VANDERBILT-GNMA SOLE SOURCE CONTRACT TO SERVICE FHA TITLE I MANUFACTURED HOUSING LOANS RAISES QUESTIONS AND CONCERNS_
With the extremely limited availability of consumer financing (and particularly chattel financing) continuing to hold industry production numbers at or near historic low levels, the disclosure of a $1.3 million sole-source contract between Vanderbilt Mortgage and Finance, Inc. (Vanderbilt) and the Government National Mortgage Association (GNMA) is raising new questions and concerns regarding GNMA and its role in restricting the availability of Federal Housing Administration (FHA) Title I (i.e., chattel) manufactured housing loans and competition within the manufactured housing finance market.
GNMA is a quasi-governmental agency within the Department of Housing and Urban Development that securitizes public sector FHA government-insured loans in much the same manner that the Government Sponsored Enterprises (GSEs) (i.e., Fannie Mae and Freddie Mac) securitize home loans originated by private sector financing entities. At one time, FHA Title I loans accounted for a significant portion of manufactured home loan originations, and contributed to a thriving and open market for HUD Code homes. HUD data shows that from 1980 to 1993, FHA averaged approximately 20,000 Title I loan endorsements per year. More recently, however, FHA Title I manufactured home loan endorsements have plummeted to approximately 1,000 per year.
Initially the FHA Title I program decayed as a result of a GNMA moratorium on the securitization of such loans. The stagnation of the program at de minimus levels, however, has continued, even after the formal end of the securitization moratorium, as a result of the highly-restrictive GNMA “10-10” securitization rule implemented in June 2010. Under the “10-10” rule, approved Title I lenders must have a net worth of at least $10 million and must hold “reserve” funds equivalent to the value of 10% of all outstanding Title I manufactured housing loans.
When the volume of FHA Title I loans did not improve, though, MHARR decided to explore this matter directly with GNMA and to question why the “10-10” criteria could not be reduced so as to expand the number of potential lenders. As a result, members of MHARR’s Executive Committee met with senior GNMA officials in 2011 to address the impact of the “10-10” rule on the manufactured housing market, with it appearing – at that time — that the “10-10” criteria had limited FHA Title I loan originators to one or two two large finance companies. This had (and still is having) the effect, as MHARR advised GNMA, of eliminating genuine competition and consumer choice from the FHA Title I financing market and keeping FHA Title I originations artificially low, while excluding unknown numbers of American consumers from the manufactured housing (and overall housing) market and the benefits of homeownership.
As it turns out, though, matters are even worse. In fact, there is only one large company in the manufactured housing finance market that has been approved by GNMA as an FHA Title I loan originator under the “10-10” rule, and that company is Vanderbilt. And now, by virtue of its status as the sole approved Title I loan originator within the manufactured housing market that can meet the “10-10” rule, Vanderbilt has had the added good fortune of receiving a three-year, $1.3 million, sole-source, non-competitive contract from GNMA to “service” certain FHA Title I loans. In support of this sole-source award, the public-record GNMA “Justification for Other Than Full and Open Competition,” specifically states that “Vanderbilt is the only GNMA issuer who reapplied [for qualification under the “10-10” rule] and is currently active in the manufactured housing program.”
The GNMA-Vanderbilt contract documents, accordingly, confirm that GNMA is well aware that its “10-10” rule: (1) has eliminated high-volume FHA Title I securitization; (2) has severely restricted competition in the FHA Title I manufactured home chattel financing market; and (3) that GNMA has done nothing to remedy either of the preceding two points — with corresponding dire consequences for consumers seeking such financing and the industry as a whole, but especially its smaller and medium-sized independent businesses.
The GNMA-Vanderbilt relationship also raises serious questions about past events that have helped ensure the continuing survival of the “10-10” rule, as well as the role played by this and other large lenders in influencing industry financing policy and priorities in Washington, D.C. To start, it sheds new light on information provided by the highest-echelon GNMA officials to MHARR in 2011 including, most particularly, their assertion that GNMA was willing to take “a second look” at the “10-10” criteria and potentially revise them downward based on more recent loan performance information, and had, in fact, specifically requested such information from industry finance companies and their Washington, D.C. representation in 2010, but had received no response. Moreover, while it is positive that the industry has at least one qualified lender under the existing rules, the disproportionate influence of that and other similar lenders in shaping the industry’s consumer finance policies in Washington, D.C., should also be a concern for the entire industry.
All of this warrants further inquiry, which MHARR has just begun to pursue.
AN OPPORTUNITY FOR THE INDUSTRY AND CONSUMERS TO CRAFT CORRECT LEGISLATIVE LANGUAGES ON MANUFACTURED HOME FINANCING_________
In crafting legislation, there is a world of difference between the words “may” and “shall.” And the difference between the two will be especially critical in ensuring that all types of manufactured housing loans are included in housing finance reform legislation currently being developed in Congress that will shape the housing finance market for decades to come.
With annual production stuck for years at plus-or-minus 55,000 homes, the main roadblock to industry growth – as is widely acknowledged — is a lack of consumer financing driven by the unavailability of high-volume manufactured home loan securitization (particularly for personal property “chattel” loans) in the private sector, through the Government Sponsored Enterprises (GSEs), and the public sector, through the Federal Housing Administration (FHA). Thus, much of the industry’s collective effort in Washington, D.C. has been focused on two finance-related matters — corrections to the Dodd-Frank financial reform law and comprehensive GSE reform. And although both are an outgrowth of the 2008 recession and housing market melt-down, they are fundamentally different.
While the importance of the industry effort to correct the Dodd-Frank law is clear, the success of that effort to exclude manufactured housing from debilitating Dodd-Frank regulations will only preserve the current level of loan availability and securitization — and thus production. On the other hand, there is the entire matter of “GSE reform,” with bills introduced in both houses of Congress and the President having expressed support for the concept of such reform. While the political wrangling on these measures continues, when a final law ultimately emerges, it will determine the size, shape and character of the entire housing finance market – along with its winners and losers — for decades to come. And it is in the context of this process that the effort to ensure the role of manufactured housing as an equal participant in the housing finance market must ultimately have its primary focus, and where those two words, “may” and “shall,” become vitally important.
The industry, unfortunately, has learned (or should have learned) the hard way that mandatory language is essential in any law pertaining to manufactured housing, having been burned too many times before relying on “iffy,” loose, or vague language that has consistently backfired. Instead, and especially in addressing an issue as important as the future structure of the entire housing finance market, there can be no grey area, no ambiguity that could potentially leave moderate and lower-income consumers of manufactured housing out in the cold. Consequently, any final GSE reform bill must contain clear, definitive and mandatory “shall” language for the inclusion of all manufactured homes and all manufactured home loan types.
Based on this, MHARR has prepared a White Paper which details the type of mandatory “shall” language for manufactured housing that should be included in such a bill and examines how such language could be included in any final legislation.
INDUSTRY AND CONSUMERS FACE MULTIPLE POSSIBILITIES AS CONGRESS MOVES FORWARD RAPIDLY ON HOUSING FINANCE________________________
Although confronted by a wide array of pressing issues, both Houses of Congress are moving forward at a rapid pace to develop their respective versions of GSE reform legislation.
In the House of Representatives, the “PATH Act” GSE reform bill (which also addresses the Dodd-Frank correction issues being pursued through H.R. 1779), has already been approved by the House Financial Services Committee and sent to the full House. The PATH bill, which could be moved to the House floor soon, would eliminate the GSEs over five years and fully privatize the housing finance market.
In the Senate, a bi-partisan bill sponsored by Senators Bob Corker (R-TN) and Mark Warner (D-VA) would also eliminate the GSEs over five years, but would retain a partial government guarantee based on a risk-sharing structure. It would also establish a separate program and funding mechanism for affordable housing. Thus, the Senate bill comes closer to meeting the needs of the manufactured housing industry and its consumers, and the relevant Senate Committee has already started to hold hearings on its various aspects, with hearings expected to continue through the end of October 2013.
Based on this fluid but steadily evolving situation, MHARR has developed alternative strategies and approaches that it has already shared with its working group partners at the Manufactured Housing Institute (MHI). While focusing primarily on the development and advancement of language that would clearly, definitively and, on a mandatory basis, include all types of manufactured home loans in any final GSE reform bill, it is apparent that even with the passage of such legislation, the current GSEs will continue to exist for at least five more years – and possibly longer. Indeed, if a stalemate ultimately develops over the final shape of GSE reform legislation, the continued existence of the GSEs could be indefinite, and must be factored into the industry’s efforts to expand the securitization of private sector chattel loans, contrary to the assertions of some within the industry who have already declared (and promoted) the demise of the industry’s hard-won “duty to serve” underserved markets provision (DTS) including manufactured housing.
Given the possible medium-to-long-term operation of the GSEs in their current form, MHARR has also prepared legislative language to correct DTS and its applicability to manufactured housing chattel loans, that could be advanced in Congress if necessary. Alternatively, the inclusion of chattel loans in the pending DTS rule – and the implementation of a corrected final rule – could be addressed on an administrative basis with FHFA, particularly in light of the nomination and pending Senate confirmation of a new FHFA Director nominated by the President.
MHARR is already working on all of these alternative scenarios, with specific approaches to expand the availability of manufactured home consumer financing (apart from Dodd-Frank issues) and will now intensify its efforts as the pace of congressional – and related — activity moves forward.
ANTI-COMPETITIVE “UNIVERSAL” FEMA SPECIFICATIONS UNACCEPTABLE
MHARR has been in communication with the Federal Emergency Management Agency (FEMA) concerning reports that the agency could be considering prescriptive “universal” design specifications for HUD Code homes used as temporary emergency housing units (THUs).
As MHARR has always maintained, prescriptive “universal” design criteria have two major negative impacts. First, they effectively sacrifice one of the industry’s prime assets, its ability to produce safe, innovative, livable homes – of any particular size, shape, or configuration — at an affordable cost, whether the bill is being paid by private individuals or American taxpayers. The performance standards of the HUD Code ensure a safe and decent home, while allowing manufacturers to innovate in ways that produce maximum cost benefits for purchasers. A laundry list of prescriptive “universal” design specifications would negate that advantage and result in unnecessary costs for FEMA while limiting the choices and options that could otherwise be made available to disaster victims.
Second and even more importantly, prescriptive “universal” design specifications could limit price competition for the production of THUs among different manufacturers bidding on such government contracts. Instead, and similar to the private manufactured housing market, a performance-based approach would allow such manufacturers to compete in order to fulfill the ultimate performance needs of the federal government, regardless of the manufacturer’s size, number of production facilities, financial status, or other factors.
MHARR, accordingly, has — and will continue to — urge FEMA to promote and advance full and fair competition for all THU contracts – including equal opportunities for all manufacturers – and will further address the issue of “universal” design as part of its ongoing engagement with the agency.
