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The Emperor has no Clothes

August 21st, 2011 13 comments

There is a lot to say about what has gone wrong with our country and our Industry.  We will begin ‘at the top,’ with our Chief Executive, President Barack Obama.

What’s up with Obama’s recent bus tour?

I’m no fan of the prior president, but say what you will about President W, when he took a similar bus trip to President Obama’s, W used campaign dollars to pay for it.  Where is the “watchdog” media? Why no hue and cry when the administration buys millions of dollars of Canadian buses so President BO can tour in style on the taxpayer’s dime?

What’s up with all that?

Isn’t it ironic that BO tours campaign style after lecturing millionaires and billionaires about private jets and corporate perks?  Or is that rhetoric just a way of getting the votes of middle America and ‘the little people?’

Do you like ‘divide and conquer politics?  To me, it is plain wrong.  Talk about issues, talk records or about facts.  But don’t pit one group against another.

I need to be clear that W vacationed considerably more than BO.  But W went to his ranch or Camp David, etc.  But to add irony to injury, on the heels of all this bad economic news, BO is in Martha’s Vineyard – the haven of the elite – now?

Even left wing commentators see this vacation in the New England playground of the rich and famous as a problem.

  • Experts and government statistics suggest we have 17% unemployed and under-employed.
  • We have more people on food-stamps and welfare than at any time in U.S. history.
  • And BO will give us his ‘next’ jobs program in September, after his resort vacation?
  • Where are all those shovel ready and other jobs from the ‘first’ one?  Or were all the jobs ‘created’ at the job killing CFPB?

They say the emperor has no clothes.  Well, we have no emperor, but a president and his wardrobe looks just fine.

Ascendancy and Dependency

It is the party of dependency that is still in ascendency.

Or at least still in high office…

…dependency is a major voting block today.

Be it government labor unions, federal jobs or those on government assistance, it is an issue.  We have to put people to work, not get them used to no work. We do need federal and other government jobs.  But we can’t give everyone a job regulating someone who is working to produce a product or a service that keeps America’s wheels turning.

If we do not change our ways federally and locally, we will look like rioting old England some day, because we can’t afford to keep adding to our debt and taking on more programs that fail to foster independence.

While we have plenty of dependency programs, meanwhile, we have

  • flash mobs that form, rob, harass and harm others in our cities.
  • We have automatic weapons fire along our southern border.
  • We have three wars we are involved in instead of the previous two.

I didn’t favor W taking us into Iraq, nor do I favor BO taking us into Libya.  Even if we ‘win,’ what have we won in either case?  We spill American blood and treasure, for what?  We can’t be the world’s cop, and we can’t have wars for the sake of foreign oil, etc.

Let’s drill and do energy on U.S. soil and off U.S. shores, as safely and prudently as possible.  Think about the major jobs creation potential.

Private enterprise can pay for it all without federal dollars.  Let business people do business in America again.

Another Recession, whats up with that?

The media speaks of double dip recession.  What’s up with that phrase?

Did anyone notice that the ‘great recession’ never ended?  Did you notice that the housing markets still suffer, and Keynesian/Euro socialist economics just added trillions to our debt without giving us a stronger economy?

No jobs.  No stimulated business.  Tougher lending.  Very little respect overseas.  Where is the change we can believe in?  Or was that supposed to mean the pocket change we have left after taxes?

Third part candidate George Wallace once said there wasn’t a dime’s worth of difference between the two major parties. Thus Wallace favored what some have for years, a third party to bring America back. But Ronald Reagan had it closer, we don’t need a third party, but a rejuvenated second party.

That means we don’t need Rino Republicans, Republicans In Name Only.  To me, W was a Rino, socially conservative, but nearly as much a man about big government as BO is.  W helped give us that darn bail out of the bankers.  W took us into two wars with no end in sight.  W’s dad may not have “finished the job” in the first Gulf War, but he had the smarts to get in and get out.

We need business friendly independents, Democrats and Republicans.

Businesses create jobs.  Jobs are what American’s need, and then they can start buying houses again!

Speaking of jobs, how about creating 20 million new ones?

I’ve read the same reports you have; that there are two trillion dollars of investment money on the sidelines – actually overseas – that could be brought back to the U.S. In short order.

But that 2 trillion fled America due to regulations and tax policies.  Do we have the political will to bring those trillions back?

Think about what Two Trillion Dollars we don’t have to borrow, or write down, would mean to our country right now.  If every $100,000 invested created only 1 American job, that would mean 20,000,000 jobs.

Think: 20 million people off aid, off food stamps, off unemployment or other government programs.  2o million more taxpayers.  Think 20 million people less dependent, means we would be that much closer to a balanced budget!

We better find and support candidates in whatever party who know how the free enterprise system works, because creating jobs by supporting business is what we should be about.

Free Enterprise, not Keynesian/Euro socialist economics, is what made America the land of the free and the home of the brave.

November 2012 is shaping up now.  Who we support now for our state houses, or for Congress, the Senate and the White House will be on the ballot 15 months from now.

Personally, I’ve contacted my senators and representative and made my feelings known on economic and social issues.  But I will also make them known on the path to election 2012.

Give the man his props

One thing that our recently bus touring and now vacationing BO has done is give us an executive order we can believe in.  With all due respect to Marty Lavin, Danny Ghorbani was the first to bring it to our Industry’s attention.  We speak of Executive Order (EO) #13563, similar to President Clinton’s issued in 1993.

MHMSM.com posted EO #13563 months ago, that requires an examination of regulatory impact and its benefits.

MHARR is right.  HUD’s budget has grown, while our industry shipments have shrunk.  What’s up with that fact?

What the president – at least on paper –  has done is give us EO#13563 which could hold HUD and other regulators accountable.  Now will our national associations use that to our Industry’s benefit?

The Fall Congressional hearing on Manufactured Housing

Ooops.

Who do we have in DC “helping us” in the planned fall Congressional hearings on our Industry?  Congressman Barney Frank.  What’s up with that?

Let’s see.  Barney helped give us the SAFE Act.  Barney also gave us part of the name of the bill that in his: Dodd-Frank.

So do you feel safer or dodd-franked?

With friends like Barney, does our industry need any federal enemies?

Who is watching how our industry PAC money is spent?  Is this the type of anti-business candidate we need to support?

Where is that change we can believe in?  Or did I drop that change the last time I filed my quarterlies?

One of the best meeting planners around, but…

I asked Tony Kovach why George Allen’s Roundtable was not on the MHMSM.com calendar.  “George isn’t an association, and he opted not to pay for an ad.”

Maybe there is considerable momentum from last year’s event that MHMSM.com did promote.  I noticed that Allen is reporting more state association executives coming to the Roundtable this year.  State execs are often ‘comped’ for coming to an event.  George is one of the best self-promoters the Industry has seen in the past 2 decades.  I’d want state execs helping me promote an event of mine too.  Nothing wrong with it, a common practice.

In the manufactured home communities world, Allen’s Roundtables are unmatched.  Allen gets some fine speakers and topics in.  They are informative and enjoyable.

However, I can’t always agree with George Allen’s commentary, live or in his columns here or in his own publications.  Let’s parse some of his recent ones for a few moments.

I understand and agree with George that MHI doesn’t seem to have a plan for our Industry’s recovery.  What’s up with that fact?  I can see why the natives are restless in the NCC, even with Lisa B getting appointed.

George is spot on that MHI is failing to do half of what an association is called to do – protect and promote.

  • Where is the Industry promotion?
  • How has MHI worked to reverse the Industry’s downward new home shipment trend?  Marty was spot on regarding that topic, in his recent column.

But George’s bashing of Danny and MHARR misses the mark.  Why?

Because MHARR is an association for independent Manufacturers. MHARR don’t get paid to represent communities or lenders or suppliers.  MHARR doesn’t represent retailers,  which if you ask retailers like Doug Gorman or Dick Moore, MHI doesn’t seem to do such a hot job for them either.

George, the point is that MHARR can’t be faulted for focusing on what its members pay MHARR to do, namely, work on regulatory issues.  So George, if you want to fault Danny, fault him for something that group is paid to do.  At least MHARR has stated publicly they support the ‘post production’ sector (MHARR code words for MHI) in their efforts to modify Dodd-Frank, SAFE, etc.  I’ve not seen any similar effort from MHI back towards MHARR.  If it exists, it is behind the scenes.

I also agree with Marty Lavin that we better watch more what people say than what people do.  We better watch results, because words alone can be cheap.

Or words can costly, depending on how you look at it.

Industry Marketing and Image Campaign

Speaking of MHI and the Industry image campaign…

…I’ve seen the plan Tony, IMHA’s Mark Bowersox and others have put together.  In a word, brilliant.

In my mind, they need to consider a different name, but for now they are calling it the Manufactured Housing Alliance and Phoenix Plan.  Their plan navigates the key political issues that our industry has faced that has kept us from moving ahead.

We keep reading from MHI the statistics about our dropping new home shipments.   This gets back to the dual role that an association is supposed to have, protect and promote.

Where is MHI on this MH Alliance/Phoenix Plan effort to turn around our image, marketing and sales results?

Silent.

By contrast. I see John Bostick’s name on the page in favor of the MH Alliance/Phoenix Plan.  That makes me want to order some Sunshine Homes and get others to do the same!

Good for MHARR’s Chairman, who did not endorse it on MHARR’s behalf, but Mr. Bostick has obviously taken the time and had the guts to publicly say, hey, this can work.

Which leads to the questions:

> Where are the MHARR members or Danny on this plan?

> Where is MHI on this plan?

Marty Lavin on Danny Ghorbani

I’m the first to agree with Marty that Danny needs to polish up those lobbying skills.  In fact, let me take Marty’s points a step farther.  As I personally see it, and others may disagree, Danny has three options:

  1. change your ways, permanently and rapidly, to become more effective at what you do for MHARR,
  2. retire and consult for MHARR as needed;
  3. or just retire.

Danny, retire? What would happen to MHARR without Danny?  What’s up with that idea?  Can you even say MHARR without saying Danny G’s name?

Yes, you can.

Attorney and MHARR VP Mark Weiss is a good man.  Mark knows the law, can be reasoned with and Danny has prepared him to take the helm at MHARR, when the time comes that Danny decides to retire or when MHARR members make that decision.

For example, MHARR could bring in a new associate, give Danny a nice gold watch, and a one year transitional consulting agreement.  The independent factories that support MHARR can save money.  As or more important, they likely can get more done and advance their cause in DC with HUD, Congress and other regulators.

The timing is right for a change at MHARR.  Danny, don’t take it the wrong way, you are a smart guy and know the HUD Code as well as anyone in the manufacturing side of the Industry.  But in my personal opinion, it is time to change your ways for the better or you better retire.

The best suits and fine meetings

Danny has some of the best suits in DC that our Industry can brag about.  Danny and MHARR are spot on with some key issues.  But you can be right, and still do things in a way that turns people off.

But give the man his props, Danny is right about MHI meeting,

after meeting,

after meeting and

…where is the MHI plan?

But then, Danny – if you stay – you and MHARR should then walk the walk and have an action plan of your own. Not a some day, or five year plan, a let’s get it done now plan.

Perhaps John Bostick’s public move supporting the MH Alliance/Phoenix Plan will inspire others of stature to make their own public statements or just help launch the program.

But at some point, we need to get past meetings, and get to doing.  46,000 shipments.  We are now down about 88% from our post HUD-Code high in 1998.  How much lower can we go and still have an Industry?

  • We can’t fill empty home sites with only used product.
  • We need new homes bought from factories and sold to consumers.
  • We need retailers and community operators who attract customers with good credit, and then close them and turn them into happy homeowners who will tell their friends and once again let our Industry grow.

The Numbers on MAP

I like abbreviations. Let’s call this plan of Mark’s and Tony’s MAP for short, because this MH Alliance Phoenix can be our road MAP to the future. Maybe we can get Tony and Mark to come up with a better name.  But in the mean time, MAP it is for me.

I asked Tony to give me a projection on what he thinks MAP can do.  His answer?  First year from the launch date could double shipments without a need for hurricane season (no need for FEMA orders).

The next year could double it again.  That would be roughly 92,000 shipments in year 1. Then 184,000 shipments in year two.

Take a look at the MAP if you haven’t already.  If you have a better plan, why not share it?  But if not, get behind the plan that is out there being discussed.

I’m told that MAP can be up and running in short order.  We can do MAP, with no waiting for federal or state action!

Doing the Math, my Math not Ts

Tony has his math, I have mine.

Let’s say MAP was launched, and then MAP raised shipments back to 75,000 the first year.  Let’s further say, 1/2 of the increase went into communities.

  • That would mean 14,500 spaces filled.  At say $275 average a month per site, that would mean $47,850,000 more to MHCs a year.  Plus the profits off the home sales.
  • 29,000 additional new shipments would mean 29,000 new jobs.
  • It would mean security for those whose jobs or businesses are at risk due to declining shipments.How many MH plants would stay open?
  • At even a low $50,000 average per home, that 1.45 billion in new sales.  Think about the boost in revenue to retailers and developers.

Would you give $75 per location to boost sales $1.45 Billion and create about $48 million in new communities revenues?

If not, please go back to 5th grade math.  To me, this spells a good deal.

Let me stress, these are my numbers, not T’s or Mark’s.  But it tells me why they and others are working to see this plan happen.

Chattel Lenders

I’m not without experience in dealing with personal property lending.  While he wasn’t talking about just lending, I agree with Chad Carr’s recently published statement about MAP.  The MH Alliance/Phoenix Plan is the only plan I’ve seen that gets to the heart of fixing chattel lending for our Industry.  MAP provides solutions for image, lobbying and other practical issues too. It dares to be bold, without trying to step on any industry group’s toes.

If your chattel lender has not yet seen this, she or he better do so!  This can help us cut our repos losses dramatically.

It will help our customers – manufactured home owners – dramatically too.  That will in turn attract more customers, and more credit worthy ones.

Manufactured housing lenders need to see our losses cut.  Because that panel of lenders at the MHI Congress last April were correct.  A repo can cost 50% (or more) of the loan balance.   There are so many dark clouds that hang over personal property lending for manufactured housing right now, we have to have solutions if our Industry will ever advance.

In fact, our survival depends on it.

I asked Tony specifically about people who have and have not seen MAP.  T won’t comment about those who haven’t shared a public statement. I can respect that, but it does leave us guessing.

So someone needs to ask Marty Lavin or Dick Ernst where they are on this.  Have they seen it?  What is there take?  It is obvious that Ken Rishel has come out for it, big time, in his own newsletter and on MHMSM.com too.

Come to think of it, where is George Allen’s name on this subject?  Didn’t he say a few months ago, we needed an image campaign?  What’s up with that?

We could go through a list of industry leaders and say, what about you?  Where are you on this MAP subject?

If you are for it, why not say so publicly? If you oppose it, why and then propose your own alternative!  Mark, Tony and those working on this want to see consensus. I appreciate that, but I’d add that we can’t afford to debate stuff forever.  We need to move ahead, and pronto.

If we do not start advancing, more factories, more retailers and more communities will fail.  It is simply 5th grade math.

State and Communities Association leaders

Given that a pair of state association leaders have already publicly stated support for the MH Alliance and Phoenix plan, it is reasonable to think others have seen it too.  We need to watch and encourage this plan at the state level.

Because let’s be honest, the states are where it is at.  All politics are local, and your business happens at the state and local level.

Last year, we saw some state execs who took a leadership role to get things happening at the federal level.  We need to see that again, and we need to see that on MAP or their best alternative to it.

A pimple on an elephant’s bottom

We’ve heard this expression at meetings and coffee tables.  I admit it sadly fits the influence our Industry has politically in DC today.  We need to be working tea parties to get the party of jobs, business and growth moving ahead. We need to hold the feet of those who say they will change DC for the better to the fire, and get the gold of jobs and rising housing back to work building the U.S.A.

We have lost our nation’s AAA credit rating.  Debt piles up, what do we have to show for it?  Where are the jobs?  The lending?  The recovery?  What did we bail out anyway?  Who benefited from all that taxpayer funded largess?

We saw some amazing upsets at the midterms, and I think we can see more if we plan now for the best candidates and then mobilize for the general elections.

It is frankly another good reason to learn and get behind the MAP.  We will increase our influence at the state house and in Washington when our consumers are visibly supporting us in sizable numbers.

Let’s work and earn the support of our communities’ residents and home owners/customers!  Then we should make sure we continue to deserve it.  Without happy customers, we are as doomed as if HUD bureaucrats or others would just shut us down.

TANSTAFL

If I boiled this down, it would be this.  We can’t have something for nothing.  TANSTAFL = There is no such thing as a free lunch. Someone always pays.

We better work for truly positive change, or we will be left with pocket change.

We better look at and support a plan that can move us ahead.  I vote for the MH Alliance/Phoenix Plan.  Or we will suffer the fate of the buggy whip makers.

I shop at WalMart no more than I have to, because I believe in supporting the smaller and more independent business women and men out there.  They are more like me.  They want to serve me, and I in turn want to support them.

We better support the HUD Code builders, and they in turn, better support us too.

Talking and Doing.

Before we look at any other emperor who also lacks clothes, let’s close for now. Talk is fine, but let’s follow talk with do.

I want to thank those of you who have written.  Please do not think me rude, but for now…

…I hope you understand that some things need to be said that have gone unsaid too long.

More next time.##

post submitted by
Michael Barnabas

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PROLOGUE TO SAVING CHATTEL LENDING

June 23rd, 2011 2 comments

WHAT?

When I started speaking with MHMSM Publisher Tony Kovach recently about writing some pieces for MHMSM.com NEWSline, the usual question came up.  “I know you’ve carefully explored in the past your ideas as to the dire condition of the MH industry, but how’s about some solutions, Pal?  Do you have any?”

Ouch!  That question can mean only one of two things; either Kovach has a short memory regarding the eight years of my monthly newsletters and the MHMerchandiser articles I wrote when that great resource was still alive, or, the boy doesn’t or hasn’t read my work.  Do I have solutions, you ask?  Does that mean solutions that “will” work to change things, or suggesting solutions which “might” change things?  I guess mine, of which I have plenty, are mostly in the “might” category.  For as we shall explore, there are no easy or surefire solutions to the industry’s problems.

WHEN?

Since the last home shipments top in 1998, the industry has slid through what I see as three separate phases, below:

  1. Phase One: From 1998 to 2003, the peak of the industry activity ending in 1998 and then starting a pretty aggressive decline.  During this period the industry was convinced this was nothing more than one of the usual episodes of industry disturbances, which had been regularly seen over the previous 50 years.  There was concern, but not much more.  Chattel lending dissolved all during this period, which saw the last of the Greenseco “balls to the walls” lending
  2. Phase Two: 2004-2008   Shipments started to stabilize in the 125-150,000 home shipments per year range, helped especially by frequent hurricane destruction and FEMA using MH as “temporary” housing, which turned out to be 10 years-to-forever housing.  Chattel lenders by this time are winnowed to a small number of able and cautious lenders.  Not many loans under 660 FICO closed, and the industry is starved for more aggressive lenders and lending.  The last great hope is FHA Title I, which is to be the “industry savior,” unless you read the 60+ page Government Accountability Office (GAO) report on the experience of chattel lending under Title I heretofore and the recommendations made to FHA in the report.  Had you done so, as I did, you might not have been so enthusiastic. Still, the industry waxed poetic about this great new lending source, which I hear produced a whole 1900 loans nationwide in 2010. All during that period MHI and MHARR, especially the former, were holding industry leader retreats with the goal of fixing the industry, going so far as to spend $250,000.00, as I recall, on an industry study by Roper Associates.  The “catastrophic” findings of that report led to an impetus to start an industry image campaign similar to the “Go RV’ing” campaign.  That move ended when disparate industry segments clashed as they thought they knew more about how to proceed than the pros we hired, apparently not busy enough in their MH business. But more importantly, when the industry’s “Godfathers” pronounced the campaign as “too expensive”, the movement died.  Amongst those are some still surviving, if not thriving, and several surviving in name only as they went to BK, which does not mean Burger King.
  3. Phase Three: 2009 to whenever.  The industry slides further down to 50,000 annual shipments, even flirting with 40,000, looking for a bottom.  Chattel lending remains ever-more constrained, enough so that many community owners resort to self-financing. Liquidity for loans within the industry is severe, even as Title I lives up to its failure to really fuel any sort of shipments surge, as I predicted well before it began. It seems FHA read the GAO report and heeded the warnings and recommendations therein.  The GSEs rejected “Duty to Serve”, the other industry “savior” as revealed in the Elkhart meeting in mid-2010, and the string is still counting down on the ability for LLC owners to keep vacancies at bay.  One large community owner, who had for years championed self-lending chattel loans to be highly effective, sold off a large package of LLCs producing those loans and the loans therein. Weren’t getting enough loans, apparently. More ominous, several new federal laws and a new consumer protection agency arrived to inject substantial constraints into chattel lending, this on an already overwhelmed industry and one which has not dealt effectively in the past with these types of regulations.  The industry response, as usual, has been to attempt to get released from the provisions of the law which are doing exactly what they were meant to do.  Presumably about the same time Subpart I of HIA 2000 is corrected, so will be those provisions of Dodd-Frank and S.A.F.E. which are biting so deeply.  I’ll be dealing with this in an upcoming Phase Four piece in the future.

HOW?

This prologue is followed by my Saving Chattel Lending article from 2007, written at the height of “what can we do to make it better,” during Phase Two.  I can say with Biblical certainty I did not save chattel lending, but then again virtually none of my recommendations were even attempted.

If you read the whole article, and I applaud you if you do, look at it from this perspective: there are two causes of defective chattel lending, and all recommendations made therein are calculated to try to correct these grievous defects:

  1. The Roper Factors The industry study I already referred to was meant to identify how we were treating our customers, what they thought of the industry, and how to correct our terrible performance.  This is the “Customer satisfaction” component.
  2. Home Depreciation The rapid loss of home value endangers the homeowner, his lender, the community owner, and ultimately the whole industry.  Were our MH financed for a short term, like an auto, then the depreciation might not bite.  But the home deprecation typically is so great and so quick; the entire process destroys any hope of making chattel lending a “main stream” bank product, as the loan repayment term used to finance homes is too long to defeat the rapid depreciation.  But, shorten the loan term, and the all-important affordability factor of MH is destroyed. Rock and a hard place, eh?  This is the good value component.

Don’t believe me on these two most important components?  I’m not surprised, neither did the 50 plus attendees at the Industry Salvation Chicago Meeting in May, 2005.  They did came up with many other answers, all of which were components of these two, which are at the very root of our problems.  Since the meeting never did identify “the” problems at their most basic, no answer was possible, and the cost of a trip to Vegas or Miami beach for OleMartyBoy was squandered getting to the Chicago Airport Hilton, which meeting came to nothing.  Make up your own list and see how basic you can make the industry problem(s). Then start your own list of possible industry cures.

AGAIN

I read my “Saving Chattel Lending” article again for the first time in years.  Virtually nothing has changed except the industry seems to have stopped all organized and concentrated attempts to save itself and the industry cannot and will not succeed unless the industry saves chattel lending, unless you think it is saved at 40,000 shipments. There are now scattered attempts to retrace the same industry steps previously made, mainly by people of short memory, or who didn’t participate before.  These efforts are very likely to come to naught. HIGH FIVES!  # #

June 21, 2011

MARTIN V. (MARTY) LAVIN
attorney, consultant, expert witness
practice only in factory built housing
350 Main Street Suite 100
Burlington, Vermont 05401-3413
802-660-9911 802-238-7777 cell
web site: www.martylavin.com
email mhlmvl@aol.com

email mhlmvl@aol.com

 

SAVING CHATTEL LENDING

By Marty M. Lavin

Manufactured Home MERCHANDISER, December 2007

As I get ready to journey to New York City to attend MHI’s Manufactured Housing Finance Forum, I’m going to propose some measures I think need to be instituted throughout the industry to correct the existing deficiencies of the chattel lending model. I do not believe we can have much of an industry recovery without better chattel (home only) lending especially in land-lease communities, and I have been saying so for years now.

I’m still surprised some folks fail to understand even today that manu­factured home chattel lenders haven’t “lost their nerve” and are not “conspiring” to control the market for lending. No, the reality is far easier to explain. If heretofore (pre-2003) the basics and statistics of manufactured home chattel lending were poorly understood, today that has all changed. While the “smart” industry lenders have continuously updated their loan performance figures, always seeking the keys to more expansive lending while remaining profitable, the general understanding of manufactured home chattel lending still survives today on immense caution. Profitable manufactured home chattel lending is still very much a niche product best practiced cautiously; and therein lies the constraint to increasing the shipments of HUD Code homes.

In order to believe chattel lending is the key to industry growth, one has to reflect with clarity on the inability, so far, of real estate-secured HUD Code transactions to lift the shipments to any extent. As the late 1990s progressed and chattel deliveries first stalled, then plummeted, many in­dustry participants and outside pundits believed conforming and non-conforming real estate mortgaged HUD Code sales, tied to the land, would pick up the slack. That was not to be.

Drop to low levels

While chattel secured homes, placed in land-lease communities and scattered sites were dropping to unimagined low levels, real estate-secured transactions did in fact in­crease slightly, but hardly enough to make up the loss of at least 150,000 chattel financed homes no longer being financed as the “Greenseco Finance” chattel loan model fell from favor, its non-profitability lethal for those using it, and dangerous even to bystanders, especially the borrowers who lost their homes in record num­bers. That episode was a preview of the current subprime mortgage problem.

As we survey the last 50 years of lending on our product, there has been a constant effort to “mainstream” the product. By that, I mean allowing an intelligent lender, with good money availability, at market rates, staffed by average lending personnel to enter the manufactured home lending market, proceed as they might lending on boats, cars or site-built housing and stand a good chance of financial success, creating a lengthy history of profits. This makes a lending product popular with banks, credit unions and finance companies, and spurs industry success. It is indisputable that only successful manufactured home lending can revive this industry. Keeping it a niche product for just a few companies to exploit might help them, but will do little for the totality of the market. The ability to mainstream the product has thus far elud­ed successful chattel lending.

Come and go

Historically, while innumerable lenders have come and gone in the in­dustry, profitability has eluded al­most all of them, with exceptionally few successes. That of and by itself says a great deal about lending on manufactured homes, most of which (historically 80-85 percent) has been chattel, especially into land-lease communities.

During the 1960s and early 1970s era, the “automobile lending model” was in vogue for manufactured home lending. Apparent down payments were generally higher than today (if not actual), homes were far more modest, repayment terms were far shorter and mobile home parks, where the vast majority of homes sold where sited, were in the hands of people whose primary source of income was from the sales of the homes going into the parks. It wasn’t until much later that rental income from the parks became the greater income producer rather than the sales of homes. When this occurred throughout the industry, it brought new players and many changes occurred which are being sorted out even now.

Today of course, the refugees from the late 1990s-2000s downfall in manufactured home lending populate lender staffs at enumerable banks and Wall Street firms. Their experience was so bad and our market size of profitable lending today is so small, why get involved? Why indeed.

And as I head to the Wall Street/MHI lending forum, I believe that thought is very much on the minds of many of the participants we expect to attend. “After the crippling losses suffered by manufactured home securitized loans from originations between 1994-2003, perhaps the greatest percentage ABS bond losses of all time, what are the reasons we should get involved in manu­factured home receivables?” I assume they will ask that?

And there are some positive answers we can give. Fraud in loans is far less. Loan documentation is very good, a previous weakness. Loans are made to far, far better credit risks than before and defaults will be decreased by an order of magnitude of 3-5 times less than before interest rates are significantly higher as compared to site-built housing than before and should render a good investor yield. And finally, you have a better customer, buying a better house, with more loans tied to land in some fashion, with ABS bond-performance-prediction recently being met and even surpassed. All pretty good stuff, frankly.

Good, but not enough

Yes, all the positives I’ve enumerated above are great, but to paraphrase the Wendy’s lady, “Where’s the volume?” You see, industry lenders have rationalized lending to become survivable based on loan quality, but they are having great difficulty changing other aspects of the industry model, which without changing, loan volume cannot increase much. There simply are no loan volume increases as new and even used home sales are skimpy. Is there a great HUD Code home buying demand? Yes, but it’s primarily coming from a non-financeable group of chattel buyers.

The HUD Code industry recently grafted many elements of rational lending, enumerated above, unto an overall industry model, which has arisen over many years of insufficient safeguards activity, lacking transparency, with few borrower/lender protections, and the industry seems incapable of sorting out what the final changes need to be or  how they can be implemented. I think the situation is pretty clear; the marketplace has already rationalized manufactured home lending into an 80-130,000 homes per year industry, even now as company consolidation  continues to drive down capacity and costs for people and places no longer needed in the industry. A permanent resizing is almost in place. Anyone who does not recognize that must be listening to industry rhetoric rather than viewing industry results.

Changes

All right, let’s get into the changes that, in my mind, need to occur in order to start a new industry shipments increase, sustainably derived, and tending to make it a more mainstream lending product. You cannot create a larger industry without a profitable and survivable lending model, which can successfully accommodate at least double the present volume, in an attempt to grow it back into the long-term new annual home shipments annual pace of 250,000 homes. This will require survivable lending to an average FICO tier at least 60-70 FICO points lower than recent ABS bonds and increased buying demand from reasonable credits.

I’ve spoken to a number of people lately, industry stalwarts, who finally agree that the industry model is broken. They recognize that the present grafting of a highly protective underwriting and loan closing regimen onto an otherwise disorderly industry model may well benefit some individual industry participants, but in the end, we are creating a far smaller industry. Some few prosper even as the industry sinks further.

At the Chicago industry retreat, which met several years back, I volunteered that I thought the industry defects could easily be broken down into two key elements:

The Roper Study Factors: Those are items which our consumers identify as industry weaknesses and tending to have our product sales, delivery, installation and after-sale yield far less satisfaction than our customers would like.

Home Value Deprecation: Those industry practices which tend to cause the home to lose enough value that with a modest down payment at purchase, the home is not later resalable within a reasonable time so as to allow the homebuyer to gain sufficient proceeds to pay off his or her home loan.

Note that without controlling home depreciation, significant industry growth is not really possible. And in the alternative, if you do control it, then the “Roper Factors,” while always important, take on less importance although complete industry salvation will require action on both weaknesses.

General Measures

Let’s start with general measures which tend to create better consumer satisfaction and progress into measures which tend to reduce home depreciation. An easy breakpoint between the two is difficult as a better home warranty, as an example, will not only create better consumer satisfaction, but also tend to reduce home depreciation. And many measures will be like that.

Without prioritizing measures, let’s just start a list.

• Image campaign

As I sat around John Diffendal’s (BB&T stock analyst) “investor dinner” in New York City the night before the MHI Financial Forum, my table was composed of several Wall Street investors, Larry Keener (CEO of Palm Harbor Homes) and myself. After listening to Keener and me respond to their queries, Christopher Abbott, senior vice president of Chilton Investment Company asked a simple question:

“You guys have a great story to tell, but I don’t think the public knows it. Have you thought about a ‘Go-RVing’ Type campaign?”

Whoa, that made ole Marty jump for joy! That has been one of my drumbeats for years. An image campaign to tell the public the role factory- built housing plays in the American housing segment is simply a necessity. Every day that goes by we cripple ourselves because we are not doing it. I suggest it is not only necessary, but frankly, inevitable. Why wait?

• Builder responsibility for integrity of the home installation/delivery

One of the big problems our consumers face is that they often feel left to their own devices after they buy. Our builders often don’t want to take responsibility for the shortcomings of their retailers and their subcontractors, because they don’t trust them. And the retailers don’t want to take responsibility for the installation subcontractors, again, for lack of trust. Yet both seem to have no difficulty transferring the results of that mistrust to the consumer and, by default, to the consumer’s lender. This is a major problem and the new MH select conforming mortgage program at Fannie Mae is the first to require significant protections for the consumer from that weakness in the present model. In a sense, this is like the recourse model so effectively used by many for years in the industry to protect a vulnerable lender from the troubles of manufactured home loans. This will ultimately spread to the chattel model as well.

• Longer and better home warranties

The consumer needs far better warranties and longer ones, say three or even five years, to insulate them from the financial shocks home repairs or breakdowns can bring. In the event some major home system dies at 18 months after purchase and the repair is $300 or more, a default causing event may have occurred and, without the warranty providing this protection, we’ve potentially created a repossession. Make no mistake; warranty adherence is expen­sive, but far cheaper than selling a whole industry down the river for lack of overall consumer value. We cast our customers aside because with very limited warranties, meager war­ranty compliance (see Roper Study) and short warranty term, the cost of homeownership, especially during the early years when its impact has the greatest financial impression, can strain the homeowner’s ability to pay his or her loan, if an untoward event happens.

• Cost of home site occupancy

After we put the homeowner into the dwelling, we frequently have sited them in land-lease communities, where the future cost of site occupancy has become an unknown, often with annual rent increases outstripping the ability of the homeowner to keep pace with costs through his or her earnings. This has contributed to substantial home value depreciation, resulting in a large decrease in chattel lending into communities placements.

• The high gross profit, low volume of sales model

The industry has evolved into low sales per location. This has seen an average of 36 new homes delivered annually by the average retailer. A sales location selling more than 100 homes is a giant retailer; however very few of those exist. The sales volume at each location is so low that a high gross profit must be achieved on the home in order to have any chance to survive. Even today, with far more rational lending, it is not unusual to see loans being made that represent 125 percent of the “invoice.” Note that this does not exclude the “slush” al­ready in the invoice, such as volume bonuses, advertising allowance, dues and other items. Nor does it encom­pass the customer’s down payment, being the 5 percent or greater we see today in most lending. With down payments commonly averaging more than 10 percent and invoice “slush” more than 10 percent commonly; it is easy to see that basic home gross profit can easily be 145 percent of true invoice or more. Home value depreciation starts there. This type of mark-up will have to be throttled back. The industry must try to move to the “high sales volume, low gross profit sales model.”

• We treat used homes differently from new for financing

Most lenders will admit that given similar underwriting and scrutiny, loans for new homes and resale homes will perform in similar fashion. Still, the loan-to-value advance, the interest rate and other loan factors are usually harsher for resales than for new. This continues the home value depreciation as such treatment for resales creates value depreciation at first sale. The industry is not good at treating resale homes with the same respect it does new. In the whole, they treat resales as “throw-aways” and so they’ve become. A con­certed effort to treat resales better is necessary.

• Our home loan closings lack formality

The real estate industry has evolved a voluntary and mandatory sales and closing routine calculated to protect the consumer, who is often unsophisticated in these matters. While it hardly guarantees an entirely trouble free transaction, it does a far better job than we do. Our industry has essentially refused to comply with real estate-type safeguards for chattel loans and only a few jurisdictions have forced such safeguards on us. We chafe at those few restraints. Transparency and consumer protec­tions seem little on our mind.

In manufactured housing, we see few non-real estate escrow closings or earnest money going into trust, little involvement by appraisers, lawyers or the various other measures created as transparency and safeguards for the consumer. Many of these measures are avoided in chattel lending on manufactured homes and loan performance has been far below that of real estate loans. Many don’t want these safeguards in place because it slows the “process” down. I can’t help but think there is a lesson somewhere in there.

Without attending to these two, the Roper Factors and home value depreciation, there is little beneficial change that is likely to result. The marketplace is currently rationalizing the manufactured housing industry, imposing an ever-lower shipments basis that is survivable. This is caused because profitable lending cannot occur at the level that is needed without significant industry changes and we have yet to find a way to increase the attention of better credits in and to our products, igniting the demand side.

Changes in attitudes

And what are those needed industry changes? In no particular order, we need help in these areas:

• Invoice Database

All invoices of all homes produced must go into an MHI controlled data­base available easily and inexpensively to lenders, appraisers and homeowners, with the proper protections as they are accessed via the Internet. This also allows cradle to grave tracking of the home with uses we don’t even know yet. While invoices are provided for every loan for new homes, the industry does not make them available for used.

• Shorter loan repayment terms

When I polled chattel lenders to prepare for this article, to a person, they all recommended reduction of loan terms to 10-15 years on single-section homes and 15-20 years on multi-sections, both with sales price cutoffs. More than $40,000 to get 15 years on singles, and more than $60,000 to get 20 years on multis. This would tend to reduce the nega­tive impact of home value depreciation with far quicker paydown of the note. Sales proceeds would then more commonly allow note repayment.

• Tighter loan-to-value advance

Lenders limit what they advance on all sorts of products. If using an invoice to loan on autos succeeds, it is because the allowable advance over true invoice rarely exceeds 10-12 percent, more commonly 5-7 percent. We have been allowing 140-150 percent and more of true invoice lending—and it is proven not to work well. A large loan advance to invoice amount guarantees home value depreciation. A high gross profit can only work on items which have high consumer demand coupled with scarcity of supply, like diamonds. Manufactured housing has neither high demand from creditworthy buyers nor limited supply. Continuing to get a high markup from a commodity in plentiful supply sold primarily to people on a budget is keeping the industry at low levels of volume. Tighter loan-to-value advances of not more than 10-20 percent over dead invoice, with limits on profit at sale will need to be instituted. This will tend to re­duce home value depreciation. Using real home value appraisals for new homes might be even better than con­tinuing loan-to-invoice to determine loan amount.

• Using standardized forms

The more we standardize procedures, regulations, safeguards and underwriting, the easier we make it to enter the industry and appeal to mainstream lenders. Keeping manufactured housing a small niche industry with arcane operating procedures, documentation and practices tends to shield existing participants from competition, but under current conditions, creates a very small industry. Standardized forms, like everyone using the same credit application, delivering it to lenders via the Internet and using standardized closing documents, as they do in conforming mortgages, is an important element to better action. Industry lenders must move towards this if we are to mainstream product lending.

• More use of appraisals

Using real value-based appraisals is said to reduce sales. Yet, if the consumer does not do an appraisal for us, they surely can’t avoid it by going to real estate. They will get one there if they go forward. The use of “books” only, with standard lender formulas and advance-to-invoice is no way to run a large, profitable industry, which delivers value to everyone. The book is only a cog in a complete appraisal, not to be used alone. Knowing the real market value of the collateral is a necessity for sound lending. Only market-based appraisals can do that.

• Longer house warranties

Homebuilders must find a way to deliver a fairly comprehensive three to five year warranty for homeowner protection. This might be done by the use of appropriate third party warranties, the cost of which is built into the invoice of the home. This will help stabilize the cost of home ownership for the early years when the borrower is most financially vulnerable. It also is a unique benefit differentiating our product from site-built.

• MLS system

We have the beginnings of an MLS for manufactured homes in several venues already. Most are just in the beginning stages. Far more is needed. Industry zeal must be directed at true issues, such as working towards an MLS, training of manufactured home resale brokers and every element of creating an organized resale marketplace. Can we partner more effectively with Realtors? Without a well-organized resale market, the homeowner is left to his or her own devices to resell the home. Failing frequently in that effort, they resort to “giving the home back” to the lender or selling, at a sacrifice, to another. Creating an organized resale marketplace is a centerpiece to rescuing the industry.

• Manufacturers statement of retail price (MSRP)

This is needed for several reasons. First of all, it provides greater clarity and shopping comparison opportunities for the consumer. Secondarily, it allows the builders to “guide” its retailers into a proper sales profit, consistent with volume and profits for the builder and the retailer. The current lack of pricing guidance is a disrespect to our consumers, putting in their minds that we are a disreputable bunch. Finally, the MSRP helps lenders deal with all customers being treated more alike. No one wants the black eye of “certain” consumers being treated differently. It also can be illegal.

• Posted home prices

I really don’t even know why this one is an issue. Most people do not like to buy items that are not priced, as they fear they are not being treated fairly. Yet, nothing is more common in the industry than waiting for the “up” to demonstrate an interest in the home before he is quoted the price. This simply is not ethical treatment and undermines our regard in the minds of our consumers. And this is an issue AARP and others have railed about. Isn’t it the right thing to do? What is the hold-up? Every home for sale at a retailer should have a clearly posted sales price. (The largest retailer chain told me recently every home they have for sale will have a posted price shortly!)

• Final Inspection of the home before delivery

No lender should fund a loan until it is convinced the home is properly delivered and the customer is satisfied. While this is moving towards industry lender practice, we are not there yet. Until the industry has established a long-term track record of compliance, this must be required and verified. The walk-through punch list site builders use before their closing with customer sign-offs is a good start for us. Not foolproof, but one more safeguard for all parties to the transaction. It is one more step to assure the integrity of the process and deliver more value to the consumer and his lender. It also keeps the sellers and builders on their toes making them do the right thing.

• Community Attribute System An important compendium of the details of land-lease communities in a database owned by MHI and operated by Datacomp Appraisals in Grand Rapids, Mich. Still in its infancy, the data is building, the cost to get data is low and over time can be used in tandem with an in-community MLS. No lender should be lending in landlease communities without accessing this data. It doesn’t take a genius to look at the 100+ attributes compiled therein, and if correct and current, a lender has a very good idea if that is a community wherein you want to lend. This is an important lender safeguard and allows better loan decisions. Lenders are using it and the data fields are being updated. It is also an important spur to community owners to work towards excellence

• Better finance treatment of resales

No Virginia, all resale manufactured homes are not crap-boxes to be financed for 5-15 years less term than when they sold new. We should require a real value appraisal so the quick “appraisal book” standard formula won’t undervalue (or overvalue) the home. We should not have the significantly higher interest rates on resales than we now see on new. We now know debasing the value of resales debases the new homes as well and you see the result of that all around you. For profitable lending and delivery of value to the customer, as go the used, so go the new.

• Proper and easy home identification

I did a quick study once on the damage caused by standard formula book appraisals coupled with improper home identification. I found the loss of value substantial. We all know the industry produces a bewildering variety of homes, often with enormous differences in selling price and some even being the same size and having similar model names. Yes, content does count in a home. Drywall construction, better windows, upgraded appliances, architectural details, better insulation and a number of other factors can make a big value difference.

Since most builders do not provide good (or any) home identification in their serial number, the true content aspects of the home may not be readily available, except in the invoice. At resale, invoices are rarely available, if ever. Lenders being the highly pragmatic bunch they are will take the lowest value that home could be, often without a great deal of further inquiry. In the event of calls to the factory for better home identification, some are helpful, but many are not.

The invoice database I discussed above is a great way to properly iden­tify the house. A second way is to use a standardized serial number as is used in the automobile and other industries. The special serial number range could identify the many relevant factors so that by using the proper code sequence one could know all about the home. This would make home identification certain and more importantly, stop the guessing and depreciation of value occurring by use of standard valuation formulas because we can’t properly identify the home easily or at all.

As between the two, if I could only have one, I would prefer the serial number, as once you know the number all the relevant information is available to you immediately and free of cost. But the invoice databank is important for good identification purposes and also may have cost data, which appraisers and lenders love.

This one is the canary in the coalmine. By that I mean it will be a sure tip-off that if the industry is not serious about taking action to assist lenders, appraisers and homeowners with proper home identification after the home is sold, and being resold, where can the industry start to solve our dilemma?

• Third party final home inspection

No loan should be funded without a reasonable third party inspection and assurances that the home installa­tion is proper, the customer got what they bargained for and the homebuy­er has had a walk through the house and is satisfied. Expensive you say? It will create problems because we find out the process is incomplete or wrong? The retailer doesn’t want you to do this? Just think about those reasons for not doing it, as though defaults are cheaper or unhappy homebuyers don’t cause problems. We continue to avoid this at our own peril.

• Quality of homes

I am the first to tell my clients that in general, the industry builds com­petent homes and actually some are better than competent. However, I’ve been in far too many homes which are three or more years old and my impression has often been how “used” the home appears. Many times the visual impression is one of a home many years older than it is. Yes, I am aware some of our cus­tomers can be hard on a home. We can build for that.

It is easy to create extra space in a manufactured home and often builders will induce buyer interest by the large amount of space at very low per square foot costs, but use non-durable materials to achieve it. Our industry is very cost driven. The downside is that the home appears so “worn” in short order, that it creates problems at resale. The tatty home appearance reduces its appeal in contrast to the new similar home offering, which the homebuyer can get with more attractive financing, for little more in price than the payoff amount of the loan on the resale. Can you say “home value depreciation” anyone?

Substituting more durable materials of better quality and reducing home size might be a wise tack for the industry. Sell the consumer on durable materials for their satisfaction. Consumers are not all stupid, are they? At least not the ones with good credit who make informed decisions, which are the ones we need.

• Residential architectural characteristics

A recent industry move is to create homes, even modest ones, with a residential appearance. Couple this with more durable materials and we increase consumer appeal and create far better resale action. Extremely modest, chattel financed homes seem an endangered species. Appearance and good presentation grow ever more important, reducing home value depreciation.

• Factory invoice with clear retailer costs

The Truth in Invoice Practices Statement (TIPS) is calculated to try to create a verifiable home invoice so that any lender and its appraiser can see what is being paid for the home. While recent changes have created more reliable invoices, the fact is that only within ranges can a lender today easily know what the retailer is pay­ing for the home. Strange you say? I agree. Invoices should clearly show what the home costs the retailer. Period.

• Long-term leases and lender /community agreement

Many of our best rental homesites are bent on maximizing rents. Often that is done without other considerations. In order to induce in-community lending, the elevated depreciation homes in land-lease communities undergo all too frequently, must be abated. One of the ways to do this is to negotiate lender/community agreements which determine a course of dealings between the two, especially after default and repossession. This can save lenders large sums upon default and gain the community owner’s valuable assistance to handle the repo, refurbishment and resale. The other necessary ingredient will be the use of long-term leases to induce a lender to extend a loan for a home going into the community, tying the rent increases to real increases in operating expenses plus real increases in earning capacity of the homeowners. Since we’ve allowed people to borrow on 20-25 year loan terms, closing a land-lease community without homeowners recompense or relocation assistance is a major and increasing problem. “Google Alerts” sends details of a new community closure almost daily. It does and will continue to cause the industry major problems.

• Use of indices for long-term leases

There is a current popular notion that a homeowner should be paying as rent the capitalized value of the homesite according to the OFHEO index of single-family residences, plus the increase in operating expenses. This has tended to be less than successful for both the landlords and the resident. The former has gotten increased vacancy and the latter suffered a high default rate caused by the resulting home depreciation. Lending in communities has greatly diminished as a result. This industry cannot prosper without a strong chattel-into-land-lease business and neither can the land-lease contingent.

The homeowner we need, as lenders to finance, will not value the rental homesite anywhere near as much as the OFHEO. And that index usually overwhelms the resident’s ability to pay based on annual earnings. As homesite rents increase annually, the resident “buys” the site over every year, unlike the real estate-secured borrower, who unless he refinances and gets money out, has fixed the cost of the purchase of the site until he or she sells. With rising rents, we never fix the cost of homesite occupancy.

Lenders will want to be protected with long-term leases to create more surety that the value of their collateral will not drop in tandem with overzealous rent increases. As lenders, we all understand the desire of landlords to maximize their return on their land-lease community. Still, if done at homeowner/lender expense, lenders must draw the line. The line drawn has tumbled in-community lending and without significant changes, is going to change little in the near to mid-term future.

• Proper installations

Recently, I heard a lender describe the actions his company has taken to encourage proper home installation. He rewards low set homes, those looking more like site-built foundations than the easy-to-do, not-so-good looking high pier home installations so common heretofore. He wants to see covered entryways, proper porches, front and rear entry stairs, good architectural design. And this is not conforming mortgages, but chattel! And why is this industry leading lender doing this?

Simple, good installations, completed on time, delivered as agreed upon with the homebuyer, set low with a distinctive home creates far greater home satisfaction for the homebuyer, AND when it comes time to resell the home, appeals much more to subsequent buyers than modest homes, poorly sited and installed, sitting on stilts up in the air. This reduces repossessions by greatly increasing the ability to resell and pay off the home loan through sales proceeds. To say nothing of the increased consumer satisfaction delivered and increased homeowner desire to keep the home “because he likes it.”

This lender is using the carrot approach. He gives a substantial interest rate reduction for such installations. It may take more than that in the future.

• Too many defaults

Part of the defense subprime lenders have given the media and regulators for the elevated defaults and repossessions likely to occur is that “they gave subprimers a chance for homeownership.” I’m not sure how much currency this will have as Congress and the regulators stick their nose into the causes of the subprime mess. But I would guess that in the case of manufactured housing, were we to continue to loan into communities, with known default rates in the 35 percent range (even with good credits), that if we use the above excuse and justification, we may well see an eyebrow or two raised. Me thinks that while the carrot approach can work well with a very hands-on lender who really works at his craft, in order to mainstream chattel lending in community placements may require a little more stick. And charging high chattel rates and having high defaults may work financially, but it is a poor business model. It smacks of “Buy Here, Pay Here” and is below what our dignity level should be. It also may catch the unwelcome attention of “busy bodies.”

• Retailer/builder relationship

It seems that the relationship between these two important industry segments has always been a handful. Retailers with good financial capability and experience in the industry are rare. It has historically been a “bootstrap” industry where retailers came with little, made little over a business career, tried to hang-in during the down times and ultimately faded into the sunset.

Along the way, consumers had various difficulties with them and consumer surveys find this industry participant, the retailer, with low grades. The industry itself views the retailer as a weak link. The difficulties lenders have with them are legendary, although I must admit that lenders too often have failed to protect themselves.

Lenders and builders are going to have to have far greater concerns over the experience and financial capability of the retailer. Where those are insufficient, and that is common, retail lenders are going to have to secure back-up performance from the builders the retailer represents. Without this builder back-up, the process continues to be a high default/large charge off endeavor which stands little chance of shipments increases, unless of course you believe that Greenseco Finance is alive and well in the wings, ready to burst back on the scene, chattel loans a-blazing.

• Protected territories and a good chance to make a profit

By being well capitalized, experienced, with protected territories and guided by their franchiser builder, we can turn retail locations into real businesses with an excellent chance of success. The ability to make a reasonable profit, consistently, draws retailer candidates with both experience and capital. We see this does work in some parts of the industry where builder-owned sales outlets are made financially capable through the parent’s financial strength, their managers are carefully selected and guided, and they have protected territories. Often, their managers are selected with greater care than their franchised retailers. Builders must move towards distribution representation, where franchised retailers are commonly experienced business people, with strong financial capability and protected territories.

As an industry, this very perplexing matter will need serious attention. But whether the industry fixes it or the market does, it will be settled. The market is likely to settle it at lower shipments than a unified industry approach that precedes a pace.

Final reflections

I’m not sure there may not be other needed measures. I have never been able to sit down and read this list of industry model enhancements needed to correct the failed model. And if you disbelieve me that the model is failed, I repeat the words of the “World’s Greatest Investor,” Warren Buffett. In my March 2004 newsletter, which was the early precursor to the comments in this letter, I quoted from Buffett’s Feb. 27, 2004 statement to his shareholders. In part regarding his view of the manufactured housing industry, Buffett said the following:

“During those years, (the 1990s) moreover, both the quality and variety of manufactured houses consistently improved.

Progress in design and construction was not matched, however, by progress in distribution and financing. Instead, as the years went by, the industry’s business model increasingly centered on the ability of both the retailer and manufacturer to unload terrible loans on naïve lenders. (emphasis mine)

“A different business model is required, one that eliminates the ability of the retailer and salesman to pocket substantial money up front by making  sales financed by loans destined to default… Under a proper model—one requiring significant down payments and shorter-term loans—the industry will likely remain much smaller than it was in the ’90s.” (emphasis mine)

And I agree with Buffett that if only down payments and shorter loan terms are involved, we are likely to remain much smaller. The measures I proposed are to start a return to the 250,000 annual home shipments industry long-time trend line, with far more comprehensive action.

And why do I repeat Buffett’s words again? Because when I say what he says I know many people do not believe me. I’m a “nobody” and when I speak of a “failed industry model” in manufactured housing, people think they can disregard it. And for others, the concept of a “failed model” is beyond their comprehension.

I can hear their words. “This industry has always worked in the past”, “The lenders have just lost their nerve” (In reality, what the lenders lost was their shirt) and “This is simply a collusion by certain entities to take advantage of the market.” The only people I know who are doing well would prosper even more with a robust market. Alleging market collusion is so childish and avoids reality so deeply, that I can only shake my head when I hear it. It’s usually spoken from atop the “grassy knoll.”

Warren Buffett is a SOMEBODY. As you read his words above, can you afford to ignore them? Hasn’t he been proven right with such force that we should not doubt his words and undertake an immediate series of steps to correct the failed model?

That would seem an intelligent result, finally, and as the industry study committees met again in Hilton Head, S.C., we’ll review for industry progress. Can we rescue ourselves from the housing niche into which we’ve fallen and can’t get up?

Martin (Marty) V. Lavin, is a 35-year veteran of the manufactured housing industry from Burlington, Vt. He is an attorney, consultant and expert witness to factory-built housing interests. He is past chairman of the MHI Financial Services (2001-04) and recipient of the Totaro Award for Outstanding Achievements in the Manufactured Housing Financial Services Industry….
Editor’s Note:  We have again honored the author’s request to post his article and the original “as is.”