Report and Analysis

In This Report: December 13, 2012

While most in the industry, in order to deflect from their own responsibility for manufactured housing’s decline and continuing sluggish recovery, will undoubtedly fixate on the relatively insignificant factual errors contained in a December 12, 2012 Wall Street Journal article titled “Tide Changes for Manufactured Housing” (see, copy below), the article accurately highlights something much more important – the continuing negative impression of manufactured housing within the capital markets and the reasons for the retrenchment of that negative image, despite corrective laws enacted by Congress and real improvements to the homes themselves.

Pointing to the “falling fortunes” of the industry, as indicated by negative quarterly returns on the stock of two of the industry’s largest community operators and unexpected recent declines in manufactured home production, the article blames comparatively higher financing costs for manufactured home purchases as contrasted with site-built homes and makes it clear what is driving that differential – a continuing perception of manufactured homes as “trailers” within the capital markets. Citing a continuing “trailer park image,” the article asserts that “interest rates on manufactured homes are higher because they are viewed more as a depreciated asset like a car or refrigerator or an appliance.” Negative perception thus leads to negative “real world” consequences in the form of financing discrimination that restrains industry recovery and growth.

The article, however, fails to address — or answer — the single most important issue for the industry and consumers – i.e., why the “trailer” image of manufactured housing persists when the industry is producing its best homes ever and Congress has enacted several laws over the past decade designed to complete the transition of manufactured homes, both in terms of production and financing, to legitimate “housing” and ensure its parity with all other types of residential construction?

A significant part of the answer – as MHARR has pointed out for years now — is simple; the entire industry has not been sufficiently aggressive in pursuing and demanding the full and proper implementation of these laws (i.e., the Manufactured Housing Improvement Act of 2000, the “Duty to Serve” provision of the Housing and Economic Recovery Act of 2008, and the Federal Housing Administration Title I and II program improvements contained in that law). If the entire industry, all along, had devoted its full energies and resources to the full and proper implementation of such laws, specifically designed to establish and ensure the status of manufactured homes as “housing” for all purposes – thus effectively ending the industry’s “trailer” legacy – those laws would have had a significant impact by now. Instead, federal regulators have attempted to negate these laws, ignoring key provisions at will while distorting others. And since, as MHARR has pointed out for years – an industry, such as manufactured housing, that is comprehensively regulated at the federal level lives or dies based on the actions of its regulators – it should not come as a surprise to anyone that because the industry’s federal regulators continue to view and treat manufactured homes as “trailers,” the capital markets and public continue to view manufactured housing through the same biased lens.

Moreover, where progress on financing has been possible, such as the “window of opportunity” for an expanded pool of securitized private-sector issuers created by MHARR’s engagement with the Government National Mortgage Association (GNMA) in December 2011 (see, MHARR December 19, 2011 memorandum – “Productive MHARR – GNMA Meeting Opens Window of Opportunity on FHA Title I Securitization”), the door has been slammed shut by the refusal of the few companies that currently dominate manufactured home financing to share the type of loan performance data that could provide the basis for less restrictive criteria on the part of not only GNMA, but the Federal Housing Administration (FHA) as well. The available sources for manufactured home financing thus remain unnecessarily limited, resulting in higher costs to consumers.

The other part of the answer is the continuing failure of the industry’s post-production sector to effectively address homeowner concerns that contribute to an overall negative perception of the entire industry and – with such concerns increasingly being voiced in Washington, D.C. — are negatively impacting the industry’s hard-earned positive assets in the nation’s capital.

The contrast between homeowner perceptions of the industry’s production (i.e., home structure) and post-production (i.e., purchase, financing, placement in communities) sectors in two consecutive congressional hearings concerning the industry could not be more profound. While a representative of the nation’s largest homeowner group stated in November 2011 congressional testimony that she “loved” her manufactured home and would “certainly recommend a manufactured home to others,” an official of the same group, at a February 1, 2012 congressional oversight hearing, presented a list of significant complaints regarding post-production aspects of manufactured housing, including increasing rents without corresponding property improvements and short-term leases that create uncertainty for homeowners, among others. To make matters worse, the post-production sector, at the February 1, 2012 hearing, had no qualified witness available to – at the very least — respond to those allegations, or engage in a dialogue that would have clarified those claims for the lawmakers who were present.

In order to maintain the credibility that is essential to effective representation in the nation’s capital, for itself and for as much of the industry as possible, MHARR has been – and continues to – methodically research these and other homeowner issues in an effort to determine their extent, validity and potential resolution. This is because MHARR’s leaders, since the formation of the Association in 1985, have made it clear that the Association does not take such issues lightly and will continue to share the results of its ongoing analysis and research with industry members for their consideration and other action as appropriate.

To summarize, the Wall Street Journal article, in exposing the continuing “trailer” image of manufactured housing within the nation’s capital markets and its negative impacts for the industry and consumers, validates the points that MHARR has been making all along, that for the industry to achieve a sustained and robust recovery leading to growth and eventual expansion, the full and proper implementation of all its existing laws and particularly the 2000 reform law are essential.

• December 11, 2012, 8:07 p.m. ET

Tide Changes for Manufactured Housing

| Find New $LINKTEXTFIND$ By A.D. PRUITT and DAWN WOTAPKA

Shares of manufactured-housing companies were the big-ticket stocks for real-estate investors in recent years, faithfully posting double-digit annual returns. But now, some investors have soured on the sector.