KEY TAKEAWAYS

• Native Americans are disproportionately underrepresented in mortgage lending by a factor of three. From 2018 through 2021, just 0.9% of all mortgages in the US went to a Native American – even though they make up 3% of the US population.
• The small sliver of Native Americans who manage to buy a home are more likely to choose a manufactured home. Native American mortgage borrowers are more than twice as likely to finance a manufactured home as other groups. The long term value of these homes tends to be much lower than site-built housing.
• Mortgage lenders impose higher costs on Native Americans than other groups – even when they are buying a cheaper house. Native Americans often pay more in interest rates and closing fees for homes with less value/equity than borrowers from other racial groups.

Mortgage lending to Native Americans is an under-studied issue for several reasons. In most US markets Native Americans are a small fraction of the overall population. Mortgages on Native reservations are rare, and lenders in rural areas are less likely to be required to report data on mortgage loan applications. However, by focusing on markets where Native Americans are concentrated, existing data does offer insight into their experience with accessing credit and building wealth through homeownership.

The modern economic experiences of Native Americans are of course shaped by centuries of violent oppression, violated treaties with the US government, forced relocation and expropriation. This dark history looms in the margins of the analysis which follows – and in which we detail but one element of the broader legacy of a genocide. 

Native Americans still face significant barriers when it comes to accessing mortgages. Based on an analysis of Home Mortgage Disclosure Act (HMDA) data, just 0.46% of the 42 million mortgages made in the US from 2018 to 2021 went to a Native American applicant. Among owner-occupied mortgages they were just 0.9% of all borrowers. This is far lower than the 2.9% of the population that identifies as Native American alone or in combination with other groups. This means that mortgage lending to Native Americans would need to increase by a factor of six to achieve parity. By comparison, 14.2% of Americans identify as Black alone or in combination with other races and they received 5.6% of all mortgage loans from 2018 to 2021, a difference of 2.5. 

Where Are Native Americans Getting Mortgages?

NCRC’s analysis also found that Native American borrowers are highly concentrated in specific, small metro areas that geographers call “core based statistical areas” (CBSAs). The top three CBSAs for Native American lending being Tahlequah, Oklahoma; Lumberton, North Carolina; and Gallup, New Mexico. In all three, over 30% of borrowers were Native American. Lending on manufactured homes appears to be even more concentrated, with 68.9% of manufactured home borrowers in Gallup identifying as Native American. In Grants, New Mexico, and Lumberton, North Carolina, over 40% of manufactured home borrowers were of Native American descent.

What Are Native Americans Financing With Their Mortgages?

7.9% of all Native American homebuyers from 2018 to 2021 were financing a manufactured home. This was more than double that of all borrowers nationally (2.91%). 

White and Hispanic homebuyers were the second and third most likely to take out a mortgage in order to finance the purchase of a manufactured home, at 3.26% and 3.25% of all 2018 to 2021 home purchase loans.

This analysis may undercount the actual usage of manufactured homes as data collection on these mortgages is not as complete as the data on site-built lending. The Minneapolis Fed examined the coverage of the HMDA dataset in areas where there are a substantial number of Native Americans and found that while coverage in those areas is often lower than in urban areas it is sufficient to draw conclusions about lending to Native Americans at the national level.

How Are Lenders Treating Native American Borrowers?

A comparison of the costs incurred by Native Americans versus other racial groups shows that, for site-built homes, the average Native American property value was $285k and the combined loan-to-value ratio, a measure of the amount of the loan versus the value of the property, was 80%. 

The rate spread, a measure of the interest rate of the loan compared with the average interest rate for all borrowers on the day of closing, was 0.36. The median closing costs paid by Native Americans was $3,769. These findings generally match those of other research studies that show Native Americans tend to pay more for their loans than other borrowers, yet the costs reported on Native Americans loans tend to be somewhat lower than those incurred by Black and Hispanic borrowers.

Why Does This Matter To Economic Justice Efforts?

The unfavorable disparities facing Native American mortgage-seekers perpetuate poverty and inequality that is already staggering. NCRC’s overview of the 2021 Home Mortgage Disclosure Act (HMDA) data found that Americans aggressively used lower interest rates to build equity in their homes at a faster rate. However, many communities of color were excluded from this bonanza because they continued to be locked out of the homeownership market. 

As our Native American Racial Wealth Snapshot shows, government policy has hindered the advancement of Native Americans in the United States.  Despite ongoing inequality, there has been some progress in areas such as poverty, unemployment rates and educational attainment for this group. However, Native Americans have not seen a gradual increase in wealth accumulation over time like other groups. And the same government neglect also makes it difficult to examine what’s causing these disparities, as data on Native Americans is both less thorough and less detailed.

The current state of Native American mortgage lending is a complex issue that is shaped by a variety of factors. 

The main barrier that keeps Native Americans from getting mortgages is the lack of access to credit. Native Americans often have limited access to banks and other financial institutions–a barrier magnified for those living on reservations. This makes it difficult for them to establish credit and further hinders their ability to build a credit history which is a necessary qualifier for a mortgage. These challenges apply for many Native Americans who do not live on reservations but do live in rural areas, where the lending industry is generally less accessible for most residents.

Practical accessibility issues are only part of the story, however. Native Americans also experience outright discrimination even when they are able to access the mortgage application process in their area. Despite the fact that discrimination is illegal, it still exists in the mortgage market. Though there are few studies of the impact of discrimination on Native American mortgage lending it is likely that the same structural barriers documented for other groups, lower income, the need for smaller mortgages, a lack of rural lenders, historical exclusion from homeownership and the wealth it imparts on families, and the complication of home ownership on Native reservations, create barriers for Native American homeownership. Native Americans are subject to discriminatory lending practices that make it difficult for them to secure a mortgage. This can include things like higher interest rates, stricter credit requirements and higher fees.

The lack of affordable housing is also a major barrier for Native Americans. Many reservations located in remote areas make it difficult for Native Americans to find affordable housing. Additionally, many reservations do not have the infrastructure necessary to support new housing developments, which makes it difficult for Native Americans to build or purchase homes.

Some federal programs exist to help compensate for these barriers. The Department of Housing and Urban Development (HUD) offers targeted assistance to help Native Americans access affordable housing in various ways. These programs include things like the Indian Housing Block Grant, which provides funding for the construction, rehabilitation and operation of housing for low-income Native Americans. Additionally, the Federal Housing Administration (FHA) offers loan programs that are specifically designed to help Native Americans access affordable mortgages.

Some private organizations are also working to provide mortgages to Native Americans. The Native American Community Development Financial Institution (CDFI) Fund provides funding and technical assistance to CDFIs that serve Native American communities. These organizations work to provide financial services, including mortgages, to Native Americans living on reservations and in other rural areas.

Despite these efforts, Native Americans are often paying more to finance homes worth less than the national average. While Black and Hispanic borrowers often fare worse in the mortgage market, the rural locations and the other barriers we have noted in this blog present challenges that are unique to advocates and lenders that work with Native borrowers.

Jason Richardson is NCRC’s Senior Director of Research.

Image courtesy of Midnight Believer on Flickr.