Roughly once a month, Mark Weiss, J.D., President and CEO of the Manufactured Housing Association for Regulatory Reform (MHARR) pens an “Issues and Perspectives” (IP) which are laced with facts and evidence. Each column demonstrates his mix of a sharp wit, keen legal and other insights, and/or an equally sharp elbow. His latest IP was provided to MHProNews and is posted below. If someone does the math of industry tenure among the two national trade groups, Weiss and his predecessor Danny Ghorbani arguably have far more institutional memory than all those employed at their larger rival, the Manufactured Housing Institute (MHI), combined. Ghorbani was the founding president and CEO of MHARR. He served as an MHI vice president prior to MHARR. Ghorbani brought Weiss on board decades ago. Ghorbani continues to serve as a senior advisor to MHARR and Weiss.
Roughly 75 years of total industry experience are held between the two, and their office colleague likewise has served MHARR for a number of years.
Rephrased, for someone who wants to know something about the realities of modern manufactured housing, it would be a serious error to ignore MHARR’s vantagepoint. Their history, unique objectives, and accomplishments on behalf of their members are linked accordingly.
Weiss’ insightful Issues and Perspectives below will be followed by additional related information, analysis, and commentary useful for industry newcomers, veterans, and researchers alike.
Note: the links below are not in the original but were included by MHProNews to illustrate specific points he made, and thus underscore the accuracy of Weiss’ statement.
MHARR — ISSUES AND PERSPECTIVES
By Mark Weiss
MAY 2021
“FREDDIE MAC UNWITTINGLY PROVES ITS OWN FAILURE”
Remember Inspector Renault in the classic film “Casablanca,” who was “shocked, shocked” to find gambling going on at Rick’s? Well, we now have something similar with mortgage giant Freddie Mac. After doing virtually nothing — along with its cohort Fannie Mae — for a decade-plus to implement the Duty to Serve Underserved Markets (DTS) mandate with respect to the vast bulk of the mainstream HUD Code manufactured housing consumer finance market, Freddie Mac, in a recent analysis, is “shocked, shocked” to find, of all things, a significant and growing gap between the demand for – and the supply of – affordable “entry-level,” starter housing. But while it diagnoses the problem, it fails to draw the obvious connection between its own anti-DTS policies and the exponential growth of that supply/demand gap, which Freddie Mac warns, threatens the “wealth, health and stability of American communities.”
The analysis, by Freddie Mac Vice President and Chief Economist, Sam Khater, titled “The Significant Shortage of Starter Homes,” was published on April 15, 2021. It makes a number of significant points and observations regarding the American housing market in general, and the market for affordable “starter” homes in particular. Most relevant, though, to DTS, the manufactured housing market and Fannie and Freddie’s joint failure to implement DTS thus far in anything approaching a market-significant manner, is the fact that, as of the end of 2020, the supply of “entry-level” single-family homes in the United States stands some four million units below existing demand. According to other housing experts, such as Edward Pinto and Tobias Peter at the American Enterprise Institute, that gap is actually even larger – something in the neighborhood of eight million units or double the Freddie Mac estimate. But for our purposes, let’s assume that Freddie Mac’s number — which is bad enough — is correct. What does this mean for homeownership in America and for affordable, non-subsidized manufactured homeownership in particular, and what can be done to alleviate what Freddie Mac characterizes as “the significant and rapidly widening gap between entry-level supply and [entry-level] demand?”
Ultimately, Freddie Mac’s analysis concludes that the “main driver” of the entry-level housing supply/demand gap, is a “long-term decline in the … supply of entry-level single-family homes, or ‘starter homes.’” (Emphasis added). The analysis thus notes that in the 1970s, “the construction of new, entry-level homes averaged 418,000 units per year.” During the 1980s, however, that figure fell to an average of 314,000 units per year. The trend of reduced supply continued through the 1990s, with an average of 207,000 entry-level units, and in the 2000s, with an average of 150,000 units per year. Subsequently, during the 2010s, average entry-level housing supply according to Freddie Mac, declined even further, to an average of 55,000 units per year. “In the span of five decades,” then, the report concludes, “entry-level home construction fell from 418,000 units per year in the late 1970s to 65,000 in 2020.”
The gap between housing supply and housing demand at the “entry level,” consequently, is a long-term phenomenon that has been growing steadily, for decades. As the analysis emphasizes, “very simply, renters can’t buy houses that don’t exist.” Even worse, the analysis predicts that the gap between supply and demand will continue, stating: “[W]e expect the housing supply shortage to continue to be one of the largest obstacles to inclusive economic growth in the [United States]. Simply put, we must build more single-family entry-level housing to address this shortage, which has strong implications for the wealth, health and stability of American communities.” (Emphasis added).
Well, what a shock! Apparently, there is, and has been, a chronic shortfall in the availability of affordable, entry-level, starter homes. How could that happen? And who could have seen that coming? And what a comfort it is to know that Freddie Mac – which along with its sister enterprise, Fannie Mae – after decades of hypocrisy, discrimination and ongoing failure, has at long last “diagnosed” the obvious. But why is there a “starter housing” shortfall and, more importantly, what – if anything — are Freddie and Fannie doing about it?
The “why” part of the question is easy. There is a shortage of “entry-level,” “starter” homes at least in part because Fannie and Freddie have not provided the necessary level of financing support for that segment of the market – a point that MHARR and others have been making for years. It’s a form of prejudice and bias – a willful “blind spot.” It’s why Fannie and Freddie almost collapsed in 2008 and ultimately had to be bailed-out by American taxpayers. Instead of providing much-needed financing support for lower-cost “starter” homes (such as manufactured homes) that would be affordable for qualified but lower and moderate-income buyers, Fannie and Freddie, for years, catered instead to more well-heeled purchasers, pushing them toward ever-more costly homes that they were barely qualified to finance. When the economic crisis hit in 2007/2008 and interest rates on subprime, adjustable and other “gimmick” loans shot up beyond what the borrowers could afford, the flood of resulting defaults almost sank the good ship Fannie/Freddie. Neither Freddie nor Fannie, however, could be troubled during that period with providing securitization or secondary market support for truly affordable mainstream, non-subsidized manufactured homes.
Congress, fortunately, had no such blind spot. When the credit crisis hit, Congress knew what the problem was, and what to do about Fannie and Freddie shoehorning unqualified or barely qualified borrowers into high-cost homes through gimmick loan products, instead of serving the lower and moderate-income Americans prioritized by their respective charters. With the support of all relevant stakeholders, Congress — through the DTS directive of the Housing and Economic Recovery Act of 2008 (HERA) — instructed Fannie and Freddie to actually begin serving fully-qualified but less affluent homebuyers seeking to purchase truly affordable homes within the manufactured housing market (and others). And, not to put too fine a point on it, this was not just a random request or polite invitation by Congress. Rather, it was an affirmative, mandatory command to finally begin serving the affordable, mainstream manufactured housing market in market-significant numbers.
Through DTS, Congress effectively recognized and diagnosed – nearly 15 years ago — the condition that Freddie and presumably Freddie are only now “shocked” to find. Congress, quite simply, recognized that the Enterprises were not serving the affordable, entry-level segment of the housing market, and directed them to do so, specifically by providing, among other things, market-significant levels of support for inherently affordable, non-subsidized, mainstream manufactured housing. Full compliance with – and implementation of — DTS, accordingly, on a market-significant basis, would likely have already stopped and reversed the expanding gap between affordable, entry-level housing supply and demand as diagnosed and exposed by Freddie Mac in its April 2021 analysis.
But, of course, more than a decade later, Freddie Mac and Fannie Mae instead of affirmatively serving the mainstream HUD Code market under DTS, are seemingly doing their utmost to evade and avoid their DTS obligations altogether. Some 13 years after the enactment of DTS, then, as MHARR has frequently emphasized, Fannie and Freddie still do not provide any support for the personal property (chattel) loans that constitute nearly 80% of the consumer financing for mainstream HUD Code manufactured homes and have provided support for only a miniscule portion of the manufactured housing real estate market, amounting to no more than 5-6% of the total HUD Code market as previously calculated by MHARR. Effectively, then, Fannie and Freddie are – and have been – subverting Congress’ prescribed remedy for the very phenomenon they now claim to suddenly discern. As a result, it’s not surprising – and should not be surprising – that the affordable housing gap that DTS was designed to remedy still exists and, as “discovered” by Freddie Mac, is still growing.
Meanwhile, rather than providing consumer financing support for affordable, mainstream manufactured homes as directed by Congress, Fannie and Freddie are instead trying to divert DTS support to significantly more costly MH Advantage, ChoiceHome and so-called “Cross-Mod” homes, produced almost exclusively by the industry’s largest corporate conglomerates. Of course, in the real world, these MH Advantage, ChoiceHome and Cross-Mod offerings have generated virtually no originations at all (much the same as their early 2000s predecessor, the “MH Select” program). But what if they did? Those originations would not, by definition, increase the level of secondary market support or securitization for affordable, mainstream manufactured homes – which was and is the entire point of DTS. Consequently, as MHARR has also stressed, these programs are not so much an “effort” to implement DTS for the mainstream manufactured housing market, as they are an effort to sidestep DTS by fundamentally altering and distorting the manufactured housing market to fit the preexisting prejudices and biases of Fannie and Freddie.
Freddie Mac’s April 15, 2021 analysis, then, purports to diagnose a problem that Freddie and Fannie have themselves helped to create – and perpetuate — through, among other things, their continuing failure to serve the affordable mainstream manufactured housing consumer financing market as mandated by DTS. Instead, then, of claiming to “discover” a condition (i.e., the long-term shortage of affordable “starter” housing) that is and should be obvious to anyone with a pulse, Freddie and Fannie should instead be “discovering” ways to solve that problem through the full, market-significant implementation of DTS – including manufactured housing personal property loans.
That being said, and in fairness to Fannie and Freddie, there are other contributing causes to the long-term decline in manufactured housing availability, including the Government National Mortgage Association’s (GNMA) noxious “10-10” rule, which has decimated the previously thriving Federal Housing Administration (FHA) Title I manufactured housing program, and exclusionary/discriminatory zoning, which has kept affordable, mainstream manufactured housing out of far too many communities across the United States, to the detriment of the very populations that the creators and enforcers of those provisions are sworn to represent and protect. But neither Fannie nor Freddie is in charge of – or responsible for – FHA/GNMA policy or discriminatory/exclusionary zoning. They are, however, responsible for their own implementation of DTS and whether or not mainstream, affordable manufactured housing consumers can get access to necessary consumer financing on the same, equitable basis as other homebuyers. And it is their failure to implement DTS for affordable, mainstream manufactured housing – over more than a decade – that, in substantial part, has allowed the destructive shortage of affordable, “entry-level” single-family starter housing to grow and fester.
Instead of publicly strutting, then, over diagnosing a problem that: (1) has previously been diagnosed by Congress; and (2) should be obvious to anyone connected to the housing market, Freddie and Fannie should instead be working to address and remedy that problem. And that, in turn, means fully and effectively implementing the DTS mandate within the manufactured housing sector, in a market-significant manner. Rather than bemoaning the supply/demand gap in the market for affordable, entry-level, starter housing, Fannie and Freddie should be looking in the mirror, at their own failure to implement the remedy that Congress has already prescribed for this significant and growing problem. Instead of more excuses, now is the time to fully implement DTS for the mainstream HUD Code manufactured housing market.
Mark Weiss
MHARR is a Washington, D.C.-based national trade association representing the views and interests of independent producers of federally-regulated manufactured housing.
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The graphic below and what follows are not part of the MHARR perspective, above.
Additional Information, Analysis, and Commentary
As was linked above, Tobias Peter of the American Enterprise Institute (AEI) Housing Center told a Senate committee recently that the government action/inaction was causing the affordable housing crisis.
AEI Housing Center’s Edward Pinto, J.D., as was reported in a statement to MHProNews linked here, shared the following.
James A. Schmitz, a senior economist and researcher for the Minneapolis Federal Reserve, said on May 1, 2021 the following as part of an Op-Ed to one of his state’s flagship publications, The Star Tribune, entitled “For affordable housing, construction needs modernization.”
Schmitz said: “The fundamental reason for the increasing cost of housing (relative to other goods) is that the construction sector employs an outdated and inefficient technology. Rather than manufactured homes in factories, they are constructed outside, with a centuries-old technology sometimes called the “stick-built” method.” He went onto say that “An inefficient technology is used for housing because producers in the stick-built industry, whose existence would be threatened by production of homes in factories, have formed monopolies to sabotage factory-built homes.”
Schmitz and his colleagues’ work in exposing the harm to millions caused by “sabotage monopolies” have been previously highlighted in reports linked above and below.
In that May 1, 2021 Star Tribune op-ed, he went on to make these points: “Monopolies in stick built construction have employed many weapons to sabotage factory built homes…” He asserts that HUD and builders are “…the monopolies inflicting the greatest damage to the factory-built housing industry.”
He added, “manufactured homes, which are typically restricted to undesirable locations…” have been limited, which thus harms the creation of more affordable manufactured or modular housing. “Groups have been attempting to change these rules [zoning and placement barriers] for decades, with little success.”
With that backdrop from outsiders looking in, even newcomers can begin to grasp why manufactured homes are operating at a level significantly lower today than when Warren-Buffett-led Berkshire Hathaway entered the manufactured home industry nearly two decades ago.
It is no surprise when MHARR’s industry veteran and RV MH Hall of Fame inductee Ghorbani agrees with Weiss, as reports linked above and below make clear. After all, they have worked side-by-side on behalf of manufactured housing independents for decades. They are deeply imbued with a keen understanding of the key federal laws and how they could benefit the millions who thirst for affordable housing.
But when expert outsiders looking into manufactured housing in several broad points agree with MHARR, that is useful and thus of keen interest to those who recognize that for the affordable housing crisis to be abated, that the manufactured home industry must be allowed to flourish.
That obliquely begs the question: why is it that Berkshire-dominated MHI has failed to effectively raise some of these same discussion points that these outsiders or MHARR have done so consistently and persistently?
As the latest data reflects, there is finally a surge in manufactured home production.
That surge was almost inevitable. But the fact that it took some 2.5 years of declining shipments during an affordable housing crisis to achieve that March 2021 production increase points to the kind of “sabotage monopoly” influences Schmitz and his fellow researchers have written and spoken about in recent years.
It also broadly points to failures that Pinto and Peter at the AEI Housing Center have been documenting.
It is no surprise to discover that nuances here and there are different between each of those experts named above that hail from outside of manufactured housing. But in a broad sense, they add to the compelling case that federal regulators along with certain corporate and their nonprofit front-groups are part of the problem. At least thus far those regulators – under both Democratic and Republican administrations – have not been part of the solution.
Ironically, MHI has documented the embarrassing trends in the Berkshire-era, even though they have tucked away that evidence here and there. Only MHProNews and our sister-site have been willing to invest the time to organize and present those facts to those seeking a coherent and evidence-based explanation as to what has gone wrong in the affordable manufactured home industry that is today a mere shadow of its former glory days.
Once more, it is those willing to look at the history of their own former MHI presidents statements – see examples linked here, here, here, and here – that the startling nature of the failure of MHI comes into focus. And it isn’t MHI, but rather the National Association of Realtors (NAR) that made this cogent argument that is somehow missing from MHI’s website.
That overview of insiders and outsiders looking into the malaise impacting modern manufactured housing during a time when far more costly conventional housing has been documented to be roaring tees up this return to Weiss’ thesis.
- Weiss, with decades of industry-specific insights has wryly exposed the hypocrisy of the GSEs and their Inspector Renault style of feigned “shock” over the affordable housing crisis’ growth.
- As Weiss deftly made clear, absent the artificially constrained sales of manufactured homes, what other outcome could be expected?
- In pointing the finger, Freddie Mac – and by extension, Fannie and FHFA – have three metaphorical fingers pointing back at themselves. Congress passed laws to address these concerns some 13 and 21 years ago. The document posted on the FHFA website linked here is unpacked below. Weiss called what the FHFA and the GSEs are doing with DTS a “shell game.”
What outsiders looking in should explore is the degree to which forces inside of manufactured housing have colluded with outsiders as part of a “sabotage monopoly” ploy. From the vantagepoint of Buffett-world, this is simply the castle-and-moat stratagem made visible. Who says? Samuel “Sam” Strommen at Knudson Law.
While many terms could be applied to this, such as the Iron Triangle or “sabotage monopoly” tactics, the bottom line is that literally tens of millions have been harmed by these institutional failures to follow existing laws.
Millions of existing manufactured homeowners are negatively impacted to the tune of billions of dollars in lost valuation due to these institutional failures. Plus, there is the harm to tens of millions who would relish their own part of the American Dream of affordable home ownership that could put them on the road to generational wealth creation.
Manufactured housing underperformance has fostered barriers of entry, persistence, and exit. That has ripple effects. That also happens to benefit the Berkshire brands and their allies that dominate MHI – is that a coincidence?
The AEI Housing Center has made a point that MHProNews raised a few weeks ago. Namely, that absent a robust growth in affordable manufactured home ownership, the economy will have trillions of dollars annually in avoidable economic drag. Who says? The NBER researchers (National Bureau of Economic Research) shown below along with other experts inside and outside of manufactured housing that are cited in the report linked below.
As Edelman and others tell us that the public is increasingly dubious about what officials are saying, the time to end the chicanery that enriches a few at great cost to the many is now. To avoid pitchforks or a police state, said billionaire Nick Hanauer, the playing field must be leveled.
That leveling can and should be achieved through existing laws being properly enforced. Weiss and Ghorbani, because of the highly consistent efforts of MHARR members, have been fighting this fight for years. The wisdom of their battle is becoming ever more apparent. Failure to do so will only tip the economy and the nation into an ever more feudalistic system. Who says? Thinkers such as the sober minded lifelong Democratic, Robert F. Kennedy Jr.
Posturing and feigned protests by those who are responsible for the bulk of the problems of our society must be addressed. Weiss hammers away at the facts and evidence that point to decades of institutional failures. The consequences ripple far and wide throughout our economy and society.
Weiss is correct to use every tool in his quiver to rally thoughtful people to act in favor of enforcing good existing laws.
Because beyond the feigned Inspector Renault outrage at a GSE, those responsible for the sad data that Freddie Mac admits to obliquely pointed to the root causes. If Hanauer’s “pitchforks” thesis is correct, the status quo could well face a serious reckoning if the powers that be continue to fail to act properly. ##
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Our thanks to you, our sources, and sponsors for making and keeping us the runaway number one source for authentic “News through the lens of manufactured homes and factory-built housing” © where “We Provide, You Decide.” © ## (Affordable housing, manufactured homes, reports, fact-checks, analysis, and commentary. Third-party images or content are provided under fair use guidelines for media.) (See Related Reports, further below. Text/image boxes often are hot-linked to other reports that can be access by clicking on them.)
By L.A. “Tony” Kovach – for MHProNews.com.
Tony earned a journalism scholarship and earned numerous awards in history and in manufactured housing.
For example, he earned the prestigious Lottinville Award in history from the University of Oklahoma, where he studied history and business management. He’s a managing member and co-founder of LifeStyle Factory Homes, LLC, the parent company to MHProNews, and MHLivingNews.com.
This article reflects the LLC’s and/or the writer’s position, and may or may not reflect the views of sponsors or supporters.
Connect on LinkedIn: http://www.linkedin.com/in/latonykovach
Related References:
The text/image boxes below are linked to other reports, which can be accessed by clicking on them.
