FNMHF Elements

Credit Enhancement

The First Nations Market Housing Fund (the "Fund") will facilitate the ability of individuals to obtain housing loans on a standard market basis from financial institutions. To accomplish this objective, one of the Fund’s key tools will be its Credit Enhancement Facility.

What is meant by “Credit Enhancement”?

The First Nations Market Housing Fund's Credit Enhancement Facility provides a financial backstop to a First Nation's housing loan guarantees made to financial institutions. In the event that a borrower defaults on an eligible housing loan, the lender will seek compensation from the First Nation in its capacity as guarantor of the loan. Should the First Nation be unable to meet its obligations as guarantor, the lender will be able to turn to the Fund for compensation up to the amount of Credit Enhancement which the financial institution has accumulated for loans in the community.

The Fund itself will not provide loans.

Why is Credit Enhancement needed?

One of the main impediments to market-based housing is a lack of access to financing for housing on-reserve because the Indian Act and some self-government agreements restricts seizure of property on-reserve in case of default This poses problems for private sector lenders, thereby restricting access to financing, limiting on-reserve housing activity and First Nations economic development.

Another barrier to market-based housing on-reserves is a lack of security of tenure as reserve lands are held communally, not individually. Additional efforts are required to help improve security of tenure to help support market-based solutions to housing on-reserves.

Other obstacles include the lack of housing charges or rental regimes in a number First Nation communities, a high level of band ownership of housing, a lack of serviced lots, and the absence of an effective resale market. Credit Enhancement can help address some of these issues.

Who is eligible for the Fund’s Credit Enhancement?

Participation in the Fund by First Nations and lenders is voluntary — it will be available for those communities and financial institutions which choose to apply and qualify. First Nations will need to have been assessed and qualified under the Fund's Access Criteria in order to be eligible for the Fund's Credit Enhancement Facility.

The First Nations Market Housing Fund is available to First Nations communities across Canada — its assets are not split into regional or local components. Individual First Nations can choose to apply directly to the Fund if they are interested in accessing the Credit Enhancement Facility. The amount of financial backing provided by the Fund in relation to a specific First Nation will be determined once a First Nation is assessed as eligible for the Fund’s backing. First Nations’ members do not apply directly to the Fund. Once their First Nation has been approved, they apply to participating lenders for housing loans.

How much Credit Enhancement is available for each community?

For each community which qualifies for the Facility based on the Access Criteria, the Fund will approve the allocation of a First Nation Housing Loan Guarantee Credit (HLGC). HLGC ultimately represents how much lending for housing the Fund could support in a given community. Determining the HLGC for a particular community will be a function of: the expected housing loan demand within the First Nation; the First Nation’s financial capacity; and the extent to which the community is willing to provide its guarantee for housing loans under the program. The Fund’s Credit Enhancement will be 10% of the principal value of eligible housing loans which are advanced, subject to the maximum amount (i.e., the HLGC) which has been approved by the Fund for the community.

Backstop Provided by 10% FNMHF Credit Enhancement Accumulates as the Volume of Loans Expands

While the Credit Enhancement will be 10% per loan, the payout upon default will be based on each lenders’ “Accumulated Coverage” within the community. In other words, as a lender’s business volume (more specifically, its pool of eligible, certified housing loans) expands in a community, its accumulated coverage amount increases as well. Accumulated coverage will be available to compensate lenders at any time during the life of the loan. If there is a claim, a lender would be able to seek reimbursement from the Fund up to the amount of Credit Enhancement which had been accumulated.

How does the Fund’s Credit Enhancement work?

For First Nations who qualify under the Access Criteria, the Fund will backstop the First Nation’s housing loan guarantees which are provided to eligible lenders under the program. In the event that borrowers default on their housing loans and the First Nation does not meet its obligations in guaranteeing the loan to the financial institution (for example, if there has been an economic downturn or other serious event which has affected the community’s financial situation), the financial institution will be able to seek reimbursement for a portion of its losses from the Fund.

The backing of the Fund does not excuse the borrower from repaying the loan nor the First Nation from paying the lender if the borrower fails to do so.

For a diagram which outlines how the Fund will work, please click here.

What happens upon the default by a First Nation?

In the event that the Fund pays a claim in relation to the default of a First Nation, the Fund will not approve any further housing loans in that community until the First Nation reimburses the lenders and the Fund. Any unclaimed accumulated Credit Enhancement coverage for the community will remain available to the lender/insurer in relation to previously-approved loans.

Where is Credit Enhancement available?

The Fund is intended to help on First Nation reserve lands and on settlement lands where appropriate, where borrowers are unable to provide mortgage security to financial institutions to obtain loans to purchase, build or renovate homes. Note that the Fund’s Credit Enhancement is not available to lenders in relation to land which has been designated under the provisions of the Indian Act, as lenders are able to secure these loans against a leasehold interest.

What types of land tenure and housing loans are eligible?

It is intended that the Fund will be permissive in nature. For First Nations which qualify, the following parameters outline the eligibility framework of the Fund with respect to borrowers, lenders, lands, loan purposes, tenure, and loan characteristics. Note that a First Nation’s leadership may choose to restrict the types or characteristics of loans within their community for which they would be prepared to provide the community’s guarantee. Eligibility for loans within a specific community will be subject to the terms and conditions of the agreement which exists between each First Nation and its lender(s).

For additional information or to seek clarification on the eligibility framework of the Fund, please contact us.

Eligible Borrowers:

  • First Nation Individuals;
  • Wholly-Owned First Nation Entities;
  • Partnerships where First Nation individuals or entities hold majority share.

For borrower qualifications, the Fund expects the lender to use their own due diligence based on normal and prudent market practices. The borrower must qualify financially.

Eligible Lands:

  • First Nation Reserves
  • Settlement Lands where there are loan security restrictions beyond the First Nation’s control
  • FNLMA Lands where there are loan security restrictions beyond the First Nation’s control.

Eligible Loan Purposes:

  • New construction
  • Purchase of Existing Units
  • Renovations (minimum $5,000)
  • Refinancing to increase the outstanding loan amount for housing purposes (i.e. Renovation — minimum $10,000). Any refinancing of existing housing loans shall be limited to a maximum of 25% of the HLGC for the community.

Eligible Tenure:

  • Homeownership
  • Rental
  • Cooperative
  • Condominium

Eligible Loan Characteristics:

  • All amortizing loans are eligible. No Lines of Credit or interest-only loans.
  • Maximum amortization of 25 years.
  • No minimum loan term.
  • Fixed and variable rate mortgages eligible.
  • Non-residential space limited to 20% of floor space and up to 20% of lending value.
  • Homes built subject to applicable Building Code (with National Building Code being the minimum standard) and inspected by qualified professionals.
  • Environmental Site Assessments (ESAs) for homeowner loans required only when lender or First Nation is aware of contamination. For rental loans, ESAs are required in all cases where there are seven or more units within the project.

Are all lenders eligible for Credit Enhancement?

In order to be eligible for the Fund’s Credit Enhancement, a lender must have an agreement in place with a First Nation under which the community would provide guarantees for housing loans made by the lender.

Lenders must apply to participate with the FNMHF. The FNMHF may require that the lender complete an application substantiating that the lender has the required competence, capacity and experience in residential lending to participate and become an eligible lender.

To download a Lender Application Form, click here.

How does a First Nation apply?

Click here for additional information about how to assess your community’s readiness to participate in this exciting approach to market-based housing.

To download an application form, click here.

Where can I learn more?

Information on how to contact us is available here.