Posts Tagged ‘HERA’

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

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.

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

Finance Delays Continue as Consumers and Industry Suffer

March 3rd, 2010 No comments

It is now nearing the two year mark since Congress enacted major FHA Title I manufactured housing program improvements and the “duty to serve underserved markets” (DTS) mandate as part of the Housing and Economic Recovery Act of 2008 (HERA). And while FHA and the Federal Housing Finance Agency (FHFA) have both taken steps toward implementing these badly needed initiatives to revive and expand the availability of public and private financing for manufactured home purchases, the fact remains that neither is yet in place. As a result, consumer purchase money financing for manufactured homes continues to be virtually unobtainable.

As industry members, consumers and, to a growing degree, Congress, are already aware, the near absence of consumer financing for HUD-regulated manufactured homes has had a devastating impact on both the industry and the lower and moderate-income American families that rely on manufactured housing as a key source of affordable, nonsubsidized home ownership. Since the enactment of HERA, this decline has only accelerated, bringing industry production in 2009 to an historic low, below 50,000 homes. This represents significant hardship for lower and moderate-income consumers and has resulted in the widespread closing of industry businesses and related job losses. In particular, this has impacted the industry’s smaller and medium-sized businesses that have traditionally relied on independent sources (i.e., non-captive or related corporate entity) of capital to finance consumer purchases. All the while, retailers report that they have customers who are willing and anxious to buy manufactured homes, but cannot obtain either private or publicly-supported FHA purchase loans.

In light of these unprecedented hardships, it is essential that real and substantive progress in expanding the availability of both public and private consumer financing, as mandated by Congress, be an urgent priority for HUD, FHA, FHFA, the GSEs and every other relevant arm of the federal government — to be achieved as quickly as possible. Accordingly, while FHA has issued Mortgagee Letters regarding the HERA manufactured housing program improvements, it needs to publish a final Title I rule so that the Ginnie Mae moratorium on the securitization of new manufactured housing loan can finally be lifted.

Similarly, while FHFA deserves credit for taking initial steps toward rulemaking to implement DTS, time remains of the essence for the industry and its consumers. With a steadily growing number of business failures and bankruptcies among manufacturers, retailers, communities and others — stemming largely from the unavailability of private consumer financing – the more favorable financing climate that DTS would promote and provide is urgently needed to ensure the survival of the industry and the supply of decent, affordable, non-subsidized housing for Americans at all income levels. And let there be no mistake, continuing and even intensified industry pressure will be needed to advance DTS in a form that would actually benefit the industry and the consumers it serves, as both GSEs made it quite clear in their DTS comments that they will seek to water down DTS as much as possible and delay its full implementation for as long as possible.

Beyond the HERA based Title I improvements and DTS, however, there are other avenues — that have been suggested by MHARR and its finance advisors — through which relevant federal agencies and the GSEs could quickly assist the industry and the consumers of affordable housing that it serves, without going through a long and tortuous process.

First, as MHARR suggested and explained in its September 1, 2009 DTS comments, the GSEs should — on an expedited basis – be authorized to securitize FHA Title I manufactured housing loans. At present, the GSEs securitize only FHA Title I1 manufactured housing loans. FHA Title I loans have historically been securitized by Ginnie Mae, but that agency, in the absence of a final rule to implement Title I program changes mandated by HERA, has imposed a moratorium on the securitization of Title I loans. An extension of the GSEs’ securitization authority to FHA Title I loans would help to alleviate the unnecessary constraints that have been placed on the manufactured housing finance market – even after the Ginnie Mae moratorium is ultimately lifted — and would be consistent with Congress’ strong support for strengthened and expanded manufactured home lending, as illustrated both by the duty to serve and by HEM’S increased FHA manufactured housing loan limits.

Second, because affordable manufactured housing serves a market comprised largely of lower and moderate-income Americans, most purchasers do not have — and in today’s economic conditions, cannot obtain – the cash necessary for a 20% down payment. This effectively excludes them from the manufactured housing market due to the unavailability of private mortgage insurance (PMI) in the wake of the recession. Fannie Mae, however, has given some indication that it believes it has the authority and ability, under its Charter, to self-insure manufactured housing transactions with a greater than 80- 20 loan-to-value ratio, thus obviating the need for PMI. MHARR has supported and encouraged such an initiative, and is continuing to explore this further while urging the federal government to expeditiously take the steps necessary to authorize both GSEs to self-insure such obligations.

Obviously, in addition to these steps, all relevant federal agencies and related organizations, such as the GSEs, should immediately consider – and should be encouraged and pressed by the industry to consider – other and further means, either temporary or permanent, to restore and expand the availability of private financing for manufactured housing consumers.

In MHARR’s view, with the access to virtually all types of financing — both public and private – now effectively controlled by federal entities, the industry in Washington, D.C. (in addition to reform of the federal program) should be concentrating on pressing those entities to comply with the financing improvements legislated by Congress in HERA, as quickly as possible, rather than side-tracking limited industry resources and political capital to other less critical matters.

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