The story highlights the incongruities written into the Dodd-Frank Act and now promulgated by the Consumer Financial Protection Bureau (CFPB). Barry Noffsinger, a regional manager for CU Factory Built Lending, one of the nation’s leading MH lenders, said, “He wasn’t asking the salesman to do anything that a real estate agent doesn’t do every day. It just makes no sense at all.”
With compliance costs quadrupling in the past three years for MH lenders, as Don Glisson, Jr., CEO of Triad Financial Services says, many small banks, credit unions and other MH lenders have shuttered their MH lending operations, leaving prospective buyers to rely on high interest loans or continue renting.
While co-author of Dodd-Frank, former Congressman Barney Frank says in a letter to a constituent that the measure was not intended to apply to manufactured homes, it is since the CFPB regulations went into effect, effectively prevents those with low-to-moderate incomes who want to move from renting a home to buying a home. These are the very people the CFPB alleges it is trying to protect. It particularly harms someone wanting to finance an MH valued under $20,000 from the sale— again, often hurting the most vulnerable.
Hollingsworth tells of a young family man with good credit in Louisiana who wanted to purchase a used manufactured home for $7500 to site on family-owned property. Unable to find an MH lender, he ended up paying a non-MH lender 36 percent interest, a payment which turned out to be less than half of apartment rental. “Our desire to buy the home outweighed our desire to not pay 36 percent interest,” said Eric Powell.
The Mortgage Loan Originator (MLO) rule which prevented the salesman from helping the farmer fill out the finance application also stems from Dodd-Frank, fall-out from the 2008 mortgage crisis that saw lenders steering borrowers to specific high-interest subprime loans in exchange for kickbacks. Although it has nothing to do with manufactured housing, the CFPB targeted the industry with special restrictions.
“Realtors refer customers every day to lenders, but CFPB says they’re exempt, because they’re not being compensated. But our people aren’t either,” says MH finance consultant Dick Ernst, president of Financial Marketing Associates, Inc. There is a huge difference between suggesting a possible lender for the purchaser of an MH and “steering” them to someone who might take advantage of them.
Two-thirds of purchases of manufactured homes are financed by chattel loans, secured by the home only. Few MH retailers can afford to keep an MLO-licensed sales person on staff, so applications to finance a home are shot-gunned to every potential lender, regardless of whether the prospective consumer may qualify with those lenders or not.
“In the past, a retailer could pre-qualify a buyer by accessing their credit reports and analyzing their income — just like every Realtor ® in America does — and with that info they could at least determine what lender not to send the application to,” says Glisson. When the MLO went into effect in 2014, Triad had to hire employees just to deal with the sudden onset of applicants who could not qualify for a loan.
He said, “Our origination cost per loan has skyrocketed. Pre-2014, we would approve about 50 percent of the applications we received, as they were pre-screened. Currently we approve about 30 percent … so our efficiency went down the tubes and we are working harder and spending more to make the same amount of loans. But not being able to show the customer any options is a disservice to the home buyer.”
Often, prospective home buyers get discouraged after being denied time and time again, and return to the rental market. Joseph Ravenelli in Ohio was pre-qualified for a $100,000 single-family home but decided he wanted to buy a $40,000 manufactured home in a community. He was unable to find a lender for the MH, and now continues to rent.
On the other side of the coin, a woman in Kentucky had a buyer for a used $20,000 MH, but financing was not available and she finally sold it for $5,000 cash.
It’s not just smaller lenders that are leaving the MH lending business: U. S. Bank said the regulatory environment was not conducive to MH lending and withdrew that arm of its operations.
MHLivingNews publisher L. A. “Tony” Kovach quotes CFPB Director Richard Cordray when he appeared before the Senate Banking Committee last month: “I don’t know what to make of some of the problems people are raising to me … because some of these lenders are quite profitable.” Kovach says: “The agency did not respond to a recent query asking how the profitability of “some” lenders, or even one lender, relates to consumer protection or consumer access to affordable home ownership — or how it compensates for shrinking opportunities to either buy or sell low-priced homes.”
Sam Landy, President and CEO of UMH Properties, Inc., no longer offers financing of MH in their many communities because of the new regulations, unless it’s third-party financing. In the past they had $30 million in loans to residents in their communities. Now, their rental market is booming.
Lenders who met with CFPB staff about the impact of Dodd-Frank on the industry came away empty-handed, with no direct answers, and no suggestion that the agency will change its rules, although it has the opportunity to do so.
However, despite opposition from the CFPB and other consumer groups, the House of Representatives passed the Preserving Access to Manufactured Housing Act, H. R. 650, which will remedy the MLO rule and return private lenders to financing MH that may sell for $20,000 and less. The companion bill in the Senate, S. 682, is expected to be voted on in the coming months.
Says Glisson: “All we want is a level playing field with the site-built real estate brokers and home builders who still have the ability to help their buyer find the best financing option for their situation.”
In last month’s Senate Banking Committee hearing with CFPB Director Corday, Senator Bob Corker (R-TN), noting the impact of Dodd-Frank on many of his low-to-middle income constituents in Tennessee who are having a hard time purchasing a home, said rural communities have few rental opportunities, and payments on a manufactured home are often less than rent.
Cordray responded: “That doesn’t sound optimal from anybody’s standpoint.”
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(Image credit: rentdirect)
