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Dare’s 3 Point Plan for Manufactured Housing Industry Recovery

June 29th, 2016 No comments

TitusDareSVPEagleOneFinancial-PostedIndustryVoicesMHProNews-com-With apologies to MH Industry legend Randy Rowe and his 5 Point Plan for Industry Recovery – which is insightful and important reading – let me

suggest that what the Industry needs is a foundation that’s built upon a simple three point plan – which is really a 1 point plan – and everything else is a subset to that basic necessity.

Ready?

Education, Education, Education

James McGee and Chet Murphree said it very well on a video, its all about education. That’s sounds so simple, but they were correct, and its so true.

What keeps more lenders from entering the manufactured housing market? Education.

What does and has Triad Financial done so successfully for years to bring more lenders into the manufactured housing space? In a phrase, they’ve educated bankers and credit unions to the realities of modern manufactured homes.

The Three Forms of Education needed for MH Industry Recovery are these:

1) Public Education

Consumers must be exposed – educated – about the product.

This can happen at events, online, at a retail center, community, factory, visiting a friend’s manufactured home, etc. The more the public is educated, the better they understand our product and the more they will buy it.

The secret sauce for manufactured housing success is to attract and sell more credit worthy buyers, which in turn will cause the stigma to subside. As more millionaires and the mid-to-upper middle class buyers purchase a new manufactured or modular home, the more success the industry will enjoy in selling the entry level market that no one but manufactured housing can successfully serve without serious public subsidies.

EducationIsAKeyToProfitablyAdvanceManufacturedHousing-TitusDare-imagecredit-MHProNews-com

Editor’s note – All images on this page, save Titus’ photo, are provided by MHProNews.com as illustrations for his message, and were not sent by the author.

2) Outside MH Professional Education

Want More Lenders? Be it the GSEs, or others, education – not a sales job, education is at the heart of what’s needed. Educate them on how the existing industry lenders do it successfully. Do what Don Glisson’s team has done, or what I’ve been a part of doing in MH for many years.

Some 80% of HUD Code MH sales make appraisal, so 20% of potential sales don’t meet appraisal.

Want more appraisers to give better appraisals on manufactured homes? Then, you better help them get their arms around the nuances between the upper end homes and the entry level homes, underscoring the point that they are all built to the HUD Code and are safe, durable and energy efficient. Educate them!

Want more public officials to say yes to manufactured housing? Educating the public, and creating their demand for the product – while also educating local, state and national officials – educating each of those groups are essential. Each must be educated uniquely, but each form of outreach should take place at the same time.

Want more developers, Realtors ® and other housing professionals to embrace manufactured homes? Isn’t that also about education?

Make no mistake about it – the industry has to reach out to a myriad of other groups and professionals if it is to achieve its potential. But the rewards will be worth the effort.

Inside MH Professional Education

To sell more of the upscale buyers, and to convince more public officials, mainstream media etc. – all of those are educational efforts, that requires better motivated, informed and yes – educated industry professionals.

Some in the industry are truly forward looking. Others are hoping for a return to Conseco and Greentree days. The later won’t happen and wouldn’t work for long if it did.

For the Industry to attract new capital, we must prove we are educated enough ourselves to be thinking about ways so that everyone in the mix will benefit and win.

The win-lose days are over.

Further, you don’t usually sell a millionaire the same way you do that customer who can just barely qualify for the least expensive entry level house. You have to approach every prospect based upon their unique needs, wants, world view and expectations.

All of that and more are a matter of training, of education.

What Won’t Work

What’s clear is that manufactured housing endured over a decade of downturn, followed by a modest roughly 6 years of recovery.

We may have the best product ever, but what attracted those new lenders in the past and what attracted developers and other housing professionals to MH before was what appeared to be the opportunity to do volume and to do it in a profitable way.

MH was once one out of every 4 new homes hooked up to electrical service in the U.S. Today, its a fraction of that total.

We can’t tilt at windmills, we can’t cry over split milk, but we can learn our lessons. That learning…is education! So we can begin to educate our way back to success.

4S=SafeSoundSanitarySustainable-postedIndustryVoicesMHProNews-com-

In case you missed it, click the link above to see Titus’ original column on MHProNews.

Every step of what it takes to be successful in lending, which is critical for the advancement of this or any other big ticket industry, must be connected to those 4S I mentioned in my first column.

The news is breaking as I’m writing this today that YES! Communities is being pursued on a 2 billion dollar potential buyout. Whatever happens on that deal, we know that several billions in MHC transactions have already taken place in the last year. That tells us what we already know.

Manufactured housing has demand, because affordable housing has demand.

What did Frank Rolfe say on that video? People hate their apartments. Rolfe and his associates are growing because they understand a key aspect of affordable housing. Price and payment sells!

Exaggerating to make the Point

In truth, education, education, education is a key.

But there are subsets to that, where experts in lending, in developing, in production of HUD Code and modular homes, in proper installations, in safe transit, insuring, supplying, associations, legal minds and other experts all play a role. So I’m exaggerating education a bit to make the point.

Over the years, at educational events I was part of to promote manufactured housing lending and manufactured housing as the ideal source for affordable housing for potentially millions of people, I had the opportunity to meet all sorts of Industry pros.

I’ve mentioned Don Glisson Jr. and Rick Rand, but there was also the Claytons, Dan Rolfes, Lad Dawson, Marty Lavin, Dick Ernst, Phil Surles, Joe Stegemeyer and so many others I could fill this page with their names. Each one brought certain qualities to the table.

That’s what must happen again – bring together the best minds, to educate – and education is the best form of promotion that manufactured housing could possible offer for the future.

Is there more to do than educate?

You bet, and with Tony okay to publish it, I’ll gladly share that in a future column too. Let’s note that Tony and his team and sponsors have already started this educational ball rolling on MHLivingNews – educating the public and public officials, and on MHProNews by sharing the insights, interviews, comments, news and opinions that so many have on these pages over the years.

End the Fear, and the Growth Will Follow

One piece of the advancement puzzle is ending fear. Education overcomes the paralysis of fear, or the no that fears cause. State or national associations clearly have many potential roles to play.

Come on in the water is fine” won’t work when trying to get the FHFA, GSEs or anyone else to come to the manufactured housing table on doing long term chattle-style (home only) mortgage lending.

As a career banker and a true believer that MH can, and will, solve our housing crisis in America, I ask each member of this great industry to pull together and refocus the efforts of the industry on education, education, education for the next 3 to 5 years. I believe the results for the MH industry and all those involved will be astounding. ##

(Editor’s note – the headline was written by MHProNews, the contents of this message were sent to us by the author; we note that so that readers don’t get the impression that Titus Dare named himself in the headline! 😉

TitusDareSVPEagleOneFinancial-PostedIndustryVoicesMHProNews-com-By Titus Dare
Senior Vice-President
EagleOne Financial, Inc.

Dick Moore’s Industry and Finance Perspective

November 16th, 2011 2 comments

 

Dick Moore's Industry and Finance Perspective
 
Well, it seems that I struck a nerve with our friend up East. He mostly disappeared for a couple of years, quit writing his newsletter, and went dormant. I figured maybe his conscience was bothering him, after the spin he put on our industry.
 
Now I see a new post from our buddy in “Industry Voices,” the guest platform on Tony Kovach’s e-zine MHMSM NewsLine (MHMSM.com = MHProNews.com), wherein he goes on and on about me in a general mis-representation of my writings. I certainly never opinioned that he had powers akin to Superman. He did, however, invent some mystical losses derived by using losses from Brigadier, Conseco, and other lenders who did not know or understand how to buy MH paper. He then reported those loss figures to Fannie Mae & Freddie Mac, keeping them out of the (Manufactured Housing) markets.
 
This lack of competition had a negative impact on the other lenders that were still major players in our industry.
 
He admitted to me in Louisville one year that he was an “attorney” and was being “paid” by Fannie to advise them. He later denied all that, but everyone knows the credibility of lawyers and politicians. After all, who else gets “paid to have an opinion”?
 
My ex-neighbor was a college professor who taught business
administration at Memphis State University. After listening to his
many goofy ideas and theories, I realized the source of the old adage “If you can’t do it, teach it.” If you were a failure in the finance business, then go out and advise others how to do it!
 
The Mortgage Industry produced paper much worse than the MH
industry ever dreamed of, and that was the paper that our friend
advised Fannie to buy (instead of MH paper). Fannie’s losses are the worst losses the United States has ever endured, and it continues still. (How good was that advice?)
 
It is easy to measure or analyze a situation the way you
want it to look – just choose the measuring criteria needed
to give you the end result you want and ignore any thing
that doesn’t.
 
The MH Industry (its survivors) remains the only low-cost housing that is un-subsidized. Just because less qualified people enter the business and lose money from their poor business decisions does not equate to a ‘subsidy.’ Maybe our friend does not know or understand what a subsidy is. He sounds like Obama explaining the debt ceiling and how someone else created it.
 
I’m sure there will be another argumentative letter, but I have work to do and do not have the time to continue with fruitless exercises in writing.
 
********
 
This industry and its recourse lenders fared well and made good money from the 50’s to the 90’s, with no taxpayer subsidies.
 
This industry faces a number of problems, with the main one being lack of financing. The lenders and the learned professors of the industry like to blame the dealer for all the woes. True, we have had some bad apples in our business, just like every other industry. But the level of damage from that kind of dealer falls way short of the debacle we as an industry are paying for now.
 
One major issue our industry faces concerns resale values of our houses, which directly affects the lender’s recovery on defaulted loans. We as dealers have very little influence in that arena.
 
Many MH Communities will not accept houses over 10 years old; lenders will not finance homes over 10 years old. Somehow, when the house hits its 10th birthday, it suddenly is worth ZERO!?!?! And this is the dealer’s fault?!?!
 
When free enterprise existed in this country and banks lent money to their dealers with recourse, our industry performed well! Lenders were selective about who they would take on (based on the dealer’s financial condition and track record in the community), the dealers would take care of their funding pipeline by not sending them dead-beats (since the
dealer would have to repurchase if the loan fell out), and the dealers were paid endorsement fees for this guaranty. The dealers worked to re-sell the bank’s repos with good unpaid balances, and the paper overall performed quite well. It was that performance that led to the influx of the non-recourse lenders that we saw in the 90’s.
 
Long-gone lenders such as Bombardier, Conseco, Greenpoint Credit, BAHS, et al, saw the performance of recourse lenders’ portfolios, due to good resale values on houses sold under recourse agreements, and made the mental jump to they can do that too! Soon tactics such as withholding of proceeds and diverting rate spread and the odd-days’ interest into non-interest bearing reserve accounts became the norm from the lenders, at the expense of their MH dealer network.
 
In their headlong rush for gold, they also opened the funding gates to credit buyers who (like in today’s meltdown) had NO reason in their track records to get approved for loans at low rates and low down payments.
 
So, they kept the endorsement fees, put that rate spread into a reserve account for repossessions, and bought non-recourse.
 
Their inability to manage the repos, refurb and re-sell them (as the recourse lender/dealer relationships had done) created massive losses for them. Again, I fail to understand how this is the dealer’s fault.
 
********
 
President Obama is railing against corporate jets, while flying around on the most expensive jet in the world. The tax deductions on all the corporate jets in the US would not pay for Air Force One. Is this leading by example or “Do as I say, not as I do?”
 
Good leaders lead by example. They don’t accept favors from lobbyists and major contributors to their re-election campaigns, and they don’t spend the taxpayers’ money recklessly.
 
The crash of the housing/mortgage industry was caused by Fannie Mae and Freddie Mac, which is govt. money invested into private enterprise, wherein all the profits go to the cronies of powerful govt. people, but the risks and losses go to the taxpayers. # #
 
post submitted by
R. C. “Dick” Moore

If you don’t go forward, you’re not going to go anywhere

May 20th, 2011 2 comments

Marty, thanks for your writing.  You are going where no one wants to go, but should.

I (the bank) have been a manufactured housing lender since 1991.  Not a large one, but neither is the bank I work for (Oxford Bank).  I rarely participate or respond to anyone or anything via the internet; however, Marty Lavin’s commentary interested me.  [See The Train To Oblivion, May 16th.]

Mr. Lavin has identified the brutal facts, but not how to fix them.  Further yet, does anybody really want to fix them?  Everybody  seems to have beaten up and worn down.

I have outlived the Greentrees, Consecos and others that felt booking loans at high rates, extended terms, big fees and huge  volumes was the thing to do.

I am still lending but, only to parks that want to “partner” with us.  Everyone hates bankers right now; hopefully, what I have to say doesn’t make it worse.

Below are a few comments and a few things I have learned in my 20+ years of MH lending.  I am probably getting off the path somewhat, but Marty opened the door for some comments from the lenders side:

  • Rates, of course, are higher than an auto loan.  When you loan money for 20 years at a fixed rate for anything, the bank must protect itself for future increases.
  • Anyone who thinks that the bank makes a huge spread on these loans is just plain ignorant.
  • The park owners control the bank’s destiny, losses and expenses.
    Today’s rates are controlled by losses and expenses, not just cost of funds.
  • Bank regulators do not like MH loans or “Trailers” as they say.
  • A manufactured home is considered personal property and sometimes it’s considered real estate.  If someone wants to hang you – it’s real estate.
  • I believe the parks that do their own financing are building a monster.  Let’s hope they retain a large reserve for losses, understand fair housing and Federal and State compliance laws.  I think they should let the bank be the bank.
    Servicing is expensive; it just increased again with the escrow law.
  • Generally, most parks will sell their own inventory over the bank’s repos, even if the bank pays for advertising.  They will switch the buyer to their home.
  • A big part of the banks’ losses are the parks’ profits.
  • Greentree and some other mega lenders were foolish; high rates and big loan fees do not make good loans.  Worse yet, they would finance the fees.
  • It’s the park’s customer until it becomes a repo; then it becomes the bank’s customer.
  • Some parks must feel that the bank guarantees the lot rent since it financed the home.
  • Many park owners are not active enough in their parks and put an underpaid and inexperienced employee in the park manager’s seat.
  • Unfortunately, these things don’t have motors.  Lenders are totally reliant on the parks for help.  With values in the tank, it’s hard to justify moving them.
  • There are still some crooks in this industry: fake down payments, home options that are not really there and straw purchases are still around.
  • The FDIC deems anyone with a credit score of 660 and under a subprime borrower.  This gives the appearance that my portfolio is subprime.
  • Manufactured home loan brokers are very dangerous.

The industry needs to go forward, not backwards.

Find a lender and “partner” with him or her.  Help the bank when they have a repo by assisting them in controlling the loss.  The
bank is paying the park a commission to sell the home; maybe they could even mow the yard for free?  Maybe they could use their maintenance guy to perform cosmetic repairs at cost?  In return, they could benefit from offering financing at reasonable rates and quality delivery.  This isn’t hard stuff.

My bank is still in the business of financing homes, but only for a handful of parks.  These are the parks that have “partnered” with us to get the job done.  Both the parks and the bank are much better off.

My biggest problems at present stem from loans made years ago in park(s) that have been sold to a REIT, portfolio operator or out-of-state investor.  The buyers of these parks figured out that they overpaid and are now increasing lot rents to compensate for their mistake.  This is creating unnecessary repos and they could care less.  # #

Al Cole
Oxford-Bank.com
alcole@oxford-bank.com

The Train To Oblivion

May 16th, 2011 17 comments

The MH train comes off the tracks.

It took me a while in the early 2000s to recognize a sea change had occurred in MH chattel lending.  Always chattel lending had been a loser for virtually every lender involved in it.  But it had powered the MH industry to 20% of all new housing starts, being responsible for up to 80% of all purchase money MH loans up to about 2000.

What always put new lenders coming into the industry to sleep is that with a growing loan portfolio size, the first 3-4 years of loan growth mask the true loan performance of the portfolio for the entering chattel lender.  But once the portfolio size stabilizes, one can gauge the true portfolio performance going forward. It will show very poor performance.  The lender will usually panic, not knowing what to do.  The smart ones, not too many of those, will shut down the program right then and take their losses.  Most others will muddle on as the employees try to keep their jobs by assuring their bosses that they can handle it.  They never can.  The program will ultimately collapse as things get even worse.  “Take your losses now or take bigger ones later.”  Some choice.

Before year 2000, the process went through repeated cycles of this start-hold-collapse for chattel lending by innumerable lenders, starting in the ’50’s.  Always new lenders came lured by the “high rates” available in chattel lending.  Few seemed to recognize how difficult it was too succeed in MH chattel lending.  None wanted to recognize that it didn’t matter how high interest rates were, only how much of them you kept in the end.  All believed they were smarter than the previous failed lenders, and would do a better job than those before them who had failed.  Few did.  (Boy, did I tire of hearing that crapiola!)

But in the early 1990’s  Wall Street money came to chattel lending.  Those were happy days!  Money grew on every Tree, especially Green ones.  A bevy of retail lenders came from 1991 on, all of whom were going to out-GreenTree GreenTree, the industry giant.  All these lenders got easy access to “Wall Street” money, at least for a awhile.  The infamous Asset Backed Securities provided liquidity for loans as seldom before seen in chattel lending.  Since nothing had changed from the underlying difficulty of surviving chattel lending, few, if any, survived this bout as the industry peaked at 372,800 new home shipments in 1998, and started a descent which has yet to end.

It took me awhile to recognize this sea change in chattel lending.  Few of us foresaw the true depth of the problem.  But by 2001-02 I could see that this time it was different.  Always in the past new lenders had come to subsidize the industry with the losses they took with unsurvivable chattel lending.  In the past 50 years these horrific lender losses had allowed HUDCode factories to flourish, retailers to become millionaires and land lease community owners to keep parks full, even as many shamelessly raised rents.  Again, this was all subsidized by terminally flawed chattel lending.  It went unrecognized.

But worse, the Wall Street boys do not like taking losses up the butt and started to dissect the reality of MH chattel loan performance.  What they found was chilling.  Losses for the best paper in LLCs were in the 30-35% lifetime range.  In the scratch-and-dent category, losses sometimes exceeded 100%. But worse, now that they knew, they blabbed the information to the world.  Several Wall Street firms tracked MH chattel loan portfolios closely and put out monthly reports of the carnage.  This differed from the past, when lenders, mostly banks, S&Ls and credit companies took their losses and seemed too embarrassed to tell the whole world of their travails.  After all, just a year before they were widely touting how great the chattel MH portfolio was performing and the great contribution they were making to “affordable housing”.  That would change soon enough.  Little did they know then how great their “contribution” was to be.

Here is an interesting sidelight:  I’ve identified above the recipients of the lender’s losses.  Note I did not include the borrower.  Yes, they got into a home they should not been able to buy, but they hardly ever got to keep the home.  Either they couldn’t afford it, or when they tried to resell it, they were unable to, for a variety of reasons.  This brought divorces, loss of home, children changing schools and all the other personal tragedy the loss of a home brings.  Few apologies here by the industry.  “We gave them a chance at home ownership was the industry refrain.”  Swell.

By the time GreenTree/Conseco collapsed around 2001-2003, the MH chattel world had changed.  Forever.  Most did not recognized it.  It was said to be just a periodic pullback.  The industry would return, they said, it always had.  Lenders had lost their nerve.  We could get the GSEs to bail us out.  We could get “Duty to Serve.”  If they won’t do it, then Title I will.  To this day we have Pollyanna’s carping this drivel.  “Its simply a matter of better sales training.  Now subprime is done, it will allow MH to return.  (Forget MH chattel lending is the King of Subprime.)  We are the only provider of non-subsidized affordable housing.  Its simply a matter to fix HUD Subpart I.”  In the face of a 90% reduction in volume, can it be that these thoughts still drive an industry?  It seems unimaginable.  (New to MH and the Subchapter I quest?  It is a part of The Manufactured Housing Improvement Act of 2000 dealing with recalls, home installation and handling consumer complaints on MH.  Like Don Quixote, the industry DC operatives, live to believe that only these DC quests are important.)

Around 2005-2006 the industry still had enough muscle to have faced that we were operating from a Failed Industry Model.  The Roper Survey told us that.  All of the reasoning above would not save us.  Only an acceptance that drastic measures were needed could have changed it for us.  Since we refused to act, “The Market” did it for us.  It punished tone-deaf MH business behavior with ruthless abandoned, and is still doing it.  The industry still doesn’t listen, though one wanders whether trying to really do something about it would have any impact at this point.  Frankly, I doubt it.  The high home value depreciation and high loan losses at increased loan volume seem impenetrable.  We have failed to move against this, even if it is possible to do so, which is daunting at best.

With Dodd-Frank and SAFE in place, and other regulatory devices sure to come, the impediments to an easy, even a difficult industry response are many.  n the face of this we are still worried about Subpart I?  Were we to get everything we wanted there, how many more homes would we sell? Heaven help us that this is the response of a terminal ill industry by its leaders.

As with all struggling businesses, the industry has scurried to try to make up for the existing industry model deficiencies.  Don’t have Greenseco-type chattel lending available?  Heck, start some buy here-pay here and create your own.  Want to keep rents coming in?  Buy homes and rent them out.  Many came to MH to escape the apartment business, but are now doing a version of apartments far worse than real apartments.  Overlook the regulatory constraints, the illiquidity of self-lending loans, roll up your selves and go to WORK, boys and girls.  Hey, it worked in the past going back to the 1950s.  Oh, really, and how did they handle Dodd-Frank then, did you say?  Or SAFE?  Oh..

Its a changed world and having lost our own lending business here we’ve transacted since 1972, we are impacted as are most others.  We are not and will not be alone, as the industry gets closer to 40,000 shipments than to 50,000.  At those numbers, I can only assume a whole new tier of businesses are endangered, as most of us scramble to avoid facing the prime business dictum:  Get out of a dead business.  This is bolstered by my own Prime Dictum:  “Never mind what people are saying, watch what is happening”.  And what is happening is an open book.  All can, or should be able to read it.

I suppose those folks who went to those long-ago industry speeches I gave, rolled their eyes then as I correctly prophesied the point where we now are, can point to their own acumen.  Come on Marty, it can’t get that bad they said!  Sitting there now with 50% LLC vacancies and unsalable self-financed loan portfolios as their response, they can take solace in their prescient course of action.  Of course.  Frankly, I would much prefer to have been wrong, very wrong.

So what does this all mean?  I hate to say it because I’ve tried to remain in the same industry as you have, but my industry left me.  Has it left you?  What is the next stop on this train to oblivion?  # #

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

Editor’s Note:  We have honored the author’s request to post his article “as is.”  As with all our Industry Voices Guest articles, we invite reader response and dialogue, either public (by posting a Discus response below) or private (phone or email).  Thanks for reading and getting involved!