The below article by Mark Fogarty, writing in the June 23, 2014 edition of National Mortgage News, should be a “must read” for anyone in – or connected with – the HUD Code manufactured housing industry. Though mostly “old news,” the article nevertheless confirms, in compelling terms, how the manufactured housing industry and its consumers continue to be the victims of pervasive discrimination in Washington, D.C.; how that discrimination lies at the root of the industry’s decline over the past decade-plus; and how that discrimination must be ended for the industry to continue as the premier source of affordable non-subsidized housing for American consumers.
Ending this financing discrimination against the industry and manufactured housing consumers once-and-for-all, was, is, and continues to be, the key motivation behind MHARR’s effort, beginning in 2013, to incorporate mandatory inclusion language for all types of manufactured housing loans – and especially the chattel loans which comprise the vast majority of all HUD Code purchase loans – into pending Senate legislation to reform the two Government Sponsored Enterprises (GSEs). And regardless of what happens to that legislation, given uncertainties in the current Congress, the industry needs to ensurethat the clear, concise and mandatory manufactured housing inclusion benchmarks contained in the bi-partisan Senate bill are included in any future housing finance (or housing) bill.
The absolute need for such equalizing language in federal law is clearly shown in the Fogarty article, which illustrates, in stark terms (together with previous MHARR analyses), how the giant housing finance powers in Washington, D.C. have done – and continue to do — everything in their power to hold down the HUD Code industry, including – the collapse in FHA Title I lending; the refusal of the GSEs to securitize manufactured housing chattel loans; the GSEs’ (and industry competitor’s) opposition to the inclusion of chattel loans in the “Duty to Serve” (DTS); the failure, after four years, to enact a final DTS rule for anymanufactured home loans; and now the refusal of the GSEs to even disclose their manufactured home securitization numbers. And, as the article shows, even when the GSEs finally do something positive for manufactured housing, it is designed to benefit the industry’s largest entities, such as the new purchase and securitization program for community loans, with loans expected to go “to about 15 large manufactured housing community owners,” while thousands and thousands of smaller communities throughout the United States are completely ignored.
Of course, all of this discrimination is fully supported and urged-on by industry competitors in order to hamstring manufactured housing, as illustrated by the opposition of homebuilders – through the National Association of Home Builders (NAHB) — to the inclusion of chattel loans in DTS, among many other things.
The article makes it clear (once again) that sooner or later, the industry will need to decide that it has to become much more aggressive on all fronts in the nation’s capital to end baseless discrimination against its homes and its consumers.
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Manufactured Housing Suffers Worst Decline of Any Mortgage Niche
New homes took it on the chin during the mortgage bust, with starts sliding from more than a million in 2007 to as low as 435,000 in 2011, according to the Census Bureau. But for those who think this niche is the poster child for declining housing volume, it’s not even close. Manufactured housing placements have dropped 85% from their market high.
The placement numbers (meaning a unit placed on a lot) for prefab homes dropped from a market peak of 374,000 in 1998 to just 52,800 in 2012. Volume rose a little last year, to 56,500, according to the Census Bureau.
Manufactured housing is an odd niche. Only about one in six loans qualifies for regular mortgage financing. The unit has to be on land the borrower owns to qualify for Fannie Mae/Freddie Mac financing. If the land isn’t owned by the borrower, the housing doesn’t qualify for a conforming mortgage and financing must be obtained through higher-priced chattel mortgages extended by dealers or lenders. (A chattel mortgage means one extended on a movable object owned by someone, very apt in this niche since the collateral can be moved off the property in many cases.) Because of the practices of some lenders, manufactured housing got tarred with the predatory label in the last decade.
But manufactured housing remains important because it provides affordable housing options, especially in rural areas.
The split between “private property” (chattel loans) and “real estate” (mortgage finance) last year skews heavily to the former. According to the Census Bureau, just 7,700 units produced in 2013 qualified as real estate, while 43,900 were classified as private property.
There have been some signs of life in the niche recently. There’s a bill slowly making its way through Congress, the Preserving Access to Manufactured Housing Act of 2013 which amends the “high-cost mortgage” and “mortgage originator” definitions to help boost manufactured housing. The bill has been reported out of committee to the full House but has yet to emerge from committee in the Senate. Don’t count on it happening, though. One legislative rating source gives the bill a 14% chance of being signed into law.
Also, Freddie Mac this year has started to purchase and securitize manufactured community loans, meaning loans not on individual units but on the overall community’s land, infrastructure and amenities. According to David Brickman, Freddie’s executive vice president of multifamily, the program will “help to increase debt capital to rural areas and help provide housing options for underserved populations.” The primary income securing the notes will come from pad site rents, and the securities will be Freddie “K” type multifamily MBS.
“We anticipate doing about $1 billion a year” under the new program, says Kelly Brady, Freddie’s vice president for multifamily underwriting. The government-sponsored enterprise is working with four lenders initially and will expand to 22 next month. She expects loans to go to about 15 large manufactured housing community owners.
Freddie sees “a need for more competition” in this space as well as a need for another secondary market outlet for liquidity, Brady says.
The big reduction in manufactured housing is partly attributable to land and zoning issues, she says.
“There are a lot of barriers to entry,” she says. “Some don’t want a manufactured housing community in their community.”
This pushes these projects out to “secondary and tertiary” markets like Sturgeon Bay, Wis., she says, to name one current Freddie project. But being pushed out into the exurbs and rural areas is a plus for providing affordable housing in areas that may lack traditional rental units.
GE Capital is active in the community space, as well as a few other lenders likeWells Fargo, which touts its $6.5 billion of loans since 2000 and being designated the Community Lender of the Year by the Manufactured Housing Institute every year since 2007. Wells does community loans through Fannie Mae, conduit, and correspondent lending programs.
GE Capital says it has provided $1.5 billion in community finance since 2011. It has a $3 million minimum loan and has terms of up to 30 years. A big recent deal was a $351 million financing for 63 communities in the Southeast and Southwest. The financing was a mixed five-year fixed- and floating-rate loan.
Fannie Mae purchases mortgages secured by manufactured housing if titled as real estate. It does not reveal its manufactured housing lending volume. Patrick Simmons, director of strategic planning for Fannie’s economic and strategic group, noted in an analysis last year that manufactured homes “account for an outsized share of low-cost housing, particularly among owner-occupants.”
And he notes “the average price per square foot of a new manufactured home was $41.97, less than half the $86.30 per square foot cost of a new, site-built single-family structure, excluding land.”
The Federal Housing Administration and Department of Veterans Affairs also have manufactured housing programs. The loan limits for the FHA program are $69,687 for a manufactured home only, $23,226 for a lot only, and $92,904 for both.
The last time the loan levels were adjusted, in 2007, the Government Accountability Office noted there had been a huge falloff in annual FHA lending, from 300,000 loans to 1,500.
What’s the outlook for a resurgence of this kind of lending? According to Simmons, a revival “faces multiple obstacles, including competition from distressed sales of site-built single-family loans, historically low interest rates and record affordability for site-built homes, limited conventional financing options due to titling of most manufactured homes as personal property, an underdeveloped secondary market for manufactured home loans, and pending financial regulations that could further curtail manufactured home lending.”
Other than that, it’s all blue skies.
Mark Fogarty, Editor at Large at National Mortgage News, writes analysis and commentary based on his 30 years covering the mortgage industry.
