By: Mark Fogarty
June 29, 2010
Good reasons for becoming a homeowner are listed on signs taped up around the Navajo Partnership for Housing's homeowner education training room: "Financial security. Social recognition. Family security. Sense of accomplishment. Self respect. A comfortable life."
The scrappy nonprofit, which turns15 next year, has bucked the housing depression and continued bringing mortgage finance to members of the Navajo Nation on or near their reservation, which sprawls across New Mexico, Arizona and Utah.
Lanalle Smith, executive director at Navajo Partnership for Housing, said the community development financial institution has ambitious plans to branch out into housing project development on or near the reservation to go along with its scattered site financings.
NPH, which works out of a storefront in Gallup, N.M., a border town adjacent to the Navajo reservation, has arranged or provided 435 loans and grants to 334 families to help tribal members buy, build or rehabilitate a home. Total financing comes to $36.3 million.
To be sure, NPH represents a very small portion of the mortgage market; many lenders do more volume in a single month than NPH has done in nearly 15 years.
Still, NPH has overcome more than a few obstacles to get where it is today.Until the 1990s, no private bank had ever done mortgage lending for the Navajo Nation, which is the size of West Virginia and has nearly 200,000 residents.
No real estate market exists there as the rest of the country knows it. And there is very little mortgage infrastructure: no Realtors, no home builders, no appraisers, no title plants, no closing attorneys.
What's more, many potential borrowers are less than optimal mortgagors. According to a Neighborhood Reinvestment Corp. study of NPH, 25% to 43% of people on the reservation are unemployed, 40% of families are below poverty level and the median household income is $20,000.
More of the group's volume is done off than on the reservation, where land status has made it hard for lenders to perfect a security interest. As a result of a dispute (recently resolved) with the Department of Agriculture over home-site lease documents, NPH made only one Rural Housing Service loan over the past several years. Its 2009 balance sheet shows an imbalance between revenues and expenditures.
And, like all lenders, NPH has suffered higher rates of delinquency and foreclosure in the recession, and in the fall-off-the-table year of 2008 it managed just seven loans.
But volume rebounded in fiscal 2009, to 40 loans and grants totaling $4.2 million, and NPH's fiscal 2010 goal is an ambitious 63 loans. Twenty-one have closed to date.
If the 13 employees of NPH are not miracle workers, they are not far off, either.
Conventional mortgage lending is still elusive on the Navajo Nation. It makes up less than 10% of the NPH total, at 37 mortgages, and no lender has made a conventional mortgage to an NPH client since the mortgage bust began in 2008. (This is in line with a 67% drop in mortgages to Native Americans nationwide since that time.)
Government-insured mortgages are the bulk of NPH financings, with 98 coming through the Department of Housing and Urban Development's section 184 program, and 99 through three RHS programs. More than 50 financings for downpayment and closing costs have come from Native American Housing Assistance and Self Determination Act money.
NPH primes the loan pump for its clients through a vigorous homebuyer education program that has completed more than 15,000 orientations to date. Those with credit challenges must first attend seven weeks of financial fitness classes.
About 10% of graduates have received loans or grants.
NPH also has started to fund individual development accounts for its clients with a $4 match for every $1 contributed as an incentive to start saving.
Smith said delinquencies have been rising, but NPH helps borrowers rework the loans. Only two have gone into foreclosure, and another two are pending.
The group recently branched off into development. It has won a contract from the Navajo Housing Authority to develop, market and sell 25 units of the Karigan Estates, a long-planned but slow-to-develop project in St. Michaels, Ariz., inside the reservation's borders. Twenty-three of the units will be townhomes and NPH has the option to develop 26 other units.
Smith said NPH is hoping construction can start in the late fall as it finds families qualified for mortgage finance. This project will feature high-income residents as well as the low- and moderate-income residents more typical of NPH's clients.
NPH has about $3.5 million to dedicate to the project, through the housing authority and NAHASDA money, and hopes to raise the rest through bank financing and construction loans from Native Home Capital, Phoenix, and Community Housing Capital.
It is currently looking around Gallup for a second site to develop, partly seeded by a $470,000 grant from the federal CDFI Fund. The Navajo Nation has purchased properties outside the reservation limits as well, since many Navajo live outside the boundaries of the reservation as defined by the U.S. government.
The group also has a construction effort underway, with 74 new constructions, rehabs or manufactured housing completed.
NPH, under former executive director Richard Kontz (who has since returned as a finance consultant), began to develop a real estate market on the Navajo. NPH acquired 18 properties and sold 14, leaving a few that Smith says the group will use as income properties.
NPH, which became a mortgage broker in New Mexicolast year, is applying to become one in Arizona as well. Smith said the group will broker loans for Banc2of Oklahoma City.