An MHARR delegation met with officials of the Federal Housing Finance Agency (FHFA) on September 15, 2015 to address the status and substantive aspects of the still-pending “duty to serve underserved markets” (DTS) provision of the Housing and Economic Recovery Act of 2008 (HERA). During this meeting, FHFA officials confirmed – consistent with a longstanding MHARR policy priority – that FHFA will be issuing a new DTS implementation rule, in the place of its fatally-deficient June 2010 proposed DTS rule, possibly as soon as October 2015. Upon the publication of this new proposed rule, MHARR will submit appropriate comments on behalf of members and the industry’s small businesses. Critical questions still remain, however, as to the final content of the new proposed rule and, most importantly, its treatment of manufactured housing personal property (chattel) loans.
MHARR, as an originator of DTS as it relates to manufactured housing and consistent supporter of its full implementation by FHFA and the Government Sponsored Enterprises (GSEs), has continually and forcefully stressed – and did so once again at this meeting – the absolute necessity of securitizing manufactured home chattel loans as part of any final DTS rule and DTS implementation by the GSEs.
Given the fact that this critical issue is rapidly coming to a head — and given its complexity – some background regarding DTS is essential. In relevant part, while the securitization of manufactured housing chattel loans – which constitute a substantial majority of all manufactured housing loans and provide consumers with access to the industry’s most affordable products – pursuant to DTS was specifically authorized by Congress in HERA, FHFA’s proposed 2010 DTS implementation rule expressly excluded allchattel loans. In written comments submitted at that time (and provided to Congress) MHARR pointed out that the exclusion of manufactured home loans from DTS was not only contrary to the clear intent of Congress in HERA, but was also based on outdated loan performance information pre-dating the full implementation of nationwide dispute resolution and installation regulation under the Manufactured Housing Improvement Act of 2000, as well as data skewed by one large portfolio of loans acquired by one of the entities from a lender that subsequently went bankrupt. As a result, MHARR, in those comments – and in parallel engagement with Congress — called on FHFA to go back to the “drawing board” and either publish a revised proposed rule or a modified final rule that included the full securitization of manufactured home chattel loans.
During the remaining tenure of FHFA’s previous Acting Director, Edward DeMarco, DTS implementation was held in abeyance under a policy directive based on the FHFA conservatorship of the GSEs that effectively prohibited the GSEs from developing or offering any “new products” – with DTS-compliant manufactured home loans effectively deemed to be “new products.” With the appointment and confirmation of former-Representative (and strong supporter of manufactured housing) Melvin Watt as FHFA Director in 2014, however, MHARR immediately saw an opportunity – concurrent with its successful effort to include full manufactured housing loan securitization language in bi-partisan GSE reform legislation pending in Congress (S. 1217) — to revive DTS, on an administrative basis, as a means to ensure the equal securitization of all types of manufactured housing loans for so long as the GSEs remain in operation under the current housing finance structure.
After FHFA – consistent with MHARR’s position as set forth in its 2010 DTS comments and continually thereafter — announced in its “2014 Strategic Plan for the Conservatorships of Fannie Mae and Freddie Mac” that it would “revisit” the initial proposed DTS rule, MHARR again met with FHFA officials in July 2014 to stress and reiterate the absolute necessity of chattel loan securitization as part of DTS. At that time, MHARR was advised that the Agency was working on a revised DTS rule and that Director Watt was asking stakeholders to “wait” and withhold any further activity pending that re-examination by FHFA – a request that was honored by MHARR.
It now appears, though, that since that time, FHFA did, in fact — as acknowledged at the September 15, 2015 meeting – engage in closed discussions with representatives of the industry’s largest businesses – who until that point had been focused almost exclusively on amending elements of the Dodd-Frank consumer finance law including, most particularly, its “high-cost” loan provisions — and a “consumer” group. When pressed, however, by MHARR as to whether those discussions included officials of the National Manufactured Home Owners Association (NMHOA), a group of actual manufactured homeowners, the FHFA officials stated that they had not.
Consequently, although FHFA officials at the September 15, 2015 meeting denied “negotiating” with these parties on the content and/or parameters of a new DTS implementation rule, the officials refused to address any aspect of the discussions that did occur. As a result, it is unknown what input FHFA received as a result of those discussions, what impact that input could or will have on the final content of any new rule, and whether that input could derail the effort to include the full securitization of manufactured home chattel loans as part of the new DTS rule – a distinct possibility given the tone of certain FHFA comments at the meeting.
MHARR, however, made it clear — once again — that, in accordance with the specific authority provided by HERA, manufactured home chattel loans, consistent with the GSEs’ mission to support home ownership for lower and moderate-income Americans, must be included as part of any final DTS implementation rule and that any further exclusion or significant restriction on the securitization of chattel loans will result in vigorous MHARR opposition to any such rule including, but not limited to, further Congressional intervention.
2. Recently Issued HUD Regulatory Memoranda
On August 31, 2015, the HUD program Administrator issued two regulatory memoranda, concerning: (1) “Chassis Bonding Connections” and (2) “Design and Quality Assurance Manual Deviation Reports.” While both of these memoranda involve interpretations of the standards and Procedural and Enforcement Regulations which add new elements and practices to each, neither were submitted to the Manufactured Housing Consensus Committee (MHCC) in advance for review and approval as required by section 604(b)(6) of the Manufactured Housing Improvement Act of 2000 – even though the MHCC had just met less than two weeks prior to their publication. This type of activity once again illustrates the continuing tendency of both the program and the program contractor to skirt and circumvent the requirements of the 2000 reform law and particularly the key role of the MHCC in reviewing “interpretations” of the standards and regulations.
Specifically, while the “Chassis Bonding Connections” memorandum reiterates pre-existing HUD interpretations of section 3280.809(d)(2) which allow the use of “self-tapping screws to bond a grounding terminal to the steel chassis” and the continued use of “sheet metal screws … for bonding metal heat ducts to [the] frame,” the memorandum apparently breaks new ground in forbidding the use of “sheet metal screws … to bond a grounding terminal to the steel chassis” based on an interpretation of the section 250.8 of the 2005 National Electrical Code (NEC) which prohibits the use of “sheet metal screws … to connect grounding conductors or connections to enclosures.”
While it remains to be seen whether an interpretation equating an “enclosure” to a “chassis” is substantively valid, (which based on input from industry experts, it is not) section 604(b)(6) of the 2000 reform law is quite clear in requiring that “Any statement of policies, practices, or procedures relating to [the] construction and safety standards … that constitutes a statement of general applicability to implementinterpret or prescribe law or policy” must be approved by the MHCC, in advance, or be deemed “void.” Insofar as the “Chassis Bonding Connections” memorandum interprets the NEC and the HUD standards in a way that changes previous practice by specifically barring the use of sheet metal screws for bonding a grounding terminal to the steel chassis, that interpretation should have been brought to the MHCC for its input and consensus recommendation, and HUD could easily have done so. Its continuing refusal to fully comply with this and other aspects of the 2000 reform law represent a serious program failure that must be addressed and resolved.
Similarly, the “Design and Quality Assurance Manual Deviation Reports” memorandum exceeds the letter of the existing regulations and adds a new “interpretation” of those regulations by requiring that a manufacturer, upon receiving a deviation report, “immediately” remove “those designs or manual pages from each … affected production facilit[y],” subject to a subsequent “Presentation of Views,” which, by regulation, must be noticed in the Federal Register and could take weeks or even months to convene and conclude. Again, such an interpretation of the regulations, adding a new element to their substantive mandate for manufacturers, is subject to section 604(b)(6) of the 2000 reform law. As such, it should have been brought to the MHCC in advance and still must be brought to the MHCC in order to be valid in accordance with the law.
MHARR has already communicated with HUD officials regarding this matter and will press HUD, consistent with the 2000 reform law, to bring both of these issues to the MHCC in conjunction with its scheduled January 2016 meeting in Louisville, Kentucky.
