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Posts Tagged ‘Duty to serve’

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.”

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!

The IBISWorld Controversy and the Manufactured Housing Industry

April 13th, 2011 3 comments

Exclusive MHMSM.com Industry In Focus Report

The March 2011 IBISWorld report that cited manufactured home dealers as a ‘dying industry’ has made news inside and outside of the manufactured housing industry. MHMSM.com has contacted a variety of Industry leaders and personalities from coast to coast to get their comments. On-the-record comments have included national association leaders, as well as professionals in factory-built housing from the manufacturing, retail, communities and lending sectors.

Messages, comments and calls to MHMSM.com from manufactured home industry professionals dribbled in at first, and then gained in volume as publications such as The Atlantic and Business Insider covered the IBISWorld report. As an example of mainstream media coverage, a TV station in Houston reportedly called a regional firm to interview them about the developing IBISWorld story.

Derek Thompson, associate editor at The Atlantic, penned a commentary that included these words:

“At the center of a perfect storm of boomer burnout, a brutal recession,
and a rapidly changing industry, the mobile home retail market
could be the worst industry in America. Here’s why.”

Photo from The Atlantic
Photo from The Atlantic

“If I asked you to name America’s least fortunate industry, your mind might go to record stores, obliterated by on-demand apps; or photofinishers, left in the cold as digital cameras turn Americans into our own photo editors; or fabric makers, where business is booming … in Shenzhen, China.

“But when it comes to unlucky industries, it’s manufactured home (aka mobile home) retailers who really hit the trifecta. First they missed out on the housing boom. Then they felt the gut-punch of the recession. Now they might yet miss out on the recovery. That makes them America’s fastest dying industry, according to a new report from IBISWorld.”

Paul Bradley with Resident Owned Communities USA (ROC USA) was one of the first in the manufactured housing world’s leadership to publicly respond to this IBISWorld report. Bradley wrote a feature article for MHMSM.com that analyzed the IBISWorld report. Quoting from Bradley’s analysis:

“The (IBISWorld) report states ‘demand is dwindling’ and ‘sales are stagnant because the industry is not innovating, and that sales are likely to continue falling in the coming years.’ They go on to say, ‘Manufacturers have made cosmetics changes to manufactured homes, but they have not been significant enough to alter their life cycle stage.’ The report puts MH retailers in the ‘Industry stagnation’ category of declining industries.

“Are you kidding me? These are ‘deeply researched answers’?

“First, the headline clearly comes from their marketing division as a means of grabbing headlines. The research is not about a dying industry but a declining industry segment – one of two long-standing distribution channels in the business.

“With MH shipments in 2010 at 50,000 or 20 percent of 2000 levels, it’s not news that retailer revenues over that period declined. On that data, I’m surprised establishments are not down more than 56 percent. It suggests that the segment has excess capacity and additional closings are likely.

“Most surprising to me is laying the blame at the feet of manufacturers on the issue of design! From a ground-level market vantage point, that’s misplaced.

“The industry’s great declines came about as a result of, first, an industry-created chattel collapse where the seeds were sown in run-up to the 373,000 shipments in 1998. The collapse, and the repossession overhang which followed, began the decline like a skilled boxer’s well-placed left jab.

“The right overhand came next in the form of aggressive sub-prime and predatory lenders in the site-built market. In that run-up, traditional MH buyers – who were harder to finance for MH as a result of the chattel collapse – were lost to site-built housing in an eerily familiar boom market.

“Dazed by the right hand blow to our collective heads, the left to the body that has people reeling now is the regulatory reaction – the SAFE act, etc. – to the clearly consumer-eating lending practices of the last decade.

“The results of this three punch combination are declines of the magnitude widely reported and felt, and like a good whack, the pain lasts a while.

“Innovation in housing design, however, is not the industry’s chief failing.

“For those of us in the community market segment, in fact, innovation in new homes is a small issue – not a non-issue but a mere shadow of the aforementioned home financing issue. In fact, we are seeing demand for replacement and in-fill homes but only where we are able to arrange decent home financing. People want more efficient homes and the cost savings with new EnergyStar homes can be dramatic based on buyers with whom I’ve spoken.”

(Editor’s Note: The complete analysis by Paul Bradley can be found at this link.)

Other commentary in the form of articles proposed for publication, private and public comments followed. Thayer Long at the Manufactured Housing Institute issued this email as part of his response:

“State Execs & MHI Board:

“A very well articulated response to the IBIS report from last week by Paul Bradley which was just posted on www.MHMSM.com.

“I’d also just add that the sentiment at the Tunica Show, the Louisville Show, and the expected strong turnout at the Congress & Expo and the Tulsa Show and York Show later this month certainly don’t indicate this industry is going anywhere.

“Tony/Paul – I hope you don’t mind me sharing. We’ll see you in Las Vegas. Thanks for your support.

“Thanks-

“Thayer”

MHMSM.com spoke with Danny Ghorbani at the Manufactured Housing Association for Regulatory Reform (MHARR) and to Thayer Long at the Manufactured Housing Institute.

Danny Ghorbani stated in a telephone interview that his comments were not the official position of MHARR, but represented his own views on the IBISWorld report and related.

Ghorbani stressed that the IBISWorld report represented the “failure” of “the post-production sector of the Industry” [meaning, MHI] in “serving that segment of its membership.”

The MHARR official then referenced two previously published documents that do represent MHARR’s official position, which were previously published on MHMSM.com in August and October 2010. These MHARR Viewpoint articles called for ‘the post-production segments’ of the manufactured housing industry to form their own national association; a thinly veiled vote of no-confidence from MHARR towards MHI.

MHMSM.com spoke extensively with Thayer Long at the Manufactured Housing Institute (MHI). The typically soft-spoken Long was quick to respond.

Long was at times tongue-in-cheek, at other points direct in his comments about the IBISWorld report and Ghorbani’s often pointed comments on the matter. It should be stressed that Long’s comments, which follow, should be viewed as his own, and not necessarily reflective of the official view of MHI.

In an exclusive interview with MHMSM.com, Long shared the following thoughts:

Thayer Long:
“If it is a dying industry, then ok, then I guess I quit! And if Danny wants to blame it on us [MHI], okay, what else is new? … I am still struggling to figure out what he (Danny Ghorbani) is doing right now. Name one thing that he has accomplished … in the past three years? What has he accomplished…? I would love for you to think about that and get back to me. What has he accomplished? We [MHI] win and lose some battles. But at least we try. We have accomplished some things. Except, except, except… [MHARR]…nothing….

READ THE FULL INDUSTRY IN FOCUS REPORT

IBIS Report and the Manufactured Housing Retailer’s Future

April 10th, 2011 1 comment

Having spent 40 years in the industry, I have experienced every down cycle the industry has had since they started keeping records in 1961. After a peak nationally of almost 600,000 units in 1973, we suffered a dramatic plunge that was felt the most in the Southeast where I was located at the time. I relocated to Oklahoma in the 1980s and endured a drop in shipments from about 13,000 homes in 1983 to about 350 or so in 1988. Shipments again took a hit in the early 1990s as lending became almost nonexistent. The current down cycle began after a peak of nearly 373,000 shipments nationally in 1998 and has fallen below 50,000, which is lower than when the record keeping began in 1961. 

I certainly do not have the credentials to refute the recent IBIS report that labeled the manufactured housing industry as being on the verge of extinction. I also approach the subject with some trepidation as I majored in Marketing and I am keenly aware that most of the buggy whip manufacturers are no longer in business. In order to accept the results of the report from a market demand stand point, we would have to arrive at the conclusion that the demand for new homes priced below $70-100 a square foot will become no longer significant. We would also have to accept that this disappearance of market demand will occur as down payment requirements are poised to increase to perhaps 20% while terms may be reduced to as low as 15 years. In the face of enormous down payment requirements and shortened terms for repayment, suddenly prospective home buyers are going pass over housing opportunities in the $20 to $40 per square foot category? 

We would also have to accept that demand for homes that can be titled without real estate will disappear. Suddenly no one will want to allow their kids or other family members to place a home on family land without encumbering the real property?

We would finally have to believe that no one living in a manufactured home community would have an interest in upgrading their home, and the communities would have no potential for new residents. 

I read Paul Bradley’s feature article in response to the IBIS report here in MHMSM.com. I share Paul’s optimism that a possible result of increased requirements for site-built housing may shift more buyers to the manufactured housing market.

We have had to endure ongoing discrimination of the allocation of lending resources even when the Duty to Serve language is rewritten to specifically cite manufactured housing. As a retailer, I do not see any shortage of willing buyers for the homes that we build. We do experience a series of problems related to recent acts foisted upon us by the federal government. 

I observed in a LinkedIn comment earlier that our industry trade organization, the Manufactured Housing Institute (MHI) is constricted by the composition of their membership from assuming the role of a being a strong advocate for individual industry divisions. Retailers would have to form an independent organization dedicated to retailers in order to have someone in Washington, DC truly going to bat on all the issues that retailers face. I don’t see the numbers or the money being there for that to happen. In the mean time, we accept MHI with its wrinkles, knowing that the diversity of the membership does not allow for the extreme dedication to our needs that we would like to have. 

The Manufactured Housing Association for Regulation and Reform (MHARR) serves in that capacity for independent manufacturers and manufacturers need that dedicated representation as they have many issues affecting them that are completely unknown to other industry segments. 

Another theory being floated by some industry members is that a conspiracy is in play to undermine the effectiveness that the HUD Code provides and bring about its demise. If that theory is true and if the conspirators have enough influence, market demand will not matter. I am not smart enough to know whether or not a conspiracy exists to destroy our industry. I would say that if it does exist, it is experiencing reasonable success. 

We do face very difficult times as an industry. I have quipped on more than one occasion in the past few years that “absence of stress is death…and I am very much alive.”

As an industry, we have taken a beating for the last twelve years. Some of that has been our own doing and some from lack of fairness by government actions or inactions. If a conspiracy does in fact exist, I am too small a player to have much impact on stopping it. Absent a conspiracy, our company plans to move forward and provide our clients with great values in housing and outstanding customer service. Hopefully our industry can see itself through the balance of any remaining down turn and see an increase in shipments in the years ahead. 

I was privileged to be invited to return to Georgia last summer to speak at the industry’s annual state convention. Given my 40 years in the industry, I was able to reflect back to 20% rates with no less than 10% down and no ability to finance land or improvements. I titled my presentation after Charles Dickens’ A Tale of Two Cities: “It was the best of times, it was the worst of times….”

And indeed it is. # #

by Doug Gorman

Doug Gorman owns Home-Mart in Tulsa OK, and is perhaps the most award wining retailer in the U.S. today.  He has served the Industry on the state and national levels, including as Show Chairman for the Great Southwest Home Show in Tulsa.  You can read his Cup of Cocoa with Doug Gorman at this Link. Contact Doug at doug@homemart.us

Congressional Hearing on Federal Role in Housing Finance – Report And Analysis

September 16th, 2010 1 comment

MHARR logoBack from its Summer recess, Congress has embarked on a process that will ultimately determine – as soon as 2011 – the future role of the federal government in private-sector housing finance and the future role, structure and character of the Government Sponsored Enterprises (GSEs).

On September 15, 2010 the House of Representatives Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises held a hearing on “The Future of Housing Finance – A Progress Report on the Government Sponsored Enterprises.” Although the “duty to serve underserved markets” (DTS) mandate imposed on the GSEs by the Housing and Economic Development Act of 2008 (HERA) was not addressed as part of this more broadly-focused hearing, both the implementation of the DTS mandate and the future availability of private consumer financing for manufactured homes will ultimately be at stake in this process. Moreover, the challenges that the industry faces in this process were underscored in testimony by both the Administration and the current federal regulator of the GSEs, the Federal Housing Finance Agency (FHFA), as well as in statements by Subcommittee members.

While the Administration has not yet offered a detailed plan for the future of the GSEs, and is not expected to do so until early 2011, Michael S. Barr, Treasury Department Assistant Secretary for Financial Institutions, reported on the steps taken by the Administration in response to the financial crisis as they relate to the GSE’s as well as the Administration “Objectives and Goals for Housing Finance Reform” – i.e., widely available mortgage credit, housing affordability, consumer protection and financial stability to achieve those goals. He then outlined several policies including the necessity for “clear mandates.” Specifically, institutions that have government support, charters or mandates should have clear goals and objectives. Affordable housing mandates and specific policy directives should be pursued directly and avoid commingling in general mandates, which are “susceptible to distortion.”

Follow-up questioning by the Subcommittee focused on who was responsible for letting the GSEs get out of control and what contributed to their collapse. Some Republican members alleged that the housing goals forced the GSEs to get involved in sub-prime lending and to acquire sub-prime mortgage backed securities. Democrats and Secretary Barr responded that the GSEs acquired sub-prime mortgage backed securities to increase profits and that the housing goals did little to impact the GSEs collapse.

Significantly, though, subsequent testimony by FHFA Acting Director Edward J. DeMarco, expressed reservations about the Administration’s strategy, stating:
“Recently there has been a growing call for some form of explicit federal insurance to be a part of the housing finance system of the future. The potential costs and risks associated with such a framework have not yet been fully explored.”

Without either explicitly endorsing or opposing such a role for the government, he stated three specific concerns in his testimony:

First, he rejected the premise that no private firm would risk funding a 30-year mortgage, “at least at any price that most would consider reasonable.” Rather, he asked “whether there is reason to believe that the government will do better?” noting that “if the government backstop is under-priced, taxpayers eventually may foot the bill again.”

Second, he stated that a government guarantee could allow politicians to favor some areas or demographic groups, noting the government “would likely want a say with regard to the allocation or pricing of mortgage credit for particular groups or geographic areas.”

Third, he stated that a guarantee would shift capital toward housing, which already benefits from other government support.

Discussion among Subcommittee members then addressed moving forward – with some Republican members favoring complete privatization and the elimination of all housing finance goals. Their view is that goals will distort the market and lending will be to higher risk or with less of a down payment.

Regardless of whether there is any such specific guarantee, however, and regardless of the ultimate nature of the GSEs or successor entities going forward, the original mission of GSEs – as embodied in and strengthened by the DTS mandate – to provide home ownership opportunities for lower and moderate-income Americans, was not responsible for the GSEs’ failure and must be maintained in order to ensure that home ownership remains available to as many Americans as possible.

Another hearing on the GSEs is slated to take place later this month. MHARR will continue to carefully monitor these hearings and take further steps relating to DTS and proper GSE support for manufactured housing consumer financing as appropriate.

MHARR will keep you apprised as new developments on this important matter unfolds.

Putting the Right Pieces in Place

August 5th, 2010 1 comment

MHARR VIEWPOINT – AUGUST 2010
By Danny D. Ghorbani

MHARR logoThe first step in solving a problem — any problem — is admitting to yourself that there is a problem, that the problem is real and that it exists. The second step, and perhaps the most difficult, is to accurately assess and define the problem, so that one or more potential solutions can be considered, weighed and, ultimately, implemented.

By any objective measure, the HUD Code manufactured housing industry has a problem. Over more than ten years, production and sales have plummeted. From a modern high of more than 373,000 homes in 1998, production in 2009 fell to below 50,000 homes. The trend in the statistics, moreover, has been steadily downward, and appears — over the long-term — to transcend both positive and negative changes in the broader economy and the broader housing market. No amount of happy talk or glad-handing can paper over this fundamental fact — the status quo for the industry and its consumers is unacceptable, and must be changed.

But that is the easy part. The more difficult part is defining the problem as an avenue to arriving at solution(s) that will work. To start, we can identify what is not a problem — and that is our relations, as an industry, with Congress and the lawmakers in Washington, D.C., who pass the laws that govern our comprehensive regulation by HUD and the finance programs and entities that impact the ability of lower and moderate-income Americans to purchase industry products that they can afford without costly subsidies.

The track record of the industry and its representation in Washington, D.C. within this realm is quite good, and the reason is very simple — manufactured housing and the manufactured housing industry are favored by legislators in Congress. And for good reason. The industry provides jobs that will stay here in America, without outsourcing. The jobs that the industry provides are well-paying manufacturing jobs, typically located in the heartland of the country, where the success or failure of the broader economy is largely determined. The industry, moreover, produces homes that provide affordable home-ownership for American families at all income levels without tax-funded subsidies. The industry, therefore, provides a vital resource — affordable home-ownership — without asking for tax dollars, only parity with other types of housing in various government housing programs, such as FHA programs.

So, Congress has been good to the industry. In 2000, it passed the Manufactured Housing Improvement Act, to take manufactured housing into the 21st century and complete its legal and policy transition to the legitimate housing. In 2008, aware of the trouble that consumers were having with financing, Congress included two critical manufactured housing provisions in the Housing and Economic Recovery Act of 2008 (HERA) — the “duty to serve underserved markets,” designed to expand and improve private financing and end discrimination against manufactured housing by the Government Sponsored Enterprises (GSEs), and FHA Title I and Title II improvements, designed to expand and improve public financing for manufactured homes financed as chattel, real estate and as part of land-home packages.

These are all good laws, designed to promote the availability and use of affordable manufactured homes. These laws should have fostered an industry boom in the solid national economy of the years following 2000 — with an industry expansion involving hundreds of thousands of homes — and should be helping to foster an industry revival now, in a post-recession economy. At least that was the hope — and the theory. But, things have gone wrong, and therein lies the problem.

The problem is that none of these good laws are being implemented in the way that Congress wanted, and expected. The 2000 reform law has been gutted by HUD regulators and attorneys. There is no — and has been — no appointed program Administrator for most of the past ten years. Enhanced preemption has never been implemented. The MHCC — the real centerpiece of the 2000 law — is being turned into another rubber-stamp “advisory council.” Its proceedings have been taken over by program regulators and a large chunk of its authority was taken away when HUD — without any public comment — read catchall section 604(b)(6) out of the law, which required HUD to bring enforcement policy and practice changes to the Committee.

HERA-based FHA Title I improvements have fared no better. Inexplicably delayed for years, those improvements are now finally being implemented, but their impact appears likely to be minimized by recently announced Ginnie Mae requirements for the securitization of new Title I loans ($10 million minimum adjusted net worth plus 10% of outstanding manufactured housing mortgage-backed securities) that will severely restrict access to the program by the new lenders that will be needed to appreciably increase the availability and number of manufactured housing loans for consumers.

Similarly, the proposed rule to implement DTS published on June 7, 2010, represents a major disconnect with the intent and objectives of Congress that, if implemented, will predictably fall well short in helping to end the discrimination against manufactured homes by the GSEs, that lies at the root of the current near-unavailability of manufactured home financing.

Despite good relations with Congress, then, and good laws passed for the benefit of the industry and its consumers, the results have not matched expectations. The implementation of each of these laws, by relevant federal agencies, has not come even close to what Congress wanted. And in certain respects, these agencies are openly defying clear congressional directives.

The pattern, therefore, is clear. Congress tries to help the industry and, then … nothing — or close to nothing or, sometimes, worse than nothing. For an industry that is comprehensively regulated by the federal government and, thus, thrives or declines based on decisions made in Washington, D.C., this is — and has been — a prescription for trouble. As an industry, we have an obligation, to ourselves and to our consumers, to question — to ask why this is happening, and how it can be fixed before much of the industry falls by the wayside, leaving only a handful of survivors. MHARR is asked constantly why the industry is so impotent in Washington, D.C. in the face of continual resistance by regulators and other administrative types to the proper implementation of the good laws that Congress provides us. MHARR , in response, has studied this issue, going back over the history of the industry’s presence and involvement in Washington, D.C., dating back to the start of federal regulation, to find workable solutions, and will share its findings and suggestions in the September 2010 MHARR Viewpoint.

In MHARR’s view, the industry’s inability to implement critical laws despite strong Congressional support lies at the core of the industry’s difficulties, and needs to be addressed decisively.

MHARR is a Washington D.C.-based national trade association representing the views and interests of federally-regulated manufactured housing.

Transcript of letter from MHI Executive VP Thayer Long to FHFA General Counsel Alfred M. Pollard

July 21st, 2010 No comments
MHI Logo

July 21, 2010
Alfred M. Pollard
General Counsel
Federal Housing Finance Agency
Fourth Floor
1700 G Street, N.W.
Washington, D.C. 20552

Attention: Comments/RIN 2590-AA27

Dear Mr. Pollard:

The Manufactured Housing Institute (MHI), a trade association representing all segments of the factory-built housing industry including manufacturers, lenders, community owners and retailers, appreciates the opportunity to submit formal comments in response to the Federal Housing Finance Agency’s (FHFA) Enterprise Duty to Serve Underserved Markets notice of proposed rulemaking (75 FR 32099).

BACKGROUND

There is a long history of Fannie Mae and Freddie Mac failing to serve the needs of the manufactured housing market. The possibility of establishing substantive liquidity for manufactured home loans is severely undermined by the effective monopoly the GSEs have on the secondary lending market and the lack of service provided to the manufactured housing industry.

Ultimately, this hurts consumers and those most in need of affordable housing. Congress recognized this reality, and through the Housing and Economic Recovery Act of 2008 (HERA; P.L. 110-289), specifically established a duty for the GSEs to serve underserved markets, including manufactured housing.

Less than one percent of GSE business originates from manufactured housing. While the GSEs may purchase small amounts of conforming real property manufactured housing loans, they offer virtually no funding for personal property loans. However, since 1989 manufactured housing has accounted for 21 percent of all new homes sold in this country, and in 2009 manufactured housing accounted for 43 percent of all new homes sold under $150,000 and 23 percent of all new homes sold under $200,000.

In requiring the GSEs dutifully serve the needs of the manufactured housing market, Congress intended “to increase the liquidity of mortgage investments and improve the distribution of investment capital available for mortgage financing for underserved markets.” HERA provided further direction that the GSEs “shall develop loan products and flexible underwriting guidelines to facilitate a secondary market for mortgage on manufactured housing.”

Personal Property Lending

MHI is disappointed in FHFA’s proposal to “consider only manufactured home loans titled as real property for the purposes of the duty to serve the manufactured housing market.” HERA specifically provided FHFA the authority and direction to consider loans secured by both real and personal property in evaluating whether the GSEs are in compliance with their duty to serve obligation. Given the prevalence of personal property lending in the manufactured housing sector, FHFA’s proposed rule essentially disregards the wide-scale needs of both the manufactured housing industry and consumer, as well as Congressional intent.

A manufactured home financed with a personal property home loan is among the most affordable forms of homeownership as no land is involved in the loan transaction. Today, the industry estimates that personal property home loans account for at least 60 percent of manufactured housing lending.

The proposed rule indicated that with the GSEs in government conservatorship, FHFA is restricted in its ability to approve any new product lines, including personal property lending. While GSEs do not currently purchase personal property home loans, they have in the past purchased asset-backed securities collateralized by manufactured personal property home loans and have purchased loans directly from lenders for their portfolios. The GSEs cannot serve the manufactured housing market by eliminating the 60 percent of manufactured homebuyers who finance their homes using a personal property home loan.

The industry is willing to consider all facets of a responsible lending program for personal property lending that would give the GSEs adequate protection from loss, including:

  • Single-family, owner occupied, primary residence limitation
  • Fully documented income
  • Fully amortizing loans
  • Fixed rates
  • Fixed payment
  • Low prepaid finance charges and fees
  • Longer term leases in land-lease communities
  • Minimum FICO Scores
  • Maximum 90 percent loan-to-value ratio
  • Self-Servicing by lenders and community owners
  • Internal reserves for losses (self-insured)
  • Risk sharing by lenders and community owners

In its proposed rule, FHFA indicated there are questions regarding consumer protections on personal property home loans. However, there are various laws and standards, both at the federal and at the state level, that protect consumers receiving a personal property home loan for a manufactured home.

For instance, HERA included amendments to the Truth in Lending Act (TILA), known as the Mortgage Disclosure Improvement Act of 2008 (MDIA). Regulation Z, which implemented TILA, was also amended to implement MDIA.

In general, TILA requires creditors to disclose the cost of credit as a dollar amount (the finance charge) and as an annual percentage rate (APR). To better protect consumers, MDIA broadened these guidelines by requiring lenders make certain disclosures to consumers about the terms of their loans. All loans subject to the Real Estate Settlement Procedures Act (RESPA) must include TILA disclosures. The manufactured housing industry applies the provisions of TILA to all loans where real property is involved as well as to personal property home loans. A number of MDIA requirements that now impact personal property home loans for manufactured homes include:

  • TILA disclosures must be given to the customer (by delivery or placing in the mail) no later than three business days after the lender receives the consumer’s application for a loan;
  • Closing cannot take place until, or after, the seventh business day after the delivery/mailing of the TILA disclosure;
  • If the APR provided in the TILA disclosure changes beyond a specified tolerance for accuracy, the lender must provide a corrected disclosure, which the consumer must receive on, or before, the third business day before closing;

No fees, except for a bona fide credit report fee, can be collected by the lender before the consumer receives the TILA disclosure.

Other MDIA requirements affecting manufactured housing personal property home loans include: the creation of a category of higher-priced mortgage loans; lenders must now specifically determine a consumer’s ability to pay and are no longer able to make loans on stated income; and, lenders must verify a customer’s ability to pay based on the customer’s income.

Additional federal consumer protections include the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act), also enacted as a part of HERA. The SAFE Act is designed to enhance consumer protection and reduce fraud by requiring states to establish minimum standards for the licensing and registration of mortgage loan originators, including originators of personal property home loans.

The SAFE Act’s primary objectives include the creation of a comprehensive licensing and supervisory system with uniform application and reporting requirements. All states are required to implement legislation that meets the minimum requirements of the SAFE Act. To date, most states have enacted legislation implementing the SAFE Act. The SAFE Act also directs the establishment of a nationwide mortgage licensing system and registry. Manufactured housing lenders are required to have their loan originators licensed and registered in accordance with the SAFE Act.

The industry is willing to engage FHFA in addressing its concerns with respect to personal property lending. Ultimately, MHI believes FHFA must reconsider its approach to personal property lending and approve this type of lending activity by the GSEs.

Manufactured Housing Community Lending

Unless a GSE has been engaged in the commercial lending market for manufactured home communities prior to the implementation of government conservatorship, FHFA’s proposed rule precludes the GSEs from developing new activity in this arena. MHI strongly believes the GSEs should be directed to purchase commercial manufactured housing community loans under their multifamily goals.

The recent slowdown in commercial lending has made it extremely difficult for owners of land-lease communities to refinance their properties. The ownership of a manufactured home sited in a land-lease community is one of the most affordable forms of home ownership.

In 2008, Fannie Mae’s multifamily loan volume through its Delegated Underwriting and Servicing (DUS) program was approximately $33 billion. However, only $1 billion of that total volume was in manufactured home communities. Historically, manufactured housing community loans have performed well and land-lease communities offer one of the most affordable forms of homeownership for moderate-, low-, and very low-income households. GSE activity in this area is vital to maintaining the health of this sector and to ensuring the availability of this important supply of affordable housing. Additionally, we understand that the proposed rule now precludes Freddie Mac, who was actively engaged in preparing to enter the market by the 3rd quarter, has now curtailed these efforts. Fannie Mae has demonstrated for years they have been able to operate in this space, why should Freddie Mac not also be allowed to compete for this business, and bring this very important capital source to the market? This policy must be reconsidered.

Land-Home and Real Estate Manufactured Housing Mortgages

The GSEs have existing mortgage loan programs that provide for financing of manufactured homes. While Fannie Mae’s MH Select program provides for a 97 percent LTV, no loans have been originated due to the program’s highly restrictive nature.

These programs are very limited primarily due to the unavailability of private mortgage insurance (PMI) for manufactured housing. Private mortgage insurance companies routinely deny coverage for manufactured housing loans, or in a limited number of cases, coverage may be available on an 85 percent LTV loan where the costs of PMI are higher than for site built housing.

The requirement to have PMI on any loan greater than 80 percent LTV places a reliance on a private insurance product that is generally unavailable and has historically had a negative impact on the GSEs’ financing of the industry’s homes.

FHFA is urged to approve some form of self-insurance mechanism for the GSEs, similar to the Federal Housing Administration (FHA) insurance program, which eliminates the dependence on a private insurance industry that is not currently positioned to provide sufficient loan level loss protection.

For many years, manufactured housing industry lenders self-insured against credit loss and can provide valuable assistance in developing the levels of reserves needed to cover losses. This mechanism can also allow FHFA and the GSEs to address non-conforming loans in rural areas where appraisals and comparables are not readily available. We believe that a graduated premium, dependent on the LTV and the credit evaluation, is a model the industry can embrace.

Another underwriting issue relates to appraisals. Manufactured home appraisals occur in two situations: 1) a new home purchase that includes both the cost of the home and all typical installation and set up items; and 2) an existing home purchase where the home is already sited and ready for occupancy.

The unique nature of the manufactured housing land-home transaction has resulted in the need for flexibility in appraisal methods. The typical manufactured housing land-home appraisal requires both a market analysis and a cost analysis. The majority of land-home appraisals for manufactured housing occur in rural areas where little or no comparable sales data exists, thereby limiting the effectiveness of the sales comparison approach. There needs to be latitude for appraisers to determine whether or not the sales comparison approach, the cost approach, or a blend of the two is the best measurement of value depending on the information that is available.

Underwriting guidelines for land-home transactions should also maintain personal property characteristics for titling purposes. We believe that maximum flexibility should be provided to the GSEs in permitting lenders to select the lien perfection approach that provides the most effective means of default resolution.

Three broad categories of lien perfection for manufactured housing exist.

  • Home only loan transactions: occurs when a security interest is recorded on the title of the home and the home remains personal property and not affixed to the real estate
  • Traditional mortgage transaction: where the lien recordation and perfection is on the real estate and all improvements including the home; the lender follows the normal foreclosure procedures identical to those of site built homes
  • A hybrid of the two: the lender files a lien on the home only and records a lien against the real property as well; this allows the lender the option of separating the home from the real estate for both a quicker resolution towards default resolution and quite possibly a lower loss severity; this option provides lenders with maximum flexibility in protecting their secured interests

MHI recognizes the GSEs are in a weakened state and hesitant to make changes to their existing business models. However, Congress, through HERA, recognized a fundamental lack of service existed and specifically directed the GSEs to begin to dutifully serve the entire needs of the manufactured housing market.

The manufactured housing industry can appreciate the difficulty and uncertainty of operating in a stressed environment. New manufactured home construction has fallen 86 percent over the past ten years, which has accounted for 167 plant closures, more than 7,500 home center closures, and over 200,000 lost jobs. Most importantly, thousands of our customers have been unable to buy, sell, or refinance their homes.

While we appreciate the concerns raised by FHFA to ensure the GSEs remain viable economic institutions and that adequate consumer protections are in place, FHFA and the GSEs have an obligation to serve manufactured housing and the 18 million Americans that currently reside in manufactured homes.

The proposal to potentially eliminate personal property lending from the GSE duty to serve requirements not only fails to serve the underserved manufactured housing market; it fails to serve the larger underserved affordable housing and rural housing markets.

MHI looks forward to working with FHFA in the weeks ahead on these issues. If you need further information regarding any area discussed in this comment letter, please contact me at (703) 558-0678 or tlong@mfghome.org.

Sincerely,
Thayer Long signature
Thayer Long
Executive Vice President Manufactured Housing Institute

It is Time to Stand Up and Be Counted

July 20th, 2010 No comments

By Ken Rishel

Anyone familiar with the Captive Finance Newsletter knows I have very little faith in any government backed chattel finance program coming to fruition or, if it does, being the answer to the manufactured housing industry’s prayers. If it happens, it will only double the current sales volume and that is not enough. However, it is worth some effort to try to make it happen because doubling industry sales is an important thing, even if it isn’t the whole answer. While I still believe that owner assisted financing is the real answer, I am asking you to join me in a last ditch effort to help MHI in their efforts to make this thing work.

For those of you who don’t know, MHI made a plea last week at their Summer Meeting in Washington DC for industry members to email the government and their Congressmen and Senators asking FHFA to not ignore their duty to serve. Greg O’ Berry of Hometown America went even farther and suggested both at the MHI meeting and in this ezine that community owners and operators ask their residents to also email everyone explaining that the value of their investments in their homes would be adversely affected if government backed chattel financing did not come to fruition.

Because I am skeptical about this program ever emerging and because I am so focused on more complete solutions, I have not lifted a finger to help. I have however, come to realize that is the wrong attitude. Nothing is ever won by people finding fault, or not trying to make something work, and I now do not want to feel as if I did nothing when something could make a difference. This manufactured housing industry is something special, and all of us owe it more than we can ever repay. We just need to realize it, and pay up in some measure. I know that, because that is what has kept me running 16 hours a day while being called a fear merchant for the last several years, when I could have been on a beach in Hawaii watching my wife learn the Hula. I know it, but I didn’t act on it when it came to this issue. I am ashamed of my lack of action. To those of you who have already gotten involved, I apologize for my lack of action.

Perhaps it was Greg’s impassioned plea, but it struck me that all of us in this industry, no matter how cynical, could at least stand up and be counted on this issue. As a result, I am emailing everyone that makes sense tonight ( FHFA, Congressmen, and Senators) after I finish this article to you. My question is, “What are you going to do”? Will you make the same effort after reading this? Will you reach out to others and persuade them to do the same? If you are a community owner, operator, or manager, will you follow Greg’s lead and ask your residents to do the same? Will you stand up and be counted?

Ken Rishel of Precision Capital Funding is a leading expert in chattel financing of manufactured homes and in starting and running owner assisted finance operations. His organization was named MHI’s Service Supplier of the Year for 2010, and he authors and publishes the Chattel Finance Newsletter which goes out to over 9,000 people on a monthly basis.

GSE’s Duty To Serve

July 13th, 2010 8 comments

The decision by the FHFA to exclude loans on manufactured homes on leased land from their proposed rules to implement the duty to serve underserved markets as outlined in HERA will be financially devastating to existing manufactured homeowners. If the GSE’s do not offer loan programs for MH homeowners, the financing available to potential home buyers will be severely limited, costly or non existent.

We recommend that community owners encourage their residents to write their congressional representatives and let them know that the GSE’s exclusion of MH loans in land lease communities will be devastating to the value of their homes, significantly limiting their ability to sell their home for a fair value, thereby causing severe financial loss if the resident needs to move. The resident should suggest that the FHFA should treat a manufactured homeowner the same as a stick built homeowner and not abandon the support of millions of MH homeowners living in MH communities.

MHI will be developing a sample letter in the next few days for distribution to community residents. The deadline for comments is July 22nd, so we must mobilize swiftly if we are to get resident comments to the FHFA by July 22nd.

Greg O’Berry
President and COO
HometownAmerica

ACTION ALERT -Action Needed by 7/22/10

July 6th, 2010 5 comments

MHI LogoContact FHFA and Congress Immediately to Request Modification of the Enterprise Duty to Serve Underserved Markets Proposed Rule (Action Needed by July 22, 2010)

On June 7, FHFA released a proposed rule (Enterprise Duty to Serve Underserved Markets; 75 FR 32099) that excludes personal property lending in the GSE duty to serve the manufactured housing market. Click here to view the proposed rule. Specifically, the proposed rule would “consider only manufactured homes titled as real property for purposes of the duty to serve the manufactured housing market…FHFA is proposing that only loans titled as real property be considered towards the Enterprise’s duty to serve.” Click here for more detailed information on this issue.

In the proposed rule, FHFA identifies three key reasons for declining to include personal property lending as part of the GSE duty to serve manufactured housing, including:

A lack of existing business activity in purchasing personal property loans and, in order to develop a business in purchasing or guaranteeing personal property loans would require GSEs to develop operational capacities and risk management processes not currently in place

Extensive consumer protection requirements would have to be developed by the GSEs in order to ensure that personal property lending was done responsibly

Personal property lending is inconsistent with GSE conservatorship and would require too much effort to ensure safe and sound operations in this area

MHI opposes this proposed rule and urges FHFA and Congress to expand GSE activity in this area. Given the prevalence of personal property lending, FHFA’s proposed rule essentially ignores the needs of both the manufactured housing industry and consumer.

FHFA and the GSEs have an obligation to serve manufactured housing and the 18 million Americans currently residing in manufactured homes

GSEs cannot fulfill their “duty to serve” manufactured housing by ignoring 21 percent of the total housing market and manufactured homebuyers who are in desperate need of this source of affordable housing

More than 60 percent of manufactured home owners have relied on a personal property loan in order to finance their home purchase; it is exceptionally difficult to faithfully serve any market if more than half of it is excluded from consideration

The charters of both Fannie Mae and Freddie Mac have always allowed for the purchase of personal property loans and the GSE’s have purchased Asset Backed Securities (ABS) collateralized by manufactured home loans and has purchased loans directly from lenders for their portfolios. Congress and HERA recognized this reality by specifying FHFA consider loans secured by both real and personal property in assuring the GSEs dutifully serve the needs of the manufactured housing market

Estimates indicate that personal property loans account for at least 60 percent of manufactured housing lending. Enhanced liquidity for new homes will help expand and stabilize the existing home market

Industry lenders operate responsible and profitable programs for personal property lending and follow all appropriate laws such as Truth in Lending (TILA), and the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act), as well as all appropriate state laws, however they have been shut out from a secondary market due to GSE policies; industry lenders can provide GSEs and the American taxpayer adequate protection from any loss

Action Needed

MHI members are asked to submit comments to FHFA (Click here for sample comment letter or click here if you have Microsoft Word. Comments must be submitted by July 22, 2010. Click here for talking points and background information.

Submit comments via email to regcomments@fhfa.gov (include “RIN 2590-AA27″ in the subject line of the email) and via mail (see address on sample comment letter). Please forward copies to MHI.

MHI members are also asked to contact their Representatives and Senators, via fax or email, and request (Click here for the sample letter or click here if you have Microsoft Word) that they do the following:

Contact FHFA directly to request the agency modify its proposed rule to require GSE’s consider personal property lending in their duty to serve manufactured housing
Contact leaders of the House Financial Services and Senate Banking Committees and specifically request FHFA amend its proposed rule; Senators and Representatives serving on these committees are especially urged to make this request.

A complete list of Congressional e-mail addresses and fax numbers is available at www.manufacturedhousing.org/government_affairs/find_congress.asp.

For more information, contact MHI Vice President of Government Affairs Jason Boehlert at jboehlert@mfghome.org or 703-558-0660.

Submitted by MHI Vice President of Government Affairs Jason Boehlert