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Posts Tagged ‘Government Sponsored Enterprises’

Industry Should Stay the Course in Duty to Serve Efforts

February 10th, 2017 1 comment

I appreciate the way that MHAAR respectfully criticized my commentary on the Federal Housing Finance Agency’s (FHFA’s) final rule to implement the “Duty to Serve” (DTS) requirements as being “far too charitable,” but the criticism was misdirected.  My comments neither praised nor denigrated the FHFA for the DTS final rule.

I learned early in my career that you play the hand that you’re dealt.  Sometimes you’re in a strong position and other times you’re not.  The situation dictates your actions and response.

With respect to DTS, the industry was not dealt a strong hand, but I am proud of the way the industry responded.  Because of that, the industry is closer today than at any time in recent years to getting a pilot program for chattel manufactured home loans through the Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac.

The FHFA made up its mind a long time ago that it didn’t have the legal authority to require the GSEs to create a secondary market program for chattel manufactured home loans.  Whether this is true or not doesn’t make a difference for all intents and purposes.

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I agree with MHAAR that “If Congress had meant the “Duty to Serve” to be optional, it would not have called it a “Duty.”

But anyone involved with laws and regulations for any length of time understands that laws are not always black and white.  In fact, many times they are not.

For arguments sake, let’s say that the law specifically requires the GSEs to create a loan program for chattel manufactured homes.  Where does that get us? The industry could spend tens or even hundreds of thousands of dollars and years litigating this point.  Even if the industry prevailed, the GSEs would still be in the driver’s seat.  They could create a program that satisfies the legal requirements, but is so safe and sound that it is impractical and unusable.

The only way for the industry to get the GSEs to create a secondary market program for chattel manufactured home loans is to convince them that it is good business and the right thing to do.

This requires a different approach than continually chastising the FHFA for not mandating the GSEs to create a secondary market program for chattel.

MHARR does an excellent job as the industry’s conscience.  MHARR serves an important role in forcefully and articulately weighing-in on every proposal that adversely affects the industry.  But, this is only one element of a strategy, not the whole strategy.  In this situation, a different approach is needed and that approach is to continue doing what we’re doing.

We were all disappointed that it took nine years from the date of enactment of the DTS legislation to get a proposed rule and we were even more disappointed when the proposed rule did not provide “Duty to Serve” credit for chattel loans.  The silver lining was that it was a catalyst for industry members to submit over 3,100 comment letters to the FHFA.  Those letters certainly got the attention of the FHFA and the GSEs.

As a follow-up, the FHFA held an unprecedented public hearing last April to receive input from the industry on how to structure a successful chattel loan program.  The hearing was not to hear testimony on why a chattel program was needed, that fact was already established from the volume of public comments submitted.

The industry’s efforts resulted in a final rule that opened the door a crack by providing the GSEs “Duty to Serve” credit for purchasing manufactured housing loans, but not mandating that they do so.  Considering where we started from in December 2015, the final rule shows the positive impact that an industry can have when its members are engaged and energized.

The FHFA scheduled three “listening sessions” in January and February of this year to take additional testimony from industry stakeholders. This indicates that the FHFA and the GSEs have an interest in exploring the possibility of creating a secondary market for chattel manufactured home loans.

The most important development over the past thirteen months has been the GSEs meeting with industry stakeholders. The meetings started last spring and are continuing today.

The GSEs have shown a genuine interest in understanding today’s chattel housing market. Industry representatives have made a concerted effort to educate the GSEs about chattel manufactured homes and available loan products, and to understand the GSEs concerns, offer suggestions and convey a willingness to be open to new requirements.

From where I sit, all parties are working hard to try to develop a pilot program for chattel manufactured home loans.  I am optimistic that it will become a reality if we continue doing exactly what we’re doing.  ##

jimayottefloridamanufacturedhousingassociationfmha-industryvoices-manufacturedhousingindustrycommentary-mhpronewsJames R. Ayotte, CAE
Executive Director
Florida Manufactured Housing Association
1284 Timberlane Road
Tallahassee, FL  32312

Paul Bradley on the Pending FHFA Final Duty to Serve Rule

December 12th, 2016 No comments

This and Leslie Gooch’s article both push for a chattel pilot in Land Lease Communities; ROC USA is right with them!  Like Gooch, I see the fundamental issue coming down to what we can work out with the GSEs relative to, as she wrote, “reasonable standards for land leases in conjunction with such homes.

We have Fannie Mae financing homes in some of our communities already, but it’s too limited.  We want a chattel pilot and standard land lease so we can scale.  It should reassure skeptics that home-only loans by the GSEs have worked in Land Lease Communities.  We need DTS to get together as a larger market opportunity for the GSEs.

I am surprised that the Community Bankers’ Association (ICBA) would come out against GSE chattel product – from the many community bankers I’ve talked to over the years, the local bankers want a secondary market for chattel.

One of the concerns that lenders often express about manufactured home loans in Land Lease Communities is that homes there lose value.  But that is not a given.  I can point to examples in Land Lease Communities where homes are appreciating.  

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In fact, the two unique elements of this sector – relatively more expensive chattel products and land lease – can be resolved by the GSEs; they could make this market no different than the conventional residential markets where supply, demand, location and upkeep influence house price performance.  The GSEs, with the right lease terms to secure their and homeowners’ interests, could help fix the problem that causes some manufactured homes to lose value. ##

Paul Bradley
President
ROC USA

(Editor’s Note: The National Mortgage News article Paul Bradley is commenting on is linked as a download, here. For an interview with manufactured home owner – Kim Capen, who likewise points to appreciation of manufactured homes in his community – click here.)

A Deeper Look at why the GSEs say no to Securitizing Chattel Loans

May 24th, 2016 1 comment

TOPIC

The Duty to Serve (DTS) question for the Government Sponsored Enterprises (GSEs) of Fannie Mae and Freddie Mac regarding originating Chattel (home only, personal property) loans on HUD Code Manufactured Housing has been a topic of discussion for years.

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Logos are for editorial illustration purposes only, and are the properties of their respective organizations. Composite image credit, BeforeItsNews.

BACKGROUND

To understand why I say what I do about DTS, the GSEs, MHI and manufactured housing (MH) below, some history will be useful. My experience with MH Affordable Housing and Duty-to-Serve spans nearly 35 years.

Upon entering the mortgage banking business, I worked in the mortgage division for Fleet Bank in St. Louis, Missouri. I made my first HUD Code MH land/home loan back in 1982.

At that time, HUD Regional Offices had to approve each subdivision and the homes that were being constructed within that community. HUD reviewed, approved and retained documentation and complete control of the Architectural & Engineering process.

The Regional HUD Office was located in St. Louis and Chaired by Joy Miller. Fleet was chosen by HUD because of its strong government lending (FHA & VA) platform, national presence with the ability to replicate the program. Fleet provided financing for the consumer’s purchasing HUD Code, single-sectional and multi-sectional, Redman Homes on short wall foundations in a subdivision in House Springs, Missouri. This was a new MH “beta test” community development project. It was one of the first HUD Code MH subdivisions outside of California. It was cutting edge and an exciting step for me right out of college.

At the time, I had no idea that my future in banking would be focused around Affordable Housing. From that point forward, I continued down the path of Affordable Housing which is truly a key for the to Duty-to-Serve.

In my follow-up assignment, I worked extensively at Ft. Leonard Wood, Missouri making over 600 VA loans in two years to accommodate relocating veterans and civil service personnel in the initial phases of the US Military Base Realignment and Closure (BRAC) program. Specifically, on the Ft. Belvoir, Virginia relocation of 2400 families to Ft. Leonard Wood over six years. Brick & mortar site built homes were selling for $35,000-$65,000.

Next stop was in 1995 when I was invited to join an exclusive group of high profile mortgage bankers who focused on Affordable Housing nationally. I had no idea when I was chosen that I was chosen for my HUD Code MH housing experience. The group of 30 members from around the country formed the Underwriting Barriers Outreach Group (UnBOG), lead by Rick Coffman and Matt Miller of Freddie Mac in Washington, DC.

The task force was formed to bring mortgage bankers together to discuss how to create loan programs to provide financing for the underserved, economically or geographically challenged consumers. These borrowers were credit worthy, but did not have down payment of 10% or 20% plus closing costs. Or they could not meet the debt-to-income ratios of 28/36. They needed expanded guideline programs. As a member of that task force, I helped craft the 97% LTV Alt-A, Section 8 Voucher-to-Own, Lease-Purchase and the 105% LTV loan programs.

During that time period, our government leaders on Capitol Hill put mandates on the GSE’s to produce and deliver Affordable Housing programs to the marketplace. The new mandates were tremendously difficult to meet. They were tied to creating and driving home ownership in the United States. The new mandates required that 1 out of every 2 mortgages purchased by Fannie Mae or Freddie Mac had to meet strict affordable underwriting criteria to be considered affordable.

The reason for the formation of the UnBOG group and the push to new loan programs as outlined above to expand homeownership, thus simultaneously answering the DTS mandate at the same time. It was from the UnBOG platform I learned how to write loan programs and how they were developed to serve a diverse and unique new classification of purchasers referred to in those days as “low-mod” borrowers.

In essence, our leaders on Capitol Hill were enforcing the Duty-to-Serve component which had been the focus of the creation of Fannie Mae and Freddie Mac from their inception. Nothing new, just a way to measure and enforce the GSE’s mission of Duty-to-Serve and expand homeownership.

FAST FORWARD

My invitation to UnBOG was to provide insight into the Manufactured Housing space. Specifically, how to create and deliver the MH product from construction loan through permanent end out loan on a product built in an off-site factory versus the traditional on-site method.

By this time, I had already successfully been making construction-to-perm loans on MH for 13 years. The GSE’s felt that a look into the MH industry, what I was doing and how I was doing it, could help them achieve these lofty Duty-to-Serve Affordable Housing goals now being enforced from Capitol Hill.

This point is that Duty-to-Serve is nothing new. It truly is the reason Fannie and Freddie were created.

For the first couple of years, we focused on Fee Simple loans known in the industry as Land/Home loans. Many of the programs coming through the development pipeline at the GSE’s were inclusive of MH Land/Home financing. Land/Home was sort of a no brainer, but subject to several gaps that needed to be closed with regard to title insurance, retiring titles, mortgage insurance, production and travel insurance, method of attachment and the creation of a true real property package upon completion and conversation to the permanent-end-out mortgage. Those topics we can save for another article.

In 1998, while working for First Tennessee Banks mortgage banking division, which would later become First Horizon Mortgage, I received a call from Freddie Mac asking me if I was interested in working on a new loan program crafted by a captain of the MH land lease community at MHI, a gentleman named Rick Rand. Rick had worked with program development guru Ginger Walters and Freddie Mac attorney Judith Agard to craft a program to serve as the Chattel Loan look-a-like.

The program was designed around a 35-year land lease, which created the real property entity necessary and required by the GSE’s to make a 30 year fixed rate loans on MH HUD Coded homes sited in MHC’s.

It was a brilliant piece of work by all parties, but there wasn’t anyone in the mortgage or banking space interested in the $300MM beta test “pilot program” that 99.99% of bankers had no clue about. It just so happened that I had extensive leasehold estate background from years gone by.

So when I received the call from Rick Coffman from Freddie Mac, my UnBOG colleague, I understood the program immediately.

Needless to saym it was exactly what the GSE’s needed to kill two birds with one stone. First and foremost, it met the Affordable Housing criteria right out of the box for Community Reinvestment Act (CRA) credit. Which meant it could be counted towards the GSE’s requirement to expand homeownership. Second, it answered the DTS question that had been long on the lips of all MHI leaders, pushing for rates and terms more readily associated with brick & mortar housing.

For me, it was just another niche market program that I was going to have to run up the flagpole with my boss, his boss, his boss and so on until I got to the banks president who just happened to understand the program.

Why, you ask did the president of a large bank like First Tennessee get it?

Well, because it just so happened our largest client on the books at the bank was this fellow name Jim Clayton, and his company was called Clayton Homes. You know  – the gent who sold his manufacturing, retailing and MHC communities to the “Oracle of Omaha”, aka Warren Buffet.

There was a program which we launch at First Horizon where we worked out the kinks in origination, processing, underwriting, closing, funding and servicing and – oh, yes – securitization too. Because Fannie and Freddie had their securitization platforms built out years before this “real property” leasehold estate program arrived on the scene.

By the way…pricing was about a ½% above the then 30 year fixed rate pricing.

The program was strong and grew legs. We even added a One-Time-Close (OTC) Construction Loan to the menu as First Horizon was developing Construction-To-Permanent (CTP) and OTC loans at that time.

We then moved it to First Bank where it died on the vine, as it became tainted by those who thought we could utilize this program the same way the other Chattel programs were being used in the marketplace in that GreenSeco era of “No Income, No Asset, No Job, No Money,” no problem loans. The GSEs wanted none of the headaches that came from the mindset that spawned GreenTree, Conseco and the other related chattel lending meltdowns of the late 1990s, and the early 2000s.

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The MHI logo is used here for illustrative purposes only, and is the property of that trade association.

WHAT’S THE POINT?

For years MHI has been attacking the DTS issue in hopes of pushing through some sort of chattel lending conduit for as long as I can remember. The Duty to Serve has been on the books since the inception of both GSEs.

The DTS guideline for both GSEs – Fannie Mae and Freddie Mac – in their view is clearly stated to be for real estate secured properties. Chattel loans by definition are not real estate, and most folks in the MH world don’t understand the cost to build the securitization process.

The roots of the issue from the GSE vantage point are several key components.

First, understand that neither of the GSEs have the platform to securitize and deliver chattel product into the market place. There is already a pipeline to buy/deliver loans on conventional housing, but there is nothing like that for the personal property lending space that manufactured housing operates in.

If the GSEs were to spend the millions and millions of dollars to build that secondary market, there was in the past insufficient product flow to support the expense.

Another prime example is that the major purchasers of GSE securities paper are not interested in buying chattel (home only, personal property) loan production.

Those investors, such as Goldman, BlackRock and Raymond James among a host of other institutional buyers of mortgage paper do not have a DTS requirement. They are a behind-the -scenes cause for the “Just say No” by the GSEs on MH chattle lending, not the GSE’s themselves.

The GSEs only buy what they can securitize and layoff out their back door to their institutional buyers. If the institutional players don’t want the paper, who else is there to purchase those MH chattel loans in volume?

It is MHI’s lack of understanding of the function the GSEs have in providing paper to their core secondary lenders, such as Wells Fargo, Bank of America (BOA) and U.S. Bank.

What causes a great part of this problem is the MH industry’s failure to create a program that delivers a standardized product. For example, when the GSE’s buy a loan from Wells or BOA, the home created is attached to the land through a standardized “method of attachment.” That’s commonly called a “foundation.”

The house is built for a slab or a stem wall foundation that attaches a given residence to the dirt creating a single package of “real estate.” Home, foundation (which again is standardized) are connected to the land, thus creating a single package of real property. That standardization allows the title insurance companies and private mortgage insurance companies to stand behind those loan products too.

Chattel loans on manufactured homes are seen by the GSEs as a hodgepodge of various foundation systems. Mock block in their view is nothing more than a faux exterior wall that doesn’t attach the home to the ground. They see MH as concrete blocks on plastic pads, tied down with cork screw anchors, metal straps and then commonly enclosed by using vinyl skirting.

In the eyes of the folks that buy all the securities from the GSEs, those aren’t true foundations, they don’t believe they’ll stand the test of time, i.e. the 30-year term of a mortgage. Thus, the home – and loan – in their view won’t perform.

This is in spite of the fact that there are thousands upon thousands of successful examples of manufactured homes that have stood the test of time on these foundations.

In a phrase, this is a perceptual issue that calls for insights and education.

But have you ever sat across the table from six “black box” investment bankers and actuaries from Goldman Sachs or Pieper Jaffery and tried to explain to PhD. so-and-so from Harvard, and Phd. so and so from MIT or Yale and argue such topics? Doubtful. But I have. And I must tell you it is exhausting and has often seemed to be wasted time.

One such academic who actually had a hand in creating the securitization business called me aside halfway through one such meeting and said “Titus, let me give you a bit of information from our perspective.” “Yes, sir” I said, all ears. “If it walks like a duck, quacks like a duck guess what? It’s a duck” …meeting adjourned.

In addition to the manufactured home foundation issue – right or wrong – the security buyers still view these homes as ones that can be moved to another location in the middle of the night.

The MH industry fails time and again to realize the GSEs are a conduit to the secondary market buyers.

The GSEs create “real property” securities that are sold into the marketplace. The GSEs don’t even have to service loans. They have four major servicers behind the curtain that can service loans, if necessary, on behalf of the folks who purchase the securities.

The Triad Financial Services and Clayton/Vanderbilt Mortgage and Finance chattel models are different yet similar, as they finance chattel loans that are either held in portfolio or sold at a discount to a note rate buyer looking for yield spread.

The Clayton/VMF model is successful because Mr. Buffet has deep pockets and likes the yield spread. Not to mention Jim Clayton had the brains and financial support to create it. And at their company owned retail centers, VMF only finances paper from Clayton dealers. Plus, Mr. Buffet owns Clayton manufacturing and many of its suppliers as well as its dealer base. He is thus able to finance low credit with higher down payments or he can finance 5% down for consumers with truly good credit scores.

Triad focuses on AAA grade paper from reputable dealers that have a strong track record with Triad’s independent MH retail base. They portfolio and service their loans in house. Don Glisson, Jr. and his team have done a terrific job of navigating the chattel waters for over 30 – sometimes tumultuous – years. Triad’s book of business is the testimony to Don’s success.

If the MH Chattel industry would produce a standardized product model, with a more traditional method of attachment, and pushed the model without deviation through a beta channel and proved that compliance, not circumvention is the new MH mantra, then they would have a secondary market delivery strategy.

Armed with such data, you can then approach the investment banking crowd with proof of your models success. But instead, every time there is a lack of lenders or funding in the MH market, MHI cycles back to the GSE’s and DTS.

But there are powers that be in the good ole boy MH world who won’t learn and/or capitulate to those realities. As was noted in the Masthead blog linked here, the GSEs – as well as FHFA and most importantly our U.S. Congress – will not budge on this issue.

By the way, some of those House and Senate members will upon retirement want to go to work for the GSEs, or with the institutional actors such as Goldman Sachs or BlackRock. So they aren’t going to do much if anything in defense of chattel lending if it causes heartburn for those they may go to work for later in life.

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The answer…is easy…follow in the footsteps of Jim Clayton, Don Glisson, Jr., and Warren Buffet and create a standardized program that delivers a product that can stand the test of time and contain the 4 S’s: Safe, Sound, Sanitary and Sustainable.

But the MH industry, year after year after year, fails to produce anything that the true secondary market is likely to hang their hats on. ##

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

 

 

Editor’s Note: Other well reasoned letters to the edtior Op-Ed style viewpoints are encouraged on this or other MH topics.