties represents less than 1 percent of the overall loan portfolio. The Section 184 program requires lenders to perform loss mitigation and early intervention techniques before loans are assigned or foreclosures occur.

Do the program's credit models adequately provide reliable, consistent, accurate and transparent estimates of costs and the risk to the Government?

Explanation: The credit model for the Section 184 program is accurate. This federal loan guarantee program has a high subsidy level and a relatively low loan guarantee fee of 1 percent. The loan delinquency and default rate has remained constant over the past 6 years. The subsidy rate has declined each year based on the seasoning and performance of the loan portfolio.

Evidence: The performance of the loan portfolio indicates that the risk model adequately funds the subsidy at this stage. The program targets the default rate at 1 percent. As of May 2006, the Section 184 program has received $3.6 million in loan guarantee fees for loans originated. The total value in claims paid and pending through April 30, 2006, was $2.5 million. The loss experience through May 8, 2006, is $1.55 million, with six properties pending foreclosure where claims have been paid. If the recapture rate on the pending transactions were zero, the total loss experience of the program would be 43 basis points.

Has the program demonstrated adequate progress in achieving its long-term performance goals?

Explanation: The Department has established a three-part, long-term performance goal: guarantee 2,000 loans totaling $300 million annually, and maintain a less than 4% default rate, by 2011. This will support the President's Goal of adding 5.5 million minority homeowners. This goal is included in HUD's Strategic Plan and is supported by goals within HUD's Annual Performance Plan. The Department monitors its progress by collecting information regarding the number of Section 184 loan case numbers, firm commitments, and loan guarantee certificates issued on a daily basis. Field Office personnel receive weekly reports tracking data by region and status.

Evidence: The program is currently on target to achieve its long-term goal although its performance measurement would be stronger with a more precise quanitification of its contribution to the President's minority homeownership goal. Loan Guarantee activity has increased year-over-year for 5 consecutive fiscal years. The Section 184 loan totals during this period of expansion have established new records for loan originations, obligations, and dollar volume in loan guarantee activity while maintaining a default rate of 1 percent. For the corresponding period, the Section 184 program has experienced annual growth in excess of 20 percent per year. The loan guarantee production grew from 89 loans totaling $9.8 million in fiscal year 2001 to 634 loans totaling $76.8 million in fiscal year 2005. The total loan guarantee production for this time is 3,227 loans. The loan guarantee activity since fiscal year 2001 is approximately $284.8 million. The fiscal year breakdowns is as follows: fiscal year 2001, $9.8 million; fiscal year 2002, $16.7 million; fiscal year 2003, $27.2 million; fiscal year 2004, $62.3 million; fiscal year 2005, $76.8 million; and in fiscal year 2006, as of May 10, 2006, $92 million.

Does the program (including program partners) achieve its annual performance goals?

Explanation: The annual growth and performance of this program have been outstanding, and the program is making steady progress toward achieving its long-term performance goals. The Section 184 program goals are included as a part of the managers' annual performance evaluation system (PACs). HUD establishes goals for the program. Field Office Administrators and the Office of Loan Guarantee establish regional performance targets and goals for each of the Strategic Plan and Annual Performance Plan categories (loan guarantee numbers, loan guarantee dollars, and loan portfolio performance).

Evidence: The implementation of the HUD's Strategic Plan and Annual Performance Plan goals requires an integrated outreach and support system. The Office of Loan Guarantee is not a direct lender; therefore it must take the lead with the network of HUD-approved lenders and tribes to achieve its goals. The Office of Native American Programs created a team approach in fiscal year 2004 that became the basis of the marketing strategy. Each Field Office has a Section 184 team member that serves as the point person within the region. These individuals perform outreach and provide technical assistance in tribal communities under the direction of the Field Office Administrator. The Office of Loan Guarantee works closely with the lender network to address program issues and ensure the quality of the applications during the underwriting process. The success of the program stems from HUD's ability to reach individual Native American and tribal applicants through the network of Field Office staff, homeownership and credit counseling organizations, lenders, and contract marketing. The loan guarantee production has grown from 89 loans totaling $9.8 million in fiscal year 2001, to 634 loans totaling $76.8 million in fiscal year 2005. The loan guarantee activity since fiscal year 2001 has been: fiscal year 2001, $9.8 million; fiscal year 2002, $16.7 million; fiscal year 2003, $27.2 million; fiscal year 2004, $62.3 million; fiscal year 2005, $76.8 million; and for fiscal year 2006, through May 10, 2006, $92 million.

Does the program demonstrate improved efficiencies or cost effectiveness in achieving program goals each year?

Explanation: HUD has achieved maximum efficiency with the Section 184 program through the team concept approach. The Office of Loan Guarantee has been able to maintain a consistent level of staffing over the past 5 years while the loan guarantee activity has increased tenfold. To achieve this level of success, HUD has used an integrated network comprised of tribes, HUD staff, mortgage industry partners, and other housing-related practitioners.

Evidence: The cost of producing a Section 184 loan guarantee has declined with each incremental increase in loan guarantee activity. The Office of Loan Guarantee outreach has these three cost centers: the Office of Loan Guarantee staff, part-time field office staff, and a competitively bid training contract. The costs associated with outreach and technical assistance has been constant. The efficiency is gained through the underwriting process. HUD has been able to maintain a 24- to 48-hour file review and underwriting timetable without compromising the integrity of the program. The volume of activity has increased tenfold since fiscal year 2001, while the level of risk has not increased, based on the foreclosure/loan assignment rate of 1 percent. HUD anticipates greater efficiency as more lenders assume underwriting responsibilities by becoming direct guarantee lenders. The loan guarantee production has grown from 89 loans totaling $9.8 million in fiscal year 2001, to 634 loans totaling $76.8 million in fiscal year 2005. The loan guarantee activity since fiscal year 2001 has been as follows: in fiscal year 2001, $9.8 million; fiscal year 2002, $16.7 million; fiscal year 2003, $27.2 million; fiscal year 2004, $62.3 million; fiscal year 2005, $76.8 million; and for fiscal year 2006 through May 10, 2006, $92 million.

Does the performance of this program compare favorably to other programs, including government, private, etc., with similar purpose and goals?

Explanation: The Section 184 program has been the standard bearer for Native American lending activity. Since its inception, the Section 184 program has served the unique needs of tribes and tribal members. This loan guarantee program applies realistic underwriting standards that are flexible enough to meet the changing needs of Native American applicants. The program interfaces with other federal, state, and local initiatives, which reduces the cost to the borrower.

Evidence: The Section 184 loan guarantee program encourages the development of market-based sales activity and the building of real estate value in tribal communities. The program accepted cost-based appraisal because the Office of Loan Guarantee recognized the absence of an active resale market for homes on trust and tribal lands. The program does not employ risk-based pricing, require loan guarantees from tribal communities, or impose costly fees and services on mortgage applicants. The one-time, one percent loan guarantee fee compares favorably with mortgage insurance charged on conventional loans and the insurance/loan guarantees charged by other federally sponsored programs. The Section 184 program permits borrowers to obtain financing with minimal investment of 2.25 percent and accepts down payment assistance from a wide range of sources (tribal funds, Indian Housing Block Grant dollars, the Indian Health Service's well and septic program, HOME funds, Affordable Housing Program dollars, gift funds, and other qualified programs). During fiscal year 2005, the U.S. Department of Agriculture, Rural Development, made loans to Native Americans totaling approximately $50 million under the 502 Direct (Subsidized) and 502 Loan Guarantee program. The Section 184 program guaranteed $76.8 million during the same period.

Do independent evaluations of sufficient scope and quality indicate that the program is effective and achieving results?

Explanation: The Moody's Investor Services (Moody's) Special Comments "Section 184 Home Loan Guarantees Provide Strong Security to Single Family Mortgage Revenue Bond Programs," dated August 2000, describes the effectiveness of the Section 184 program from a totally objective perspective. Moody's was reviewing the program to determine the level of risk the Section 184 program could present to investors in Single-Family Mortgage Revenue Bond programs sponsored by State Housing Agencies.

Evidence: The Section 184 Indian Housing Loan Guarantee program is designed to encourage private-sector lenders to provide financing for new construction and the purchase and/or rehabilitation of existing single-family homes by providing a federal guarantee of 100 percent of the outstanding principal and interest due on a mortgage loan in the event of a borrower's default. FHA-sponsored bond pools are the source for much of the low-cost financing that drives affordable housing throughout the country. When the Moody's Special Comments indicated that the Section 184 program posed no greater risk to bond pools than any other federally sponsored loan program, it validated the policies and procedures of the program. The program is a special niche product that addresses the unique characteristics of Native American communities without creating unnecessary risk for bond investors and ultimately the federal government. HUD is presently in the final stages of creating a task order for another independent review of the Section 184 program.