The HUD manufactured housing program, on June 14-15, 2016, held its second in-person conference with State Administrative Agencies (SAAs) and state and private Primary Inspection Agencies (PIAs) in as many years. Following the 2015 conference, in its report to members and the industry, MHARR observed that the meeting was “remarkable” in that it: “(1) illustrated the degree to which continuously-expanding, intensifying and costly regulatory mandates focusing on useless, yet time-consuming paperwork, red-tape and similar procedural minutiae – and program spending on those functions — have become detached from the reality of proven product performance; and (2) the degree to which the entrenched, revenue-driven program contractor has effectively taken control of the policy direction and de facto management of the federal program, at the expense of overall program accountability, the proper funding and involvement of the states and, ultimately, the industry and consumers.”
If anything, the just concluded 2016 HUD-SAA-PIA meeting confirms and strongly underscores these conclusions, as the program, under its current career Administrator, continues to churn out new and expanded pseudo-regulatory mandates, impositions and “interpretations,” that needlessly undermine the affordability of manufactured housing. Rather than “facilitating” the availability and use of manufactured housing by millions of Americans in need of affordable homeownership as directed by Congress in the 2000 reform law, the entire focus of the HUD program – almost 20 years after passage of that law — remains on an ever-expanding web of arbitrary “audits,” “record-reviews,” reports, paperwork and related red-tape that enriches revenue-driven program contractors (even as HUD funding for SAAs languishes), while needlessly driving-up regulatory compliance costs passed to consumers, all despite the fact that, by all available objective metrics and evidence, the consumer safety element of the program has already been fully achieved. Even worse, these impositions are now being compounded by a deeply-flawed HUD “on-site” construction rule featuring baseless, duplicative, multi-level “inspections” and mandates that threaten to restrict the technological advancement of the industry and its efforts to compete with other segments of the housing industry, again fully contrary to the 2000 reform law.
As was made abundantly clear at the conference — even as most states seek to comply with the letter and intent of the 2000 reform law, in pursuing a regulatory approach that simultaneously ensures both the quality and affordability of manufactured homes, based on the performance of today’s homes, instead of entrenched biases dating back 40 years or more — it is HUD that does not want to face the facts: (1) that the law has changed; and (2) that with the established quality of today’s manufactured homes, its regulatory system (including its new “on-site” rule) is outdated, needlessly complicated, unnecessarily costly, and ultimately an exercise in regulatory overkill, driven by self-interested, entrenched contractors, that is harming both the industry and consumers.
Among the key points and key pieces of information brought-out at the meeting are the following:
Subpart I: HUD presentations at the conference showed that the program, through unilateral “interpretations,” continues to expand an archaic and outdated system that in 2016 represents massive regulatory overkill. First, program personnel stated that manufacturer “defect” determinations must account not only for the “ordinary” use of the home or any component – as stated in the regulations, but also for “foreseeable” uses of the home or component. Under questioning by MHARR, HUD conceded that it was not part of the regulations and should instead be a “consideration” for manufacturers. Second, HUD personnel stated that unless specific information affirmatively excludes a home from a Subpart I class, it must be included. MHARR strongly objected that this mandate undermines a key change to Subpart I, originally proposed by MHARR, recommended by the Manufactured Housing Consensus Committee (MHCC) and adopted by HUD in 2014. That change replaced language stating that a “class” includes homes in which a defect “exists, or may exist” – which effectively required the manufacturer to be clairvoyant — with language stating that a class includes all homes in which a defect “exists or likely exists.” HUD’s new “included unless excluded” requirement effectively negates this change, taking the class determination process back to the unreasonable “may exist” standard. Despite this, a positive and significant point regarding Subpart I is that it is now becoming clear – based on private conversations with MHARR and public comments – that more and more states are coming to see Subpart I as wasteful, ineffective, outdated and a negative for both consumers and the industry, which, at a minimum, should be substantially changed.
Dispute Resolution: In the 23 “default” states administered by HUD, a grand total of eleven (11) dispute resolution (DR) “complaints” were received by HUD in Fiscal Year (FY) 2015. Of these, only eight (8) were deemed eligible for dispute resolution under the criteria established by Congress in the 2000 reform law. Similarly in FY 2016, only one (1) dispute resolution-eligible referral has been received. This continues to show a remarkably low level of federal dispute resolution referrals, consistent with the .019% referral rate for 2008-2014 detailed in MHARR’s April 16, 2015 report on last year’s HUD-SAA-PIA conference. This de minimus level of DR referrals shows: (1) that manufactured housing construction quality and consumer satisfaction remains consistently high despite efforts by HUD and its DR contractor since the 2015 conference to drum-up referrals; and (2) that HUD spending on the DR contract – pegged at $400,000.00 in HUD’s FY 2016 budget and $600,000.00 in the HUD program’s requested FY 2017 budget, is unnecessarily and unreasonably high – and should be reduced with a corresponding reduction in the compliance label fee. Again, many states expressed the view to MHARR that this program – given minimal referral levels — is wasteful and an unnecessary imposition.
Installation Regulation: The 2000 reform law was designed to provide states – which are closest to and have superior knowledge of installation issues – with a first-option to regulate manufactured home installation if they wished. The only condition in the law for this option was that state installation standards and programs – as a whole — must offer protection that equals or exceeds the federal installation standards used by HUD to regulate installation in non-complying “default” states. This proviso, based on dialogue during the legislative process, was never intended to give HUD the right to dissect state programs and substitute its standards for standards adopted under state law. Yet this is exactly what has been occurring for the past year or more, as HUD now routinely “reviews” state programs (and has now expanded its “reviews” to manufacturer installation manuals). As a result, and based on HUD’s earlier interpretation of the federal installation standards as being non-preemptive, consumers and the industry are faced with a “worst-of-both worlds” scenario in which localities (in both default and compliant states) are free to do as they please, even to the extent of using installation mandates as a pretext for excluding HUD Code homes, while HUD can – and has – forced approved states to change their standards or programs. This is directly contrary to both the letter and intent of the 2000 reform law, as stated by MHARR at the meeting, and as detailed by MHARR in a recent communication to HUD.
On-Site Construction: Despite unanimous calls from the MHCC and all program stakeholders for HUD to defer enforcement of this overly-costly and overly-complex system for 12 months pending further MHCC review, the program Administrator continues to press forward with its implementation. This program, which was designed by the MHCC to make the site-construction process more flexible and less costly than the current Alternate Construction (AC) system, has been distorted by HUD’s final rule to the point that it is now expected to add between $1,000.00 and $1,500.00 to the cost of a new site-completed home and is driving manufacturers to eliminate such designs – a bonanza windfall for the industry’s competitors (i.e., site-builders, realtors and the rental housing industry) at the expense of the industry and consumers, courtesy of HUD.
SAA Funding: SAAs, during multiple presentations, emphasized the need for additional funding, particularly in light of new regulatory mandates being imposed by HUD. However, an MHCC-approved proposal to normalize funding for all SAAs consistent with the 2000 law continues to languish at HUD and may not even be issued as a proposed rule until 2017 due, supposedly, to the impending change in administrations. It may well be, however, that HUD – after initially floating a proposal that would have drastically cut funding for many SAAs — is now slow-rolling this critical change, even as it overpays contractors for unnecessary, excessive and unauthorized activity, in order to force at least some SAAs out of the program. If this were to succeed, it would present a nightmare scenario – particularly for the industry’s post production sector (see, next heading) – insofar as the elimination of any SAA would then bring HUD and its revenue-driven contractors into that state.
Word of Caution to the Post-Production Sector: As an aside, there must be a continuing word of caution to the industry’s post-production sector. As evidenced by all of the above – but particularly HUD’s drive to expand the scope of Subpart I, extend its installation mandates and procedures into complying states and drum-up DR referrals, the industry’s post-production sector is increasingly becoming a target for HUD, as it enlarges its web of unnecessary and unnecessarily costly regulation. As MHARR has consistently maintained, the post-production segment, as part of a comprehensively federally-regulated industry, but with no independent national representation in Washington, D.C., is increasingly becoming a target in the nation’s capital, that would be well-advised to start considering such representation which could then join forces with other national industry representatives to fight-back against baseless regulatory impositions that are needlessly undermining the affordability of manufactured housing and shrinking the industry’s share of the overall housing market.
In view of all the damaging HUD program actions outlined above and many others previously documented by MHARR, program stakeholders are beginning to realize that the program has significantly deteriorated over the past two years since the selection of the current career Administrator. This confirms the wisdom of Congress (and all the stakeholders that supported passage of the 2000 reform law) in mandating the appointment of a non-career Administrator for the federal program, who would be independent of the influences of revenue-driven program contractors and fully accountable to both the Administration and Congress – as was demonstrated during the initial years after the adoption of the 2000 reform law when the program did have an appointed, non-career Administrator. Consequently, all program stakeholders should now concentrate on changing the selected career leadership of the program and ensuring that new program leadership fully complies with the directive of the 2000 reform law for an appointed, non-career program administrator.
