The January 19-21, 2016 Manufactured Housing Consensus Committee (MHCC) meeting held in Louisville, Kentucky (in conjunction with the Louisville Manufactured Housing Show) offered more concrete proof of how non-compliance with the Manufactured Housing Improvement Act of 2000, and efforts led by some within the industry to circumvent one of its key safeguards (i.e., an appointed, non-career program administrator), are now saddling the HUD Code industry with yet more unnecessary and excessive regulation that would destroy a key emerging market for the industry while (intentionally or not) providing a windfall victory for the HUD Code industry’s competitors in the site-built and modular housing sectors, as well as HUD’s revenue-driven program contractors.

Although the meeting offered multiple examples of baseless and potentially unlawful activity by the HUD program (which will be addressed in greater detail in the MHARR Washington Update to be published next week), the worst and most profound illustration of the deterioration of the program under its current management involved the roll-out of HUD’s new “on-site construction” program.

A new program for the on-site completion of manufactured homes under procedures that would be faster, more flexible and more economical than the cumbersome Alternate Construction (AC) process already in use was among the earliest issues brought to the MHCC by the industry (initially in 2003). One of the main objectives of this initiative, in addition to supplanting the costly, unwieldy and time-consuming AC process, was to open significant new markets for the industry and to establish a more equal footing between HUD Code homes and other segments of the housing market (such as site-built homes, modular homes, etc.), with expanded access to non-chattel financing. Approaches to an on-site program were debated extensively by the MHCC, leading to a final recommendation and a HUD-proposed on-site rule, published in June 2010.

The final HUD on-site rule, however, as detailed by HUD officials at the Louisville MHCC meeting – and currently due to go into effect on March 7, 2016 – represents a distorted caricature of the pointless paperwork and unnecessary red-tape that characterizes all other aspects of the current HUD regulatory program. As such, it would completely undermine the price and construction flexibility advantages that HUD Code manufactured housing could otherwise offer in competition with site-built, modular and other types of residential construction, through readily available mortgage-type financing. Indeed, the new system described by HUD would be a bloated bureaucratic nightmare as compared with the original vision of the MHCC and, if possible, even more cumbersome and costly than the present AC system.

First, the new on-site system would be over-reaching in scope, applying to routine finishing items that currently are not subject to the AC system and are completed on-site now with little fanfare, cost or regulatory involvement. It would then subject each of those matters to a dizzying array of paperwork and reporting requirements. Second, the new system, which would displace current AC approvals for on-site construction that results in a fully standards-compliant home, would require 100% inspection of all on-site completions by the manufacturer’s IPIA and, of course, corresponding activity by HUD’s revenue-driven “monitoring” contractor.

MHARR, in particular, has consistently objected to 100% on-site inspections as entailing needless costs and delays for homebuyers. Indeed, in its regulatory comments, MHARR called – and still calls — for a more flexible on-site inspection system, that would allow manufacturers to elect between: (1) 100% on-site IPIA inspections instead of in-plant inspections of site-completed homes; or (2) “on-site IPIA inspections of a reasonable percentage of homes completed on-site, subject to an increased frequency of on-site inspections (potentially up to one hundred percent) in the event that systemic non-compliances or defects were shown.”

The program ultimately produced by HUD under its current program Administrator, however, manages to combine nearly all of the burdens of the current AC system with additional on-site requirements so bloated that – except for HUD personnel — not a single participant at the meeting voiced support for the program in its current form. Indeed, many noted that it would destroy the ability of manufacturers, retailers and communities to provide consumers with the features they clearly want, leading to defections (among manufacturers, retailers, communities and consumers) to modular construction and/or to homes so plain and costly (with no features comparable to other types of homes) that they would not be market-competitive. To make matters worse HUD, incredibly, could not quantify the cost of its proposal, or more shockingly, affirm that it ever considered its cost impact, as required by law – a clear indication that HUD’s non-compliance with the 2000 reform law has deteriorated under the current program Administrator.

With this overwhelmingly negative response from the MHCC (including consumer representatives), the Committee voted unanimously to urge HUD to extend the “phase-in” transition period for the new rule – currently slated for six months (i.e., September 7, 2016) – to a full year, and to refer the matter to its Regulatory Enforcement Subcommittee to identify and flesh-out specific problems with the new rule and evaluate its cost impacts for further recommendations to HUD. In short, HUD’s rule was unacceptable to the MHCC in its present form and must be corrected.

Most significantly, all of this — added to other actions by the current selected career program Administrator over the past two years, that have given free reign and enhanced funding (via a 156% label fee increase) to program regulators and revenue-driven program contractors — inevitably begs the question of “why” this is being done, and for who’s benefit (and detriment) it is being done? At the same time, it illustrates why Congress in its wisdom, together with the program stakeholders that participated in the development of the 2000 reform law, provided for an appointed non-career program Administrator, and how the industry is now paying the price for not insisting on full compliance with the law – an issue that the industry now must seriously reconsider.