REPORT
JULY 28, 2015
IN THIS REPORT:
- HUD FUNDING PROPOSAL THREATENS STATES
- HUD FORCED TO COMPLY WITH 2000 LAW’S CONTRACT PROVISION
- HOME OWNERSHIP HITS 20-YEAR LOW AS DISCRIMINATION WORSENS
- STOPPING HIGH-COST ENERGY REGULATION
- FAIR HOUSING, “DISPARATE IMPACT” AND TARGETED EXCLUSION
- CLOSED-DOOR ACTIVITY COULD DAMAGE CHATTEL SECURITIZATION
HUD FUNDING PROPOSAL POSES DIRE THREAT TO STATE PARTICIPATION IN HUD PROGRAM
MHARR has learned that the HUD manufactured housing program is considering increasing per unit payments to State Administrative Agencies (SAAs) from current levels – i.e., $2.50 per floor for each unit sited in the recipient state and $9.00 per floor for each unit manufactured in the recipient state – to $10.00 per floor and $20.00 per floor respectively, or to $30.00 per floor, total, for units manufactured and then located within the same state. Although this increase in per unit SAA payments is consistent with long-standing calls by MHARR for an increase in SAA funding, HUD – while paying millions of dollars to contractors for unnecessary “make-work” activity — appears poised to implement these per unit increases in a way that would actually reduce overall funding for many SAAs and potentially force a significant number of SAA states out of the HUD program – a result that MHARR vehemently opposes.
Because the HUD program, as designed by Congress, is a federal-state partnership — and must remain so — increased funding for SAAs (and corresponding reductions in funding levels for revenue driven program contractors) has been a consistent priority for MHARR since the enactment of the Manufactured Housing Improvement Act of 2000. Unlike private contractors, which, with HUD’s blessing, have drastically expanded their role, functions and influence within the program with little or no accountability, SAAs, as state entities, are broadly accountable to their state governments, legislatures and ultimately to voters and the public. Yet, while HUD funding for program contractors increased by nearly 30% between 2005 and 2014, budgeted payments to SAAs fell by 50% over the same period. Thus, when HUD, in May 2014, proposed a 156% hike in the label fee paid by HUD Code manufacturers, MHARR, in its official communication to Congress, specifically called on HUD to use additional program revenues to increase funding for all state SAAs and correspondingly reduce contractor funding.
While the failure to address SAA funding for over a decade is inexcusable – and a byproduct of industry weakness in dealing with the HUD program — there is significant concern that HUD, through its expected funding proposal (and if allowed to do so), could ultimately pull defeat from the jaws of victory for the states, consumers and the industry.
Specifically, HUD, while increasing per floor payments, appears poised to reduce overall SAA funding through yet another misreading of the Manufactured Housing Improvement Act of 2000. At present, SAAs are paid based on the much higher industry production levels that existed at the time of implementation of the 2000 reform law (i.e., 250,366 HUD Code homes produced in 2000). Under HUD’s pending proposal, however, the funding baseline would drop to current production levels (i.e., the 64,331 HUD Code homes produced in 2014), while eliminating the “supplemental payments” to SAAs that have been used to make-up the difference between the 2000-2001 production “baseline” and current production. Many SAAs have already indicated that they would likely drop out of the program in that event, leaving the program even more firmly under the de facto control of its entrenched monitoring contractor – a development reminiscent of the contractor’s 1990s attempt – stopped by MHARR — to establish itself as the program’s “super-inspection” agency.
And while some in the industry are playing down the potential impact of massive state defections from the program, cavalierly treating HUD’s proposed action like a lottery, creating “winners and losers,” the fact remains that any such change – in addition to having a devastating impact on the lives, careers and investments of those directly affected – would fundamentally alter the nature of the HUD program, with disastrous impacts on all program stakeholders, by: (1) further empowering entrenched revenue-driven program contractors; (2) undermining overall program accountability even further; and (3) undermining the direct liaison that the program currently has with state and local-level government officials via the participation of state SAAs.
In the event that HUD attempts to proceed with a reduction in overall payments to the SAAs, any such proposal will be immediately challenged by MHARR. The relevant provision of the 2000 reform law, section 620(e)(3), “Payments to the States,” is designed to prevent payment reductions to the states by providing that “the Secretary shall continue to fund the States … in … amounts which are not less than the allocated amounts based on the fee distribution system in effect on the day before the effective date” of the 2000 reform law (which was signed into law on December 27, 2000). Thus, rather than a license to decrease total SAA payments, this provision is worded to make aggregate payment levels — at the time of the implementation of the 2000 law — the minimum amount paid to the states. Consequently, HUD, consistent with the law, could either: (1) use 2000 production levels and the proposed higher per floor amounts for all SAAs without “supplemental” payments; or (2) use current production levels and the higher per floor amounts with supplements, until industry production levels meet and/or exceed the baseline 2000 annual level, but in no case should there be any change that reduces overall SAA funding, per SAA, from current levels.
Insofar as any decrease in SAA funding would devastate state participation in the HUD program, further undermining the federal-state partnership envisioned by Congress and further empowering revenue-driven contractors to the detriment of all other program stakeholders, MHARR will vigorously oppose any proposal that decreases or fails to enhance SAA funding, or any proposal that would entail a further increase in the HUD label fee. Moreover, as HUD has indicated that it will bring any SAA funding proposal to the MHCC — as it should and must under the 2000 reform law — MHARR will address all such issues in that forum as well.
MHARR is currently in the process of developing a detailed analysis of this relatively complex issue, which will be published soon.
MHARR SUCCEEDS IN FORCING HUD TO COMPLY WITH REFORM LAW’S CONTRACT PROVISION
HUD has confirmed the termination of a manufactured housing program contract awarded in violation of the “separate and independent contractors” provision of the Manufactured Housing Improvement Act of 2000.
In a recent communication to Rep. Sean Duffy (R-WI), Chairman of the House Subcommittee on Oversight and Investigations, HUD verified that a federal dispute resolution (DR) subcontract awarded to the Institute for Building Technology and Safety (IBTS) – the HUD manufactured housing program monitoring contractor since 1976 – was terminated effective May 18, 2015.
MHARR had vigorously opposed the IBTS subcontract for core DR services awarded by HUD’s primary contractor, the Savan Group, L.L.C. (Savan) as: (1) a clear violation of section 620(b) of the Manufactured Housing Improvement Act of 2000, requiring HUD to “ensure that separate and independent contractors are retained to carry out monitoring and inspection work and any other work … delegated to a contractor;” and (2) likely to result in the improper funneling of unsubstantiated complaint information from the DR process into the in-plant Subpart I process overseen by IBTS.
In a December 18, 2014 communication with the HUD program Administrator, MHARR called for a suspension of all DR subcontract activities and a full HUD investigation of the contract solicitation and award based on these issues. However, when the Administrator failed to respond and instead referred this matter to non-responsive HUD contracting officials, MHARR triggered action in both houses of Congress to address this matter.
That effort led to an April 27, 2015 letter to HUD Secretary Julian Castro from Chairman Duffy demanding the production of all records relating to both the Savan contract and the IBTS subcontract which, together with other related action in the Senate, compelled HUD to seek the termination of the IBTS subcontract by Savan. A replacement contractor, or alternate arrangements by Savan have not been announced, but MHARR will monitor DR contract activity very closely to ensure that there is no further effort to circumvent the 2000 law and involve IBTS in the DR system by indirect means.
Beyond the immediate issue of the prohibited DR subcontract, this episode illustrates the necessity of targeted action within the HUD program to reform a revenue-driven contract enforcement model that has continually ratcheted-up regulation and regulatory compliance costs for both consumers and the industry, despite minimal consumer complaints.
Furthermore, it appears that these events have again demonstrated to Congress — as MHARR has consistently maintained – that the HUD program has not only failed to fully and properly implement the 2000 reform law but is actually reverting to pre-2000 law practices in key areas. Thus, recent MHARR meetings in Congress initially focused on the termination of the IBTS subcontract have led to discussion of specific aspects of the 2000 reform law that remain to be fully and properly implemented by HUD, providing MHARR with additional options to address these matters through Congress, as well as, potentially, via targeted legal action.
HOME OWNERSHIP HITS 20-YEAR LOW AS ANTI-MH DISCRIMINATION GROWS
A new study by Harvard University confirms that home ownership rates in the United States have fallen to a 20-year low. Overall, home ownership among all Americans has fallen to 63%, from a peak of 69% in 2004, with substantial continuing declines for all age groups except those aged 65 and older. The statistics for minority groups are even worse. The home ownership rate for all minorities has slipped to 47.2%, while home ownership among African-Americans stands at just 43.8%. The Harvard study concludes that these declines are attributable to the languishing economy and poor pay, including a “steady erosion” of incomes since the start of the economic recession in 2007.
In a market environment that places a premium on affordability due to stagnant or declining income levels, HUD Code manufactured housing — as the nation’s most affordable housing — should be experiencing a renaissance, with significant increases in sales as compared to other types of housing. But while production of HUD Code homes has seen steady growth since 2011, that growth has been over an historically-low baseline and, after nearly a decade, has failed to return to pre-recession norms of 100,000 or more homes per year.
The underlying reason for the lack of a HUD Code market resurgence that would otherwise be expected in price-sensitive market can be summarized in one word – discrimination. Discrimination in the securitization of manufactured home consumer loans (and particularly chattel loans), discriminatory lender criteria for Federal Housing Administration (FHA) Title I chattel loans, discrimination in restrictive zoning and placement measures (actually de facto exclusion, dressed-up as “zoning”), and discrimination in the regulatory sphere that has seen HUD and other federal agencies target manufactured housing for disproportionate, excessive mandates even though manufactured homebuilders, as shown by objective measures, such as minimal dispute resolution (DR) referrals, are building their best homes ever.
In each of these areas, existing law already forbids — and provides a remedy for — such discrimination, but those remedies have either been ignored or distorted by their supposed “guardian” agencies, often with a “wink and a nod” from some in the industry as documented by MHARR in each instance.
As regards the securitization of manufactured home chattel loans — that would guarantee the availability of lower interest rates for such loans, thereby undercutting the need (and rationale) for “high-cost” consumer loans — the “Duty to Serve” (DTS) mandate directs the Government Sponsored Enterprises (GSEs) to establish a secondary market and “flexible” loan products for manufactured home loans. Yet DTS has languished since 2010 when the Federal Housing Finance Agency (FHFA) proposed a DTS implementation rule that was discriminatory in and of itself by excluding chattel loans that had expressly been authorized for DTS credit by Congress. (See, article below regarding closed-door activity on this critical matter).
As regards exclusionary “zoning,” the 2000 reform law specifically enhanced federal preemption to ensure that state and local standards and other “requirements” do not impair federal superintendence of the industry, including HUD’s statutory obligation to “facilitate the availability of affordable manufactured homes … for all Americans.” (Emphasis added). The availability of manufactured homes for all Americans cannot be “facilitated,” though, when HUD Code homes are effectively excluded from large, highly-populated areas by “zoning” that discriminates against the lower and moderate-income Americans, including substantial minority populations, who rely on the affordability of manufactured homes, and HUD does absolutely nothing.
And, in the area of regulation, the U.S. Department of Energy (DOE), for example — in a move supported by the industry’s largest business and their representation — is developing new manufactured housing energy rules that would cost new homebuyers at least $2,000.00 to $4,000.00 per home, would exclude millions of potential lower and moderate-income homebuyers from the HUD Code market, and subject “affordable” HUD Code homes to mandates that are not imposed even on million-dollar homes.
MHARR, in each instance, has consistently fought to enforce (or even upgrade) applicable law, while others have either delayed action, held-back action to win favor with regulators, or have even joined with regulators and industry detractors to support potentially disastrous proposals – going behind closed-doors in secretive “negotiations” at least twice to do so (see, articles below). The industry (and consumers who rely on manufactured housing) deserve better and should demand accountability from all of its representatives to fight against — and seek an end to – this destructive and unjustified discrimination.
MHCC HAS OPPORTUNITY TO STOP HIGH-COST ENERGY REGULATION
The Manufactured Housing Consensus Committee (MHCC) is currently scheduled to address the issue of manufactured housing energy regulation by the U.S. Department of Energy (DOE) when it convenes for its August 18-20, 2015 meeting in Washington, D.C.
A previously-distributed draft meeting agenda lists “Draft Energy Efficiency Standards for Manufactured Homes – DOE” for a two-hour time window on the first day of the scheduled meeting. Insofar as DOE officials have already provided the MHCC with a broad overview and summary of its impending rulemaking activity for manufactured homes – at the MHCC’s December 2014 meeting – it seems unlikely that this presentation will be general in nature and could very well involve a preview and/or discussion of a proposed DOE rule. While a proposed DOE rule, has not been issued to date, one could still be published immediately prior to the meeting.
Regardless, though, the Energy Independence and Security Act of 2007 (EISA), which authorizes the DOE energy standards, provides that those standards may be established only after notice and comment, and DOE “consultation” with HUD and the MHCC. This last-minute addition to EISA, sought by MHARR and others because no industry or consumer representatives were ever permitted to testify during the legislative process, is critical in that it gives both HUD and the MHCC an equal voice with DOE in the final content of any new standards, and even whether a proposed rule moves forward at all. And particularly given the scandalous trail of activity (see, below) that has led this proceeding to its current stage, any review of a proposed or impending DOE energy rule by HUD and the MHCC must be substantive, independent and based on the purposes and mandates of federal manufactured housing law, which both HUD and the MHCC are charged with upholding – and not just a meaningless rubber stamp.
While not anticipated when EISA was enacted, this type of independent review is crucial in this case because of the scandalous and irretrievably-flawed standards development process at DOE, which began with DOE’s self-described “impermissible” leak of a “draft” proposed rule to selected parties, including the largest HUD Code manufacturers, and concluded with a truncated, sham “negotiated rulemaking” sought by – and conducted with – the same recipients of the “impermissibly” leaked draft rule.
And while the prospects for an independent MHCC review looked promising in 2014, HUD has since taken actions that would undermine that review by: (1) continuing to pack the MHCC with single-issue “energy” activists, including a January 2015 appointee who voted for the extremely costly DOE proposal generated by the sham DOE “negotiated rulemaking,” and has been aggressively promoting that proposal ever since; and (2) publicizing an April 2015 statement by the program Administrator which treated the forthcoming DOE proposal as a done-deal, using the same rhetoric as DOE supporters. And all of this has occurred against the continuing backdrop of an incestuous and potentially destructive relationship between DOE and energy special interest groups that has undoubtedly impacted DOE’s proceedings to date, which MHARR is beginning to untangle for potential legal action.
The reality, however, is that the expected DOE standards: (1) would make manufactured housing the only segment of the housing industry subject to such costly and debilitating mandates; (2) would require even more costly ongoing and continuous standards updates exceeding anything required even for million-dollar homes; (3) would impose thousands of dollars in new purchase costs on already hard-pressed consumers; (4) would exclude millions of Americans from the manufactured housing market (and the housing market altogether); (5) does not involve life-safety issues that could conceivably justify such a negative market and consumer impact; and (6) is unnecessary, in any event, given the existing availability of optional energy packages for consumers who want them.
Therefore, based on federal manufactured housing law, the MHCC should take the lead by rejecting a ruinous anti-consumer, anti-industry DOE standard, so the issue can go back to Congress for proper consideration based on testimony from the industry and consumers who actually live in manufactured homes.
FAIR HOUSING – DISPARATE IMPACT – AND HUD CODE HOMES
MHARR is preparing and will soon publish a detailed analysis of the inter-relationship between: (1) the recent U.S. Supreme Court “disparate impact” decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc.; (2) the “Affirmatively Furthering Fair Housing” (AFFH) final rule published by HUD on July 16, 2015; (3) enhanced federal preemption under the Manufactured Housing Improvement Act of 2000, and the potential affirmative use — by the industry and consumers — of the nexus between these three legal structures to combat local zoning mandates that exclude or otherwise unduly restrict the placement of HUD Code homes.
While a large and growing number of communities have resorted to restrictive or de facto exclusionary zoning to prevent the siting of individual manufactured homes or manufactured home communities in certain jurisdictions, districts or areas – thereby discriminating against less affluent Americans — industry efforts over the past 15 years to persuade HUD to utilize the enhanced federal preemption of the 2000 reform law to invalidate, override or temper such measures have not been successful (in part due to the lack a cohesive, coherent policy and consistent aggressive advocacy by an independent national post-production association). After years of such wrangling, however, consumers and the industry could get help from an unlikely source.
The failure to enforce federal preemption to the full extent authorized by the 2000 reform law in furtherance of the law’s express purposes, has been due, in part, to longstanding institutional resistance at HUD to utilize federal power to supplant local zoning decisions. This resistance has generally continued despite the fact that the 2000 reform law specifically expanded the scope of federal preemption to enable HUD to override not just local building standards that conflict with the HUD standards, but other local “requirements” that would impair HUD’s superintendence of the industry — “superintendence” that, under the 2000 law, includes “facilitate[ing] the availability of affordable manufactured homes … for all Americans.”
In the wake of the Supreme Court’s “disparate impact” decision, though, if “repurposing” a manufactured housing community to a use other than housing could have a “disparate impact” and lead to potential liability under the Fair Housing Act, as has been pointed out in recent weeks, how can there be no “disparate impact” when local zoning measures exclude the same home, the same people and the same type of MH community from the outset?
Insofar as HUD, under the final AFFH rule, will require any local jurisdiction receiving HUD funding to identify factors, including zoning laws, that account for imbalances in living patterns among groups protected under the Fair Housing Act, and can take action against communities that maintain such imbalances, compelling them, among other things, to develop a plan, subject to approval by HUD, to remedy such imbalances, the AFFH rule: (1) establishes, in itself, legal rights that trump exclusionary or restrictive local zoning; and (2) establishes a precedent for extending federal preemption, under manufactured housing law, to prevent the misuse of restrictive zoning to exclude affordable housing – and less affluent Americans — from and within communities.
Because anti-manufactured housing exclusionary zoning is based on and fueled by bias and discrimination against manufactured homes, manufactured homebuyers and manufactured homeowners, it can and should be treated by the industry and homeowners as a discrimination issue, using the tools provided by the AFFH rule and the Supreme Court’s affirmation of “disparate impact” to provide an effective remedy. Unfortunately, though, the lack of an independent national post-production association, as noted above, is a key missing ingredient that makes the aggressive pursuit of such much-needed remedies all the more difficult for the industry and manufactured homebuyers.
CLOSED-DOOR ACTIVITY COULD UNDERMINE CHATTEL SECURITIZATION
MHARR has called on Federal Housing Finance Agency (FHFA) Director Melvin Watt to either terminate, or open to all affected stakeholders, closed-door discussions regarding the “duty to serve underserved markets” (DTS) and the content of a modified DTS rule that is expected before the end of the year.
The MHARR communication to Director Watt addresses a recently-exposed process whereby, according to one participant, “FHFA … directed [the Manufactured Housing Institute] MHI” and certain unidentified “consumer groups to work together to propose consumer protections that should be included in a Duty to Serve program for manufactured homes.”
The “Duty to Serve” provision of the Housing and Economic Recovery Act of 2007 (HERA), directed the Government Sponsored Enterprises (GSEs) to “develop loan products” and “flexible underwriting guidelines” for certain historically underserved markets, including manufactured housing. As part of this mandate, Congress, as urged by MHARR and others, specifically authorized DTS credit for manufactured housing chattel loans. However, FHFA’s 2010 proposed DTS implementation rule totally excluded chattel loans, which comprise approximately two-thirds of all manufactured housing loans and provide access to the industry’s most affordable homes.
MHARR immediately notified Congress and, in written comments, strongly objected to the exclusion of chattel loans from DTS — continually pressing FHFA, thereafter, to reconsider its position. When it became apparent, though, that no changes to the inherently-flawed proposed DTS rule would be made during the tenure of FHFA Acting Director Edward DeMarco, MHARR developed, advanced and secured the inclusion of language in the Housing Finance Reform and Taxpayer Protection Act of 2014 (S. 1217) — adopted by the Senate Banking Committee in May 2014 — to require the GSEs to provide full high-volume securitization for all types of manufactured home loans, including chattel loans.
Although the MHARR full securitization language remains the statutory template for future GSE reform legislation, MHARR – recognizing that the GSEs would continue to operate for the foreseeable future — upon the appointment of Director Watt in January 2014, renewed and intensified its calls for the full inclusion of HUD Code chattel loans in a modified DTS rule. This led to a July 2014 meeting with FHFA where MHARR was advised that the Agency was working on a revised DTS rule and that Director Watt was asking everyone to “wait” – a request that was honored by MHARR out of respect for Director Watt and his track record as a strong supporter of the Manufactured Housing Improvement Act of 2000 while a member of Congress.
While MHARR was honoring this request, however, FHFA initiated a closed-door “negotiation” process with certain of the industry’s largest businesses. That process lacks accountability or legitimacy and – based on experience with similar “negotiations” involving the Department of Energy (DOE) and manufactured housing energy standards — will inevitably ignore or give short-shrift to the interests of current and future manufactured home owners and the industry’s smaller businesses, including manufacturers, retailers and especially community owners.
MHARR has thus advised FHFA that this secretive process is unacceptable and must either be terminated immediately or opened to all stakeholders — including MHARR and actual homeowner representatives – to: (1) ensure the full securitization of manufactured home chattel loans, which are crucial for both the industry and homebuyers; (2) to ensure that manufactured housing consumers have equal access to financing other than high-cost loans; and (3) to ensure the credibility and transparency of the FHFA rulemaking process and any resulting final rule.
MHARR is a Washington D.C.-based national trade association representing the views and interests of independent producers of federally-regulated manufactured housing.
