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Indians denied home loans

Willard Yellow Bird says he wanted to buy a home in his native North Dakota. Yellow Bird, an Arikara from White Shield on the Fort Berthold Indian Reservation, ended up in Moorhead instead because he and his wife were able to get a low-interest m...

Graphic: Denials

Willard Yellow Bird says he wanted to buy a home in his native North Dakota.

Yellow Bird, an Arikara from White Shield on the Fort Berthold Indian Reservation, ended up in Moorhead instead because he and his wife were able to get a low-interest mortgage through a program offered by her tribe, the Red Lake Band of Chippewa.

"The only stipulation was we had to live in Minnesota," he said.

But Yellow Bird isn't complaining. Many other American Indians who try to get home loans aren't as successful.

A Forum analysis of home loan applications for 2006 found that lenders denied one out of every three applications made by American Indians in North Dakota and more than one out of every four in Minnesota.


American Indians are North Dakota's largest racial minority, accounting for 5.2 percent of the state's population in 2006, according to the U.S. Census Bureau.

Indians accounted for 1.1 percent of the state's home loan applications last year.

"I think a lot of the Natives don't even try," said Yellow Bird, safety coordinator for the city of Fargo and a liaison to the city's Native American Commission. "They're just so used to getting denied."

The Forum analyzed a database containing records of 34,373 home loan applications made in North Dakota and 537,288 filed in Minnesota last year, as reported under the federal Home Mortgage Disclosure Act (HMDA). The 2006 findings are the most recent available.

The records consisted of applications for home purchase, home improvement and refinancing.

Among the findings:

- Applicants who identified themselves as American Indian or Alaska natives were denied by financial institutions 33 percent of the time in North Dakota and the Fargo-Moorhead metropolitan area - a higher denial rate than for any other race or ethnicity.

Non-Hispanic whites were denied 14.1 percent of the time in North Dakota and 13.4 percent of the time in the F-M metro area.


- Applications by blacks were denied most often in Minnesota, at 28.3 percent, followed by American Indians at 27.4 percent.

- The percentage of so-called "higher-priced loans" issued by lenders was greater among racial minorities than among whites in both states, with the exception of Asians in North Dakota.

The data for North Dakota and Minnesota is mostly consistent with what the Federal Reserve Board's division of research and statistics found in its analysis of the nationwide 2006 HMDA data: that American Indians, blacks and Hispanic whites had higher denial rates than non-Hispanic whites, with blacks having the highest rate.

One exception in North Dakota was that blacks were denied in 10.9 percent of their applications - less often than all other groups, including non-Hispanic whites.

But blacks also had a relatively small sample size in North Dakota, accounting for 137 of the 34,373 applications, or 0.4 percent. Blacks made up 0.9 percent of the state's population in 2006, according to the Census Bureau.

Denial reasons vary

American Indians, like other races, are denied loans for a variety of reasons.

The HMDA reporting form includes a space where lenders may list the reason for denial, but they're not required to do so. Roughly 71 percent (3,309) of the 4,643 loan applications denied last year listed a reason for denial.


Last year, 378 American Indians were the primary applicants for home loans in North Dakota. Financial institutions denied 126 of the applications.

Credit history was cited as the primary reason for denial in 26 of the 59 applications where a reason was listed.

Seven applications were denied because of collateral, five because the application was incomplete, three because of debt-to-income ratio and two each because of employment history, unverifiable information and insufficient cash. Nine listed "other" reasons, and 67 gave no reason.

Phillip Lewis, accounting manager for the Spirit Lake Housing Corp. on the Spirit Lake Indian Reservation in east-central North Dakota, said tribal members face the same obstacles with credit scores and debt-to-income ratio as other races.

"You really hope and believe that those are the criteria by which things are handled," he said.

Ramsey National Bank in Devils Lake, just north of the reservation, reviews loan applications on an individual basis and uses the same criteria, regardless of whether the applicant lives on or off the reservation, Marketing Officer Amy Heilman said.

"We don't base anything on the race or religion or any of those factors," she said. "It's just based on their financial situations. We treat them the same as we do our other customers."

Programs available

In the past, a major barrier to home ownership for many American Indians living on reservations was the fact that they lived on land owned by the federal government and held in trust for the tribe, said Joanne Smith, director of tribal realty for the Spirit Lake Indian Reservation.

Lenders shied away from homes on trust land because tribes didn't have adequate foreclosure laws in place in case the borrower defaulted on the loan, Smith said.

"People who own property and pay taxes, they don't seem to have a problem" getting a loan, she said.

But the trust land issue really isn't an issue anymore because the federal government has created financing remedies, Lewis said.

"It was a huge barrier at one time. However, there are products out there that can alleviate that for the lender," he said.

The primary product is the federal Indian Home Loan Guarantee Program, also known as Section 184.

Congress created the program in 1992 to foster homeownership among American Indians by offering a low down payment, no mortgage insurance and flexible underwriting, according to the Department of Housing and Urban Development.

HUD guarantees Section 184 loans, assuring the lender that the loan will be repaid in the event of a foreclosure.

Lewis said housing officials do their best to inform buyers and lenders about the program, and some lenders do a good job advertising the available options. But others still aren't aware, he said.

"The conventional lending institutions could be more proactive about educating their staff about the different options out there," he said.

Poverty rates higher

Higher poverty rates among American Indians also present an obstacle to home ownership.

A report on the well-being of children published last year by North Dakota Kids Count highlighted 2000 census figures showing American Indian children had a poverty rate of 44.3 percent - more than four times as high as the rate for white children in North Dakota.

The adult poverty rate among American Indians was 33.1 percent, more than three times the rate for whites.

American Indians are also less likely than other races to own homes in North Dakota.

The 2000 census found 59 percent of American Indian married couples with children under age 18 owned a home, compared with 83 percent of other races.

"There's a big gap there," said Polly Fassinger, research analyst for North Dakota Kids Count.

Fassinger, who traveled to North Dakota's reservations for the report, said another obstacle to home ownership on reservations is the shortage of available housing.

Roughly 500 families were on a waiting list to purchase housing on the Fort Berthold Indian Reservation in western North Dakota in September 2006, she said.

Higher-cost loans

Much of the talk about the housing industry's current woes has focused on the subprime mortgage market.

Borrowers in the subprime category pay the highest mortgage prices because they're considered to pose the greatest risk of default or prepayment, Fed analysts say.

The HDMA data doesn't distinguish subprime loans from prime or near-prime loans. But it does require lenders to report what Fed analysts refer to as "higher-priced loans."

To be considered a higher-priced loan, a mortgage must have an annual percentage rate at least 3 percent higher than the interest rate on Treasury securities of comparable maturity.

In North Dakota last year, 14.6 percent of American Indian loan applicants received higher-priced loans - a higher percentage than for any other racial group except Native Hawaiian/Other Pacific Islander, which had a sample size of only 48. Higher-priced loans were granted to 12.6 percent of whites who applied for loans.

In Minnesota, the percentage of loan applicants receiving higher-priced loans was 20.4 percent for blacks, 17.4 percent for American Indians and 12.7 percent for whites.

Readers can reach Forum reporter Mike Nowatzki at (701) 241-5528

Indians denied home loans 20071230

Graphic: Denials

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