Purpose
The purpose of the Title VI loan guarantee is to assist Indian
Housing Block Grant (IHBG) recipients (borrowers) who want to
finance eligible affordable housing activities, but are unable to
secure financing without the assistance of a federal guarantee.
(A federal guarantee is a pledge by the U.S. Government to repay
all or a portion of the unpaid principal balance and accrued interest
for an obligation by a borrower to a lender after a default under
the terms of the repayment agreement.)
The borrower leverages IHBG funds to finance affordable housing
activities today by pledging future grant funds as security for
repayment of the guarantee obligation. A private lender or investor
provides the financing and HUD provides the guarantee to the lender
or investor.
The borrower repays the obligation. However, when if a borrower
fails to repay the debt and a default is declared, HUD repays the
obligation and will seek reimbursement from the borrower’s future
IHBG grant funds.
Eligibility
Eligible borrowers:
- A federally recognized tribe who receives IHBG funds
- A TDHE authorized by a tribe to receive IHBG funds and is authorized
to make obligations and pledge IHBG funds as security for those
obligations
Eligible lenders:
- FHA approved lender
- VA lender
- Approved by the Department of Agriculture
- Supervised, approved, regulated, or insured by any agency of
the United States or
- Any other lender approved by the Secretary
Eligible Affordable Housing Activities - Section 202 of NAHASDA:
- Indian Housing Assistance
- Housing Development
- Housing Services
- Housing Management Services
- Crime Prevention and Safety Activities
- Model Activities (with HUD approval)
Getting started
1. Applicant/borrower submits a request for a Preliminary Letter
of Acceptance, (PLA) Letter of Request (LoR) to ONAP's Office
of Loan Guarantee (OLG) in Denver Washington. The LoR PLA must
include the following project information:
- A detailed project description
- Demonstrate need for the project
- Construction cost estimate
- Operating cost estimate
- Anticipated sources of funds
- Summary of administrative capability
- Estimate the cost the proposed project
- Calculate Maximum Commitment Amount
- Estimate the guarantee amount
2. OLG requests provides a copy of the LoR to the Area ONAP for
comments regarding the borrowers past performance and capacity
in managing grants and similar projects:
- Unresolved audit findings
- Applicants financial management capacity
- Applicants administrative capabilities
OLG will review the applicants Indian Housing Plan and
most recent Annual Performance Review.
3. Following a satisfactory review, HUD issues a Preliminary
Letter of Acceptance (PLA), which is HUD’s determination that
the Title VI project is an eligible affordable housing activity
and that the borrower may proceed with processing the Title VI
application. However, the PLA does not constitute HUD’s approval
of the Title VI project or the loan guarantee
4. Applicant/Borrower selects a Lender who:
- Negotiates terms with borrower
- Assembles credit package
- Performs the underwriting, and
- Submits two draft application packages to OLG
5. The OLG reviews the application package and the evaluation
includes but is not limited to:. A copy of the package is provided
to the Area ONAP for its comments.
6. OLG reviews the application package and evaluates risk based
upon:
- Project feasibility
- Compliance to IHBG regulations
- Sufficiency of funds to construct and operate the proposed
project
- Loan terms and borrower’s ability to make payments
- Loan documents repay and furnish security for the guarantee
- Ratio of Debt Service to annual IHBG
- Determined need for the activity described in detail and
supported by demographic study
- Lenders underwriting criteria
- Outstanding issues (if any) from Area ONAP
OLG will complete the initial assessment within 30 days. Subsequent
requests for information may cause processing delays.
7. HUD issues a Letter of Commitment to lender.
8. Tribes and TDHEs pledge to HUD the IHBG funds (Need portion
of the annual allocation). For an umbrella TDHE the TDHE may pledge
IHBG funds on behalf of multiple tribes. The pledge obligation
is a contractual one Among HUD TDHE and tribes:
9. Lender closes and submits originals of executed closing documents.
10. HUD reviews closing documents; issues Certificate of Guarantee
to the lender.
Things you should know for project development
Indian Housing
Plan (IHP) - The Title VI project must be identified in an
IHP found to be in compliance.
Environmental Review - Must be conducted in accordance with the
provisions of the National Environmental Policy Act and HUD regulations,
and must be completed before IHBG/NAHASDA (including Title VI)
funds are obligated, committed or distributed.
24
CFR part 50 - HUD conducts the Environmental Review. A copy
of the Environmental Assessment and Compliance Findings for the
Related Laws, form HUD-4128, must be in the Title VI application
package; or
24
CFR part 58 - Tribe is the Responsible Entity. A completed
Authorization for Use of Grant Funds, form HUD-7015.16, must be
in the Title VI application package
Project Development
Dwelling Construction and Equipment (DC&E)
costs
TDC amounts are based on a moderately designed house, and are determined
by averaging the current construction costs as listed in two nationally
recognized residential construction cost indices (Marshall & Swift/Boeckh,
LLC and RS Means Residential 2008 Cost Data) for publicly bid construction
of a good and sound quality. Multipliers for each are applied against
these basic numbers to provide costs that are specific to each geographical
location. A second multiplier is then applied to account fore non-construction
costs. These indices draw their data from surveys of construction
costs in each specific area. See Notice PIH 2008-34 for more details.
DC&E costs are the maximum per unit cost. The borrower is responsible
to assure that DC&E costs do not exceed limits. Variances up to
105% of published DC&E may be approved by the Area ONAP; variances
beyond 105% must be approved by the Deputy Assistant Secretary (ONAP)
for ONAP.
DC&E costs are published annually - current notice is Notice PIH
2000-30 (TDHE).
Umbrella TDHE - serves more than one Tribe - For a Title VI activity,
the umbrella TDHE pledges IHBG funds on behalf of multiple tribes:
- Tribes share repayment responsibilities which must be set forth
in writing and agreed to by all participants
- Repayment obligation is a contractual one among HUD, TDHE and
tribes
- Each tribe must identify its share of the debt
- Activity and repayment responsibility must be described in each
IHP (where applicable)
Low-Income Requirement - NAHASDA objective: To promote affordable
housing activities . . . for low-income Indian families whose income
does not exceed 80 percent of the median income for the area.
- Assistance is limited to low-income Indian families
- Exceptions:
1. Homeownership under development activities, Sec. 202(2) of
NAHASDA, and model activities, Sec. 202(6)
2. Title VI loan guarantee activities to house non low-income
Indian families because housing cannot reasonably be met without
such assistance, as approved by the Secretary.
Secondary Markets - Fannie Mae, through their American Communities
Fund, has agreed to purchase Title VI guaranteed loans. Fore more
information regarding secondary markets, you may contact: Mr. Walt
Patton at (202) 752-2529.
Delinquency and default processing
Delinquency
When a borrower fails to make a timely payment, HUD will, upon notification
from the lender:
- Facilitate the payment currently due the lender through a withdrawal
from borrowers IHBG LOCCS account in accordance with the
terms of the Title VI Contract Between HUD and the Borrower; and/or
- withdraw invested IHBG funds in accordance with the terms of
the Title VI Custodial Agreement Letter(s)
Default
Conditions of a default are described in the HUD approved loan documents
and are generally when a borrower fails to make scheduled payments.
In the event of a default the lender declares a default, notifies
HUD and may request HUD to accelerate the obligation. If the loan
is accelerated,
Conditions of a default are described in the financial documents.
- Borrower fails to make scheduled payment(s)
- Lender declares default, notifies HUD, and may request HUD to
accelerate the obligation
HUD authorizes the lender to accelerate the obligation
- Lender submits a claim to HUD for the unpaid principal balance
and accrued interest
- HUD will take future IHBG funds or other repayment resources
in accordance with the Title VI Contract Between HUD and the Borrower
Contact HUD
Department of Housing & Urban Development
Office of Native American Programs
Office of Loan Guarantee, Title VI
451 Seventh St. SW, Room 4126
Washington DC 20410
Phone: (202) 401-7914