Johnson County firm at forefront of home loans to American Indians
By ERIC PALMER The Kansas City Star
Date: 07/13/99 22:15
President Clinton's trip last week to the Pine Ridge Indian Reservation in North Dakota put a spotlight on the fact that American Indians have largely been left out of the growth in home ownership.
Although there are significant obstacles to overcome in making home loans on land, experts say there are American Indians with the resources to own homes but pitifully few houses to be had. A small group of players in the mortgage industry is blazing a trail through this thicket. Among the players are large companies such as George K. Baum & Co., but also at the forefront is a small mortgage broker from Johnson County.
First Americans Mortgage is owned by Delmar Janovec, who is a quarter Santee Sioux, and his partner, Dustan Shepherd. It has originated about 180 mortgages in the past year in a market that measures totals only in the hundreds.
The partners merged the operation last year into a penny-stock company controlled by Janovec, a company with significant financial obstacles of its own. But if this new housing market blossoms as many expect, bigger players say First Americans can be expected to flower along with it.
"This is the last of the untapped housing markets," Shepherd said recently from his office in the Louisburg Shopping Center in Overland Park, where sculptures and statues of Indians make up the only decor. "There are in excess of 2.5 million American Indians on and off the reservation and only a few players in this market. We are getting in on the ground floor."
Jean Garrison agrees. Garrison works for PMI Inc., one of the largest private mortgage insurers in the country. PMI was introduced to the American Indian market by First Americans.
"If you want to look at an American success story, look at them," Garrison said. "They are small, but what started as a dream is turning into a housing program with $65 million in funds and rolling."
Rolling is right. At his Pine Ridge news conference, President Clinton announced that George K. Baum & Co. agreed to underwrite $100 million in bonds annually for five years to create a market for reservation mortgages.
Shepherd had worked several years in homeless and affordable-housing programs when a friend suggested that he look into housing for American Indians. He met Janovec, who had been in the construction business with Tomahawk Construction. After some tough years, Tomahawk was put into Chapter 11 bankruptcy in 1994 and emerged with a debt payback plan in 1995.
Shepherd said the two men started First Americans Mortgage in 1995 and naively thought they could develop a profitable business within 24 months. He said the company broke even in 1998. Securities and Exchange Commission documents indicated that AmeriResource Technologies had 1998 revenue of $47,560, all from First Americans, and a net operating loss of $3.5 million. That compared with a 1977 operating loss of $1.6 million.
Janovec said, among other things, that reservation casinos had improved the annual income for American Indians, increasing demand for home loans. First Americans found, however, that making home loans on reservations required creative programs, Shepherd said. What court system do you use to file a mortgage or in case of a default? There also is the lack of a single-family housing history for the buyers or the market.
"You are working with first-generation homebuyers, people with no history in how it works," Shepherd said. "Normally, someone finds a house or a builder, shops the market for loans and then picks a lender. We had to do everything in reverse. They would start with us, and we would help find a builder and get a lender."
They started working with the Chickasaw Nation in Oklahoma, where American Indians own their own land instead of it being owned by the tribe.
During his work, Shepherd hooked up with a mortgage insurer, PMI of San Francisco, and with Washington Mutual of Seattle, one of the country's largest thrifts.
The group developed a program with the U.S. Department of Housing and Urban Development in which a buyer could put 1 percent down. The tribe would pay 2 percent of the down payment and closing costs. PMI would insure part of the mortgage and the tribe would insure part. Washington Mutual would make the loan.
The program started with a $10 million commitment from the tribe. It has been expanded to other tribes and grown to $55 million in commitments.
Garrison of PMI says the more the company learns about working with the tribes, the more it wants to expand.
"Affordable housing is the future of mortgage insurance, but you have to roll up your sleeves and put programs together. These are not slam dunks," Garrison said.
Beth Castro, a vice president with Washington Mutual, said the company had made loans to American Indians in the Northwest, where the company is housed. Shepherd offered them entry into new markets.
"While economies are growing on many reservations, there is lack of housing stock," Castro said. "We do view it as an emerging market with a lot of potential."
First Americans has made its money through the fees it charges by originating loans. It has expanded to 15 employees in anticipation of the expanding loan market. It also would like to build some of the homes and has formed First Plains Construction to do that.
Shepherd said he and Janovec decided to merge the company into AmeriResource last year because a public company gave them access to capital not available to a private company. He acknowledged that AmeriResource had past problems, most related to the bankruptcy of Tomahawk Construction, but he said the company was prepared to face them.
According to SEC documents, AmeriResource has about $464,000 in debt owed by Tomahawk. It paid some of its bills last year by issuing 32 million shares of stock and bought First Americans by issuing 45 million shares. It has $63,318 in tax liabilities, a $430,000 judgment and legal claims against it amounting to more than $1 million.
"We felt that the acquisition of First Americans would give the shareholders that hung on to the company some values down the road," Janovec said. "My goal and Dustan's goal is to be involved in a business where we don't just create a good business profit but we help other people." |
