(Editor’s note: This “analysis” came from Danny Ghorbani’s MHARR email address, and is in part commentary. MHProNews has a reply to this commentary from Bill Matchneer, who is named in the MHARR commentary below. MHProNews welcomes other perspectives.)
Sobering Wake-Up Call For Hud Code Manufacturers on Expansion Of Unnecessary and Costly Regulation
Developments over the past three days confirm MHARR warnings earlier this year of an impending regulatory tidal wave for HUD Code manufacturers based on the convergence of three seemingly separate actions: (1) the final mandatory implementation of expanded in-plant regulation, initiated on a supposedly “voluntary” basis by a former HUD program administrator; (2) a new requirement for IPIA inspections of manufacturer Subpart I-related records on an “at least monthly” basis; and (3) enhanced program contractor funding as a result of a major increase in the HUD certification label fee. Two elements of this regulatory “perfect storm,” moreover, are being implemented in violation of the Manufactured Housing Improvement Act of 2000.
While MHARR’s recent White Paper on the extremely damaging impacts of just one of these actions – the new Subpart I monthly minimum record review – and the need to totally eliminate Subpart I…has generated a flood of support from HUD Code manufacturers (and others) over the past two weeks, these likely impacts are nothing compared to the draconian demands and drastically increased regulatory compliance costs that will result from the overlap of that new requirement with expanded in-plant regulation and an influx of cash drawn from increased label fees. Cumulatively and individually, these actions raise a fundamental question: Why is this being done now, when both consumer complaints and referrals to dispute resolution are – and have been — at minimal levels and the industry is building its best homes?
The first element of this three-part convergence was addressed during a critical August 12, 2014 conference call including HUD program officials, monitoring contractor personnel, state and private IPIAs, manufacturers and industry representatives, including MHARR. In that conference call, HUD and the monitoring contractor detailed significant upcoming “changes” to the scope, nature and intrusiveness of manufacturing plant inspections and related “monitoring” which violate specific provisions of the 2000 reform law. These “changes” to an already overgrown, confusing and unnecessarily costly quagmire of “audit procedures,” “Computer Coded Items (CCI) Guidelines,” “Quality Systems Issues” (QSI) Guidelines,” “Functional Category Checklists;” “templates;” and “work sheets,” among other assorted procedures, forms, activities and red tape, represent the now mandatory culmination of a program of supposedly “voluntary” changes to in-plant regulation forced through by former HUD program administrator William Matchneer, III near the end of his tenure.
Billed at the time as a new emphasis on “quality control” and promoted as a “cooperative” approach that would reduce regulatory compliance costs, this program was aggressively advanced by Mr. Matchneer outside of the mandatory process established by the 2000 reform law, and was immediately and aggressively opposed by MHARR and numerous HUD Code manufacturers. After Mr. Matchneer’s departure from HUD, the final implementation of this program was slowed somewhat by his successors as program administrator, particularly Mr. Henry Czauski, but its fundamental underlying flaws have never been rectified and its implementation on a mandatory basis is now accelerating rapidly under the new federal program administrator, Ms. Pamela Danner.
Ms. Danner, to her credit, has taken steps to increase the transparency of this final implementation process and has indicated that significant objections and concerns voiced by MHARR (such as HUD’s failure to bring these enforcement and monitoring “changes” to the MHCC under section 604(b)(6) of the 2000 reform law as noted during the conference call) and others will be “considered.” The most disappointing aspect of Ms. Danner’s actions in relation to this program, however, is that not only is she failing to maintain the slower pace of implementation that characterized Mr. Czauski’s tenure while taking the time to fully analyze the advantages and disadvantages of such changes and the major concerns of manufacturers, but that as the new guardian of the 2000 reform law, she has not even bothered to have program staff (or the contractor) conduct a thorough study of the costs of this massive expansion of in-plant regulation versus any benefit to manufactured homebuyers who are already struggling to finance manufactured homes at current prices. This, indeed was confirmed during the August 12, 2014 conference call when HUD had no response to MHARR’s question whether it had considered the cost of this expanded regulation – which will not replace, but instead add-on to the paper-work, red-tape and costly multi-layered “reviews” of the existing system — as well as its cumulative impact when combined with new Subpart I requirements.
On a related subject, judging by the volume of comments being received by MHARR, Ms. Danner’s approach to this entire matter has reignited the debate over the importance and necessity of an appointed, non-career administrator for the federal program – which the 106th Congress wisely included in the 2000 reform law — as contrasted with a selected career administrator.
Further, in addition to the expanded paperwork and regulatory compliance costs of this “changed” in-plant regulation and monitoring system — including increased direct manufacturer costs for employee man-hours and overhead, increased IPIA billing and increased monitoring costs (see, label fee discussion below) — will be the additional costs associated with the second element of the above-described convergence: new mandatory IPIA reviews of manufacturer records (and contractor reviews of those IPIA reviews) on an “at least monthly” basis under HUD’s final Subpart I modification rule. Like the entire expanded in-plant regulation regime, this mandate was adopted by HUD unilaterally, in violation of the 2000 reform law, by changing a Manufactured Housing Consensus Committee (MHCC) recommendation at the final stage of rulemaking, without further consultation with the MHCC. Thus, an MHCC recommendation for “periodic” IPIA review of manufacturer Subpart I records (as published in the HUD proposed rule) became a very different “at least monthly” IPIA review mandate in the final HUD rule.
Based on MHARR’s sustained knowledge, experience and long-term institutional memory, this stunning, overlapping regulatory expansion at a time when the industry is just beginning to recover from the worst production decline in its modern history and both consumer complaints and referrals to dispute resolution are at minimal levels, is reminiscent of the 1990s, when the HUD program was flush with label fee cash reserves and the monitoring contractor (then known by one of its many prior names — the National Conference of States on Building Codes and Standards – “NCSBCS”), sought to impose its own suffocating layer of de facto regulation on manufacturers under the guise of “monitoring” PIA performance. This revenue-driven overreach (and its accommodation by HUD) was part of the reason that Congress specifically chose to include a narrow definition of “monitoring” for the first time in the 2000 reform law, as well as section 604(b)(6), stating that any change in policies or practices related to enforcement and monitoring, among other things, must be brought to the MHCC – both of which are now being violated.
The only difference between now and then (aside from the 2000 reform law) is that in the 1990s, all program stakeholders, led by MHARR, opposed this contractor power – and money –grab, which industry observers considered to be an effort to discredit and financially strangle PIAs and most especially state PIAs. Now, though, the contractor (with HUD support) appears to be pursuing a different strategy of enticing private PIAs with the increased billing that will come with “at least monthly” record reviews and expanded in-plant regulation, while subjecting State PIAs — as demonstrated during the conference call — to a funding crisis that increasingly squeezes them between expanded inspection mandates and contractor reviews under this “changed” system on the one hand, and stagnant funding levels from HUD via label fee proceeds on the other.
The third element of this regulatory convergence – announced during the conference call — came to fruition on August 13, 2014 with the publication of a final rule in the Federal Register (see, 78 Federal Register No. 156, August 13, 2014 at pp. 47373-47377) raising the HUD certification label fee from $39 to $100 per section. While the rule preamble indicates that the Department will “review the basis supporting the amount of fees paid to SAAs and the adequacy of funding” for “approved SAAs,” as sought by MHARR, it is very clear that a significant component of the label fee increase will be used to fund the drastically-expanded contractor activities driven by the combination of expanded in-plant regulation and the new “at least monthly” Subpart I IPIA manufacturer record reviews. The rule preamble thus acknowledges that increased program monitoring costs funded by the label fee:
“are the direct result of the focus of HUD’s cooperative monitoring and training over the past four years with manufacturers and their inspection agencies to improve overall construction quality … [a] process [that] is more time consuming for auditors and therefore, more expensive.”
Thus, added to all the other increased costs to manufacturers and consumers resulting from the expansion of in-plant regulation and Subpart I paperwork, will be part of the 156% label fee increase that will take effect in 30 days. The availability of expanded contractor funding, moreover, as noted above, will substantially increase incentives across-the-board for even more intrusive and burdensome regulation.
All of this sets up a scenario of skyrocketing regulatory compliance costs and devastating consequences for consumers of affordable housing — with no basis or foundation whatsoever. This is totally unacceptable to the industry and particularly smaller and medium-sized manufacturers that are disproportionately impacted by unnecessary and excessive regulation.
In its entirety, the developments of the past three days regarding this convergence are a clear and sobering wake-up call – and warning — for all HUD Code manufacturers that these actions must be aggressively opposed and that there can be no more “standing on the sidelines.” With a new HUD Secretary, the impending departure of the current Assistant Secretary for Housing/Federal Housing Commissioner, Carol Galante, and the upcoming appointment of a new Assistant Secretary with authority over the federal program, the industry and manufacturers will have multiple options to fight this regulatory tidal wave administratively, as well as in Congress and potentially the courts. Moreover, consumers are not immune from the extremely negative impacts of this unnecessary and costly regulation and should join with other stakeholders – as they did in the 1990s — to ensure that the bottom-line cost of manufactured housing is not needlessly increased by make-work regulation that has no place in this unique affordable housing program.
