In 1998, the Federal Reserve Bank of San Francisco's Community Affairs
unit embarked on an initiative to increase access to credit in Indian
Country. The work began with seven Sovereign Lending workshops, at which
the greater tribal and banking community discussed the barriers and solutions
to lending. Sovereign Lending task forces then were formed out of these
The task forces, with representatives from different tribes, financial
institutions, government agencies, and community-based organizations,
held meetings at over 50 Indian reservations throughout Washington, Oregon,
Idaho, and Utah. At these meetings, participants learned about each tribe's
economic development plans, identified needed banking services, and collaborated
on joint projects.
The initiative is necessary because nearly half of all homes located
in Indian Country are overcrowded and have serious physical deficiencies;
it is estimated that over 200,000 housing units are needed immediately.
Compounding the housing crisis are high poverty and unemployment rates.
Without housing opportunities, savings incentives and overall capital
formation are stifled. Without access to the traditional mortgage market,
those who seek homeownership may end up with high loan interest rates
and fees, normally much higher than those from a traditional mortgage
The task forces identified and then worked to ameliorate five primary
barriers to lending in Indian Country:
Tribal Lending Laws
A lack of guidelines for procedures such as evictions and foreclosures
presents an unknown situation for lenders, which is perceived as a risk.
A number of tribes have now used their sovereignty to adopt laws promoting
real estate and commercial lending.
The remote location of many Indian reservations is a challenge for
lenders. Several tribes decided to offer direct deposit service, enabling
their employees to accrue interest on funds and access cash from ATMs
or via point-of-sale service at local stores.
Land ownership on Indian reservations can be complex, but lending products
exist for different ownership structures. The 184 Loan Guarantee Program
of the Department of Housing and Urban Development is designed for use
on tribal land. In addition, several lenders have been working on special
housing programs with individual tribes, and one task force is exploring
how to improve access to state housing programs.
Traditionally, there have been limited opportunities for communication
between many tribes and the finance community. In response, directories
of bank and tribal personnel to contact on financing matters have been
developed. Also, community-based organizations that have not previously
offered affordable housing technical assistance have participated in
task force meetings.
Widespread unemployment, nontraditional forms of income, lack of assets,
and low education levels are issues that task force members have begun
to address by launching financial literacy programs. Also, banks began
to accept alternative forms of income verification and hold first-time
homebuyer seminars, and two task forces are lobbying for legislation
to allow residents access to Individual Development Accounts, designed
to help people save for their first home, education, or to start a new
The Community Affairs unit has held meetings at a total of 49 Indian
reservations, made presentations at numerous conferences, spearheaded
six Housing Ordinance Workshops, and supported many efforts by financial
institutions and intertribal organizations. Several tribes now have adopted
new laws to allow tribal members access to mortgage loans. In 2001, the
unit will hold five Sovereign Lending workshops in the states of California,
Nevada, and Arizona, and hopes to experience similar success to that in
Adapted from an article by Craig Nolte: "Sovereign Lending: Bringing
Housing to Indian Country," in the May 2000 issue of Community
Investments, a publication of the Community Affairs unit of
the Federal Reserve Bank of San Francisco.