What Section 184 Mortgages Are and Why You'd Want One
HUD Section 184 mortgages serve Native American borrowers, Alaska Natives, and tribal communities. These government-guaranteed loans often offer more flexible underwriting than conventional mortgages and can be used on tribal trust land where traditional financing is difficult to obtain.
The program helps address the unique challenges Native American borrowers face in homeownership. Many live on reservation land held in trust by the federal government, which creates complications for standard mortgage lending. Section 184 loans solve this problem with HUD's guarantee backing the lender.
Say you're a member of a federally recognized tribe looking to buy a home on reservation land. A conventional lender might hesitate because the trust land status creates legal complexities. With a Section 184 loan, HUD's guarantee gives the lender confidence to make the loan.
How Fannie Mae Fits Into Section 184 Lending
Fannie Mae will purchase Section 184 mortgages from approved lenders, but only after HUD has issued its guarantee. This creates a secondary market for these specialized loans, which helps lenders offer them more readily.
Your lender must be approved by both HUD for Section 184 lending and by Fannie Mae for loan sales. Not every mortgage company offers these loans because they require specific expertise in tribal lending and HUD requirements.
The process works like this: You apply with an approved lender, HUD reviews and guarantees the loan, then the lender can sell it to Fannie Mae. This system ensures you get access to competitive rates while the lender has an exit strategy for the loan.
Property Requirements and Restrictions
Your property must meet specific criteria for Fannie Mae to purchase the loan. The home can be a one- to four-unit property on an individual lot, or a unit in a condominium, cooperative, or planned unit development (PUD).
Manufactured homes are eligible if they meet HUD's requirements for Section 184 loans. This typically means the home must be permanently affixed to a foundation and meet local building codes.
You can use a Section 184 loan for either a purchase or refinance transaction. However, if you're planning a construction-to-permanent loan, Fannie Mae will only purchase these as whole loans, not securitize them into mortgage-backed securities.
What Fannie Mae Won't Accept
Fannie Mae has specific restrictions on Section 184 mortgages it will purchase. Interest rate buydown plans are prohibited entirely. These are arrangements where someone pays extra upfront to reduce your interest rate for the first few years of the loan.
The collateral for your loan cannot include personal property, cash, notes, securities, royalties, annuities, or other transferable assets with determinable present value. Your loan must be secured solely by the real estate.
There's an exception for construction-to-permanent loans. The required construction escrow account and any partially completed improvements must be part of the collateral when the loan closes.
Special Reporting Requirements for Lenders
When your lender sells a Section 184 mortgage to Fannie Mae, they must use special feature code 202 in their loan delivery system. This identifies the loan as a HUD-guaranteed Section 184 mortgage for Fannie Mae's records.
Section 184 loans are assumable from the note date, meaning a future buyer could potentially take over your loan payments under certain conditions. Your lender must mark the loan as assumable when delivering it to Fannie Mae.
These reporting requirements ensure Fannie Mae can properly track and service Section 184 mortgages according to their unique characteristics and HUD requirements.
Why These Rules Exist
Fannie Mae's requirements for Section 184 mortgages reflect the unique nature of these government-guaranteed loans. The restriction on interest rate buydowns aligns with HUD's program guidelines and keeps the loans simple and standardized.
The collateral restrictions protect both Fannie Mae and HUD by ensuring the loan is secured by real estate that can be properly valued and, if necessary, foreclosed upon. Personal property and financial instruments create complications that could jeopardize the guarantee.
The assumability feature serves tribal communities by making homes more marketable within those communities. When a home can be assumed by another qualified Native American borrower, it increases liquidity in markets where traditional financing options are limited.
Common Complications and Gotchas
Not all lenders offer Section 184 mortgages, so your financing options may be more limited than with conventional loans. You'll need to find a lender approved for both HUD Section 184 lending and Fannie Mae loan sales.
Construction-to-permanent Section 184 loans face additional restrictions. Fannie Mae will only purchase these as whole loans, which may affect your lender's willingness to offer this option or the pricing they provide.
If you're considering a manufactured home, verify early that it meets HUD's Section 184 requirements. Not all manufactured homes qualify, and the requirements can be complex depending on the foundation type and local building codes.
The tribal trust land status that makes Section 184 loans necessary can also create appraisal challenges. Make sure your lender has experience with tribal land appraisals and understands the unique valuation considerations involved.
References
For the official guidelines, see B6-1-04: Eligible HUD-Guaranteed Section 184 Mortgages in the Fannie Mae Selling Guide.
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Original Fannie Mae Guideline Text
B6-1-04, Eligible HUD-Guaranteed Section 184 Mortgages (12/14/2022)
Overview
HUD Section 184 Combination Construction/Permanent Mortgages
Delivery of HUD-Guaranteed Section 184 Mortgages
Overview
Any approved Fannie Mae lender may deliver HUD-guaranteed Section 184 mortgages to Fannie Mae provided the lender obtains the required HUD loan guarantee.
Fannie Mae will purchase or securitize HUD-guaranteed Section 184 mortgages under the following conditions:
The HUD Section 184 mortgage must comply with HUD requirements.
The loan must be secured by one- to four-unit properties located on individual lots or in a condo, cooperative, or PUD project.
HUD Section 184 mortgages may be secured by a manufactured home if it meets HUD's requirements.
The mortgage transaction may be a purchase or a refinance transaction.
HUD Section 184 mortgages that are subject to an interest rate buydown plan are not permitted.
HUD Section 184 Combination Construction/Permanent Mortgages
Lenders must adhere to HUD’s requirements concerning combination construction/permanent HUD 184 mortgages. These are limited to whole loan deliveries only.
Fannie Mae will not purchase a HUD-guaranteed Section 184 mortgage that includes as part of the collateral, personal property, cash, notes, an interest in securities, royalties, annuities, and any other property that is transferable and for which a present value may be determined.
However, the construction escrow account that is required when these mortgages are closed as combination construction/permanent mortgages, as well as any partially completed improvements, must be part of the collateral.
Delivery of HUD-Guaranteed Section 184 Mortgages
Lenders must report SFC 202 when selling HUD Section 184 (and 184A) loans to Fannie Mae.
Section 184 loans are assumable as of the note date. When selling such loans to Fannie Mae, the Assumption Indicator in the Loan Delivery application must be "True" (which means assumable).
