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Dodd-Frank Act and Manufactured Housing

July 12th, 2011 No comments

Editor’s Note:  Received from the Manufactured Housing Institute (MHI), July 2011, thanks to a communication from Executive Director Thayer Long

The Wall Street Reform and Consumer Protection Act of 2010 (or “Dodd-Frank”) is approximately 2,200 pages long and affects all financial service products, including manufactured home loans.  Because of the legislation’s enormous size, complexity and its broad scope of impact, discussing it in piecemeal terms is difficult.  Even within the banking industry, community banks have a different focus compared with the large national banks.  For non-depository institutions, the same problem also exists.

Yet, there is a commonality of interest across a number of sectors.  Dodd-Frank contains a number of unintended consequences that impact a variety of industries and consumers.  For instance, with respect to the manufactured housing industry, Dodd-Frank was structured and written around a regulatory framework for real estate mortgages.  However, the bill essentially reclassifies all manufactured home loans as mortgage products.  Manufactured home loans not secured by real estate are not the same as mortgages.  To regulate all home loans the same way is an unsuitable model, which creates significant challenges to the industry and the consumers it serves.

Manufactured home loans have unique characteristics.  Manufactured home loans, in most cases, are much smaller than typical residential real estate secured mortgages and have shorter durations, which make transactional costs harder to recover.  Manufactured home loans have higher servicing costs than residential mortgages, requiring specialized knowledge and more personal contact and less reliance on technology.  Many manufactured home loans (with the exception of FHA Title I loans) are made with no government guarantees or potential losses to taxpayers.

How is the Industry Impacted?

First, the law creates a new standard for a “high-cost mortgage” loan which is based on interest rate spreads that fluctuate over time.  If the Annual Percentage Rate (APR) exceeds the average prime offer (the loan purchase rate established by Freddie Mac) by more than 6.5 percent, or in personal property transactions under $50,000 by 8.5 percent, then the loan is considered “high cost.”

For example, if the law became effective today a “high-cost mortgage” loan is any residential loan over $50,000 with an APR of 11 percent or more, or, a loan under $50,000 (if the dwelling is considered personal property) with an APR of 13 percent or more.  The law does not prevent “high-cost mortgage” loans from being made, but it does make it more difficult to make these loans, and it imposes a significant level of potential legal liabilities making them virtually impossible to securitize.

This is a problem because since our cost of capital is higher, manufactured home loan interest rates are typically higher.  Since Fannie Mae and Freddie Mac do not purchase loans or create a secondary market where manufactured housing lenders can access capital at a discounted rate, lenders need to rely on other sources to make loans.  These sources charge a higher interest.

Also, there are other fixed costs associated with making any kind of loan, such as fees for preparing the legal documents necessary to originate a loan.  These basic costs increase with each state and federal law and regulation that is enacted.  In addition, there are costs associated with each prospective borrower, including borrowers that are rejected and those who for whatever reason end up not taking the loan.  These costs also include a portion of the advertising and marketing that go into borrower acquisition, the costs of maintaining methods of communication, and the costs of determining loan eligibility.

This conflict is particularly compounded with existing manufactured homes sales, where loan balances tend to be smaller.  The loan may be smaller, but fixed costs are the same regardless of the loan size.  These fixed costs must be recouped in some way in order to make the loan.  Therefore, the only way to recoup these costs is by charging a higher rate.

If a lender decides to make a “high-cost mortgage” loan under Dodd-Frank, they must be prepared for a variety of new regulations, including

  • requirements for borrowers to undergo loan counseling by a HUD-Certified Counselor, the cost of which is expected to be $400-$600;
  • prohibitions that prevent financing points, fees and closing costs;
  • rules limiting late fees; and
  • rules requiring multiple disclosures to sell or assign “high cost” loans.

Second, Dodd-Frank does provide a path for relief through the definition of a “Qualified Mortgage (QM),” which is intended to provide a legal safe harbor from some of the Act’s more burdensome provisions.   However, the criteria that must be met to be considered a qualified mortgage include:

  • no balloon loans;
  • points and fees are restricted to 3 percent of the loan amount;
  • ability to repay must also consider taxes, insurance, and assessments; and
  • standardization of debt to income guidelines that have not yet been determined.

Again, because of the nuances in manufactured home lending, the definition of QM is unworkable for many loans made in our industry.  First, while balloon payments are not commonly made by manufactured home industry lenders, they are common with captive finance companies and local banks.  Second, the cap of points and fees at 3 percent coupled with our smaller loan balances will force lenders to charge a higher interest rate (thus tipping the scales and classifying them as “high-cost mortgages.”)

Communicating this in detail is complicated because the law’s impact will vary from lender to lender depending on their business model and the types of loans that they make.

What is true of all of the existing non-captive lenders involved in manufactured home lending is there is a limit, which varies from organization to organization, of how small a loan they believe they can make and still recover a reasonable amount of their costs.  Lenders will have to make a decision on what their lowest loan amount will be due to new limits on their ability to recover those costs.  To better understand this, a lender has only three ways to recover costs which are:

  • to buy the loan at a discount, which is only possible if there is a motivated seller involved in the transaction who is able and willing to accept a discounted payout;
  • to charge the borrower additional closing costs; and
  • to raise the interest rate and recover the costs as the borrower pays back the loan.

Even the strategy of using points to keep the interest rate below the triggers of a “high-cost mortgage” is impeded leaving no way to recover costs.

To further clarify, if the cost of origination and legal compliance equals X, that number does not change based on the loan size or duration.  The shorter the term and the lower the dollar amount, the harder it is to recover those fixed costs.  Here is an example:

A lender is considering making a $10,000 loan with a term of four years.  Using a risk-based pricing model, the correct interest rate is determined to be 11 percent.  If the fixed costs of origination are figured to be $2,000, the lender must charge the borrower either in points or closing costs that $2,000 to keep the rate at 11 percent.  If a law or regulation caps the lender’s closing costs or points, then the lender must look to raising the interest rate to recapture whatever costs could not be recaptured through points or closing costs.  If the entire cost were recovered via interest, the interest rate would need to be increased to 17 percent to recover the costs.

Captive finance companies currently have zero, or very low, minimum loan cutoffs.

Typically, they utilize higher interest rates to recoup costs, but often the justification for lending in the first place is that their related entities are profiting from the transaction in other ways, not the home loan itself.

What is the Result if Dodd-Frank is Not Amended?

Financing will still be available for those buyers with good credit and who can make a sizable down payment.  Industry lenders that have or require higher credit quality customers may not be as impacted by the “high-cost mortgage” loan provisions.   Those needing to serve customers with more challenged credit quality, and therefore needing to risk price their loans accordingly, will be impacted.

Also, those who fund low balance loans will find it more difficult to do business and existing homeowners will find it very difficult to sell their homes to buyers that need financing.

The dollar amounts for not making a loan will vary by lender because of all the variables detailed above, but each lender will find and set a minimum loan requirement based on their internal numbers.

It has been estimated that 50 percent of all the loans made on manufactured homes in manufactured home communities are under $25,000.  Another source has estimated that nearly 75 percent of all manufactured home personal property loans are under $75,000.00.  If the fixed transactional costs mandated by current and proposed law are higher than the lender’s ability to recover costs, the loan will not be made by lenders independent of other profit center relationships.

Bottom line is that without changes, there will be a significant number of consumers who will not be served.

Potential Solutions

MHI has an effort underway to seek bi-partisan legislative relief in six specific areas that needs and deserves the support of everyone in the manufactured housing industry.  The issues identified by the MHI Dodd-Frank Task Force are as follows:

  1. Elimination of the expanded scope of Homeowners Equity Protection Act (HOEPA);
  2. Clarification of the Qualified Mortgage Standards;
  3. Clarification and Consistent Standards of a Mortgage Originator;
  4. Exemption of Manufactured Homes from the new Appraisal Standards;
  5. Exclusion of Manufactured Home Loans from the Residential Mortgage Loan Definition; and
  6. Clarification and strengthening of exemptions for manufactured home retailers from CFPB Oversight.

A six-page white paper created by MHI can be obtained from MHI or any state association.  Industry members should obtain copies and distribute them to their Representatives and Senators along with personal letters and emails urging them to support this effort.  Those reading this article should distribute it as widely as possible throughout the industry along with their personal efforts to persuade other industry members, including employees and community residents, as well as suppliers,  to also contact their Representatives and Senators.

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MHI is the preeminent national trade association for the manufactured and modular housing industries, representing all segments of the industries before Congress and the Federal government.   This article was prepared with input from the MHI Dodd-Frank Taskforce, in particular Ken Rishel, Sheila Dey, Dick Ernst and TF chair Tim Williams.

Update on “FEMA In-Community Housing Relief”

June 10th, 2011 No comments

Editor’s Note: Spencer Roane is keeping us updated on the task force behind using manufactured homes as a part of post-tornado solutions to housing.

Tony and Catherine,

Here’s a note which we sent to FEMA, GEMA (Georgia counterpart), and various others with whom we hope to work on the idea of using vacant land lease community sites for disaster relief. It may also serve as an update for your readers.

From the time of David Roden’s first report here on May 7 – Manufactured Homes Could Be Part of Post-Tornado Solution in Georgia – our task force has continued to pursue the use of manufactured housing as an option in disaster situations. We are currently working to schedule a meeting of the Georgia Disaster Housing Task Force to explore issues of common interest. In the meantime, allow me to identify the players in this effort at this juncture:

The Georgia Manufactured Housing Association (GMHA) represents the interests of all segments of manufactured housing in Georgia, including manufacturers, transporters, retailers, communities, lenders and suppliers. Jay Hamilton is our executive director. He is new to the position, but has extensive experience in the industry. His office phone is 770-955-4522. David Roden is a community owner (CO) and active member of GMHA. Steve Case and Spencer Roane are also community owners who serve as community representatives on the GMHA board.

Our national organization is Manufactured Housing Institute (MHI) in Washington, DC. Thayer Long is president. MHI formed a task force to work with FEMA on the design of MHs for disaster relief and to advance the concept of placing disaster relief homes in land lease communities (LLCs, aka mobile home parks). Lois Starkey is the primary contact at MHI for this program. Spencer serves as one of several community owners on the MHI task force. Several members of that task force attended the “Industry Day” Seminar with FEMA personnel in Washington DC on June 7. We will learn more about that meeting next week.

David volunteered in the cleanup effort after the April tornadoes struck Georgia and Alabama and subsequently proposed that MHs be located on vacant lots in LLCs for use by disaster victims. Since then he and Spencer have been exploring that concept with MHI, GMHA, FEMA, GEMA, and community owners across the country. Several relatively recent developments in our industry have come together to make this more feasible than ever:

• Most LLCs have 5-15% vacancy rates, mainly as a result of the economic slowdown and the same finance meltdown that affected conventional housing. “Best guess” at this point is that there are about 200,000 vacant LLC lots across the country.
• As COs have sought to fill vacant lots with new MHs, many manufacturers have begun building “Community Series” homes (CSHs). George Allen and Don Westphal have worked closely with Business Development Managers (BDMs) with most manufacturers to develop this concept. These are generally lower priced, single-section, usually 16’ wide by 70-80’ long, 3 Br 2 Ba, vinyl sided, shingle roof, with attractive exterior and interior features. INSERT PHOTOS OF TWO CSH HOMES. The cost of these attractive, functional homes is about $25,000, delivered to the LLC. Setup, utility connections, A/C, skirting, and decks add about $10,000 more to the cost.

 

Community Series Home 1

 

Community Series Home 2

 

• To provide quick and efficient support to disaster victims, a database of available home sites which are in close proximity to a disaster is a necessity. Several alternatives exist in Georgia and elsewhere:
• The Community Attributes System (CAS) was developed as a joint effort between MHI and Datacomp, which also owns the Internet marketing site “MH Village.” Dan Rinzema is president of Datacomp. Although the database contains approximately 40,000 land lease communities (LLCs) across the country, much of the information is outdated. The website is www.mhicas.org.
• We just learned of another database which serves Georgia and 29 other states. The Georgia service is Georgia Housing Search.Org.  We understand that it currently contains about 170,000 rental listings, including manufactured homes, LLC lots, site-built houses, and apartments, and experiences 8,000 – 9,000 searches per day for available rentals. The parent non-profit organization is www.socialserve.com. The services are apparently funded by state or federal agencies and are free to landlords and prospective tenants. We’re still collecting information on both.
• Some real estate brokers and agents who specialize in LLCs have surveyed many LLCs in states in which they broker properties. Max Baker, a GMHA member and agent with Marcus & Millichap, recently compiled a database of about 900 LLCs in Georgia ranging in size from a few lots to about 500. We know there are others elsewhere with similar LLC data who are willing to participate in this disaster housing relief effort.

Since CSH homes are compatible with other homes in LLCs, COs would be glad to have them moved into their LLCs for disaster relief, provided the CO screens the new resident as he/she would any other resident. Also, since COs want homes to remain in the LLC, they would be willing to purchase the MH after FEMA/GEMA use. This would seem to be an efficient, cost-effective “exit strategy” for FEMA since the homes would not have to be moved to a storage facility, rehabbed, and stored for the next emergency.

We welcome the opportunity to work with GEMA, FEMA and others to implement this program. We are planning a meeting of about 100 COs in the Atlanta area in mid-October and would be glad to have someone from GEMA and/or FEMA discuss this program at that meeting. We also encourage FEMA to contact George Allen who holds an annual meeting (Roundtable) of COs across the country in mid-September. This year’s meeting will be in San Antonio, Texas. It would be an excellent means of publicizing this program on a national basis. # #

David Roden, davidroden@yahoo.com, 423-760-4819
Spencer Roane, spencer@roane.com, cell ph. 678-428-0212

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

MHI 2010 Scorecard

December 12th, 2010 No comments

MHI logoAt the end of every year, MHI evaluates its legislative and regulatory accomplishments and identifies unresolved issues for the coming year. In government, large, sweeping, decisive achievements are very rare. Change comes in increments, and in 2010, MHI steadily achieved important victories for the industry and our customers.

√ Full Implementation of FHA Title I Loan Program
In 2010 the implementation of changes to the Federal Housing Administration (FHA) loan program for personal property manufactured homes (or Title I), which began back in 2008, was completed. In June 2010 the FHA finalized changes to the program, and also in June 2010 Ginnie Mae lifted its 15-year moratorium and announced it was accepting applications for new Ginnie Mae lenders. In November 2010, Ginnie Mae released its pooling guidelines for loans insured under the new FHA Title I program. The issuance of these guidelines provides Ginnie Mae the ability to securitize manufactured home FHA Title I loans. The securitization of these loans allows lenders to obtain new capital, which can then be used to fund new loans for our customers. Without MHI’s encouragement and assistance, implementation of this important program would most certainly not have happened.

√ Favorably Amending Formaldehyde Legislation
In 2010 Congress enacted a law which requires all composite wood products nationwide to meet new formaldehyde standards. MHI achieved a huge victory for the industry by amending the bill to make the effective date for manufactured and modular homes to comply with the new standard tied to a “manufactured by” provision instead of a “sell through” provision. This is vitally important because the original proposal would have made thousands of new manufactured and modular homes in inventory unsellable once the law became effective. Without MHI’s lobbying, it would have cost the industry and our customers thousands of dollars to bring every home in inventory up to a new standard.

√ Extending the New Home Buyer Tax Credit
MHI joined with other industry groups and successfully extended the new home buyer tax credit for manufactured and modular homes. The extension provided up to an $8000 tax credit to first-time homebuyers who meet certain income tests and sign a sales contact to purchase a principle residence by April 30, 2010. When the extension passed, it required homebuyers to provide a settlement statement as proof of purchase. In manufactured housing “home only” transactions, sales contracts are used as opposed to settlement statements. With the assistance of key Senators, MHI was able to convince the IRS to accept sales contracts in the case of manufactured home purchases.

√ HUD Regulatory Action
The manufactured housing industry is regulated by the US Department of Housing and Urban Development (HUD). As such, HUD has responsibility to issue proposed rules and building standard updates received from the Manufactured Housing Consensus Committee (MHCC) in a timely manner. This year HUD released three proposed changes for the public to comment on. These changes include roof truss testing protocol, rules governing the on-site completion of homes, and updates to the HUD-Code. These changes, which have been sitting around for over five years, are now in the process of being finalized thanks to continued pressure from MHI. An updated HUD-Code is vitally important for the industry and our customers.

In addition, MHI was instrumental in protecting the industry in 2010 from remedial action by regulators regarding materials supplied for the installation of air combustion inlets and venting ductwork through crawlspaces. MHI’s continued dialogue with industry regulators to address these types of issues is a huge part of MHI’s mission.

√ Protection from the Bureau of Consumer Financial Protection
A major issue in 2010 was Congress creating a brand new federal agency to regulate the financial services industry and protect consumers. MHI was successful in exempting manufactured and modular housing industry salespersons and retailers from the scope of the new agency if they are: 1) acting as an agent or broker for a buyer or seller of a manufactured home or a modular home, or; 2) facilitating the purchase by a consumer of a manufactured home or modular home, by negotiating the purchase price or terms of the sales contract. MHI’s lobbying obtained this exemption, and we were one of just a few industries that were successful in getting this done.

√ Relief from the SAFE Act
The Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act passed by Congress in 2008 was intended to set up a nationwide licensing system for mortgage loan originators or individuals involved in the negotiation of a home loan. It was not intended to require the licensure of individuals, like manufactured and modular home salespersons or realtors, who are simply engaged in the business of selling homes. During the implementation of the SAFE Act, however, many state regulators have expanded the scope of the SAFE Act in order to regulate as many as possible, including retailers conducting purely administrative or clerical tasks in relation to a home loan. In 2010 MHI introduced a bill in Congress which clarifies the licensing requirements of the SAFE Act. MHI’s bill prompted Congressional leadership to send a letter to HUD, telling HUD that the SAFE Act was not intended to apply to retail sellers in our industry. MHI believes these actions will positively influence the outcome of pending regulations both at HUD and the state level.

√ Protecting Consumer Choice in Weather Radios
For the past four years, our customer has been threatened by legislation introduced in Congress unfairly targeting our homes. The legislation would have required every manufactured home sold to have a weather radio, ignoring the consumer’s ability to choose. Weather radios are quickly becoming antiquated, and MHI advocated for the enactment of a new system which already addresses the issue of notifying all individuals in an area of impending natural or man-made disasters. Even though the weather radio bill passed the House of Representatives, it has never been considered in the Senate due to lobbying efforts by MHI. MHI does not expect this issue to be raised in Congress again next year, however, if it reemerges, we will be ready.

√ MHI-PAC Support of Pro-Industry Candidates
MHI has a political action committee (PAC) which contributes to campaigns of pro-manufactured housing Members of Congress. In a difficult election year where over 70 existing members of Congress either retired or were voted out of office, 84 percent of the candidates MHI supported were re-elected. This is a stellar record, and MHI looks forward to working with the new members of Congress next year in advancing the MHI agenda.

The past two years have seen an unprecedented amount of new regulations that have had a widespread impact on every industry. This new focus on regulation has been driven by the belief that the events leading up to the economic crisis might have been prevented had there been more laws in place. Considering this environment, MHI has had much success in preventing many more burdens from being placed on our industry and our customers.

However, much more work lies ahead in 2011. Federal regulators continue to ignore laws passed by Congress requiring Fannie Mae and Freddie Mac to support personal property lending on manufactured homes. This hurts our customers’ ability to buy and sell their home. The financial reform legislation which passed in 2010 is a 2,000 page bill with widespread impact on all lending and finance activities, including manufactured and modular housing. We need to push for changes to the law and careful implementation of the regulations. There are important tax credits which the industry relies on which have yet to be extended, creating uncertainty for businesses and hampering their ability to adequately plan for the future and pass these benefits onto our customers.

As a membership organization, MHI relies on your membership and support. If your company is not a direct dues paying member of MHI, call us today at (703) 558-0668 to learn more about how to join.

And, now that you’ve seen our scorecard, how do you think we are doing? Please email or call me at (703) 558-0678, or tlong@mfghome.org. All comments and suggestions are appreciated.

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Thayer Long is Executive Vice President of MHI, the preeminent national trade association for manufactured and modular housing industries, representing all segments of the industries before Congress and the Federal government. Call (703) 558-0678 or visit www.manufacturedhousing.org

MHI Outlines Priorities for 2011 Industry Unity Critical For Success

November 9th, 2010 No comments

by Thayer Long

MHI 75th Anniversary logoEarlier this year, MHI outlined three broad areas where resources must be focused to protect and promote the industry. These three areas also encapsulate over two dozen separate legislative and regulatory initiatives MHI works on a regular basis. The three areas were 1) improved climate for financing, 2) updating the HUD-Code, and 3) protecting preemption.

At the time of this writing, the 2010 mid-term elections [were] just a few weeks away. And while the political landscape [was then] uncertain, the issues we are facing are not. In late September at the MHI Annual Meeting, MHI members and Board of Directors outlined priorities for the industry and the association in preparation for 2011 and the incoming 112th Congress. The priorities represent the collective input of manufacturers, lenders, community owners, manufactured housing state associations, retailers and suppliers—the entire MHI membership. A strong unified voice from all industry segments gives us a much greater likelihood for success. MHI is prepared to put forth every effort it can muster on these priority issues.

Of utmost importance will be implementation of the financial reform bill. The Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R. 4173; P.L. 111-517) was enacted into law on July 21, 2010. The law is considered the most significant rewrite in decades of rules governing banking and financial services and will impact every financial institution and credit instrument in the nation.

One of the most visible and significant creations of the law is the establishment of a new independent and autonomous Consumer Financial Protection Bureau (CFPB), housed within the Federal Reserve, that will regulate all consumer financial products and participants, including mortgages, credit cards, banks, payday loans and other financial products.

Initial estimates conservatively indicate the act will require more than 240 new rulemakings, nearly 70 new one-time reports/studies, and more than 22 new on-going studies. This does not include the administration of existing regulations and laws that will be transferred to the new CFPB—there are nearly 20 existing consumer/housing finance-related laws that will now fall under the new bureau’s jurisdiction—or existing rulemakings that were in progress at the time of the bureau’s inception.

Since this legislation addresses all financial products, it stands to reason that provisions in this bill contain significant issues for manufactured home lending. Addressing these issues, and correcting them, must be the primary focus in 2011.

There still is work to be done at both the national and state level regarding SAFE Act implementation. The Dodd-Frank Bill transfers jurisdiction and oversight of a number of mortgage-related laws from the Department of Housing and Urban Development (HUD) to the CFPB. Included in the regulatory transfer is the shift of enforcement over the SAFE Act from HUD to the CFPB. HUD maintains jurisdiction over the SAFE Act until the designated transfer date of July 21, 2011. It is unclear if HUD will issue a final rule on the SAFE Act. However, regulatory oversight of the statute will eventually shift to the CFPB.

The SAFE Act, and uncertainty around its application to many industries, including manufactured housing, remains a key issue to be resolved in 2011. Achieving clarity in application and making the SAFE Act more relevant to the manufactured housing industry will be a high priority in 2011.

In the past three months MHI has been invited to White House sponsored events on the future of government in housing. All expectations are that the GSE reform will begin to move seriously in 2011. The U.S. Treasury Department is required to submit a report to Congress, no later than January 31, 2011, on ending the conservatorship of Fannie Mae and Freddie Mac and reforming the housing finance system. For more than a decade, GSE and federal support of manufactured home lending and finance has been limited, even with strong Congressional guidance in the Housing and Economic Recovery Act of 2008 (HERA).

Since manufactured housing is “housing” plain and simple, MHI will need to be actively engaged with committee members, administration officials and external stakeholder groups at the national and grassroots level to ensure manufactured housing is on a level playing field in any new housing finance system.

Tax extensions and tax reform have made the news headlines lately. Section 45L of the tax code provides a credit of $1,000 to manufacturers of Energy Star HUD Code manufactured homes and $2,000 for modular homes. The credit was originally enacted as part of the Energy Policy Act of 2005 and for the past several years has been extended on an annual/temporary basis. The credit officially expired December 31, 2009.

Regardless of whether tax extenders legislation is enacted during the 111th Congress “lame duck” session which is getting underway, the need to pass an extension will again arise early in 2011. The ability to rely on the long-term availability of the new energy efficient home tax credit is of critical importance. In addition, with energy efficiency standards potentially becoming more stringent the cost to build such homes will also increase.

In 2011, MHI will work to pursue a strategy that: 1) increases the amount of the tax credit; 2) provides for a long-term/permanent enactment of the tax credit; and 3) potentially monetizes the tax credit. MHI will also examine other options to provide maximum benefit to the industry.

A severe threat to affordability and the HUD-Code is underway because of the Energy Independence and Security Act of 2007 (EISA; P.L. 110-140) which contains provisions requiring the Department of Energy (DOE) to establish and implement energy efficiency standards for manufactured housing (Sec. 413).

The bill specifically tasks DOE, not the Department of Housing and Urban Development (HUD) to come up with new energy standards for manufactured homes.  MHI has developed a legislative proposal that would place responsibility for implementing energy efficiency standards developed by DOE within HUD and ensure that new standards strike a balance between energy efficiency and maximizing housing affordability for very low- and low-income families. The 112th Congress may yield opportunities to make targeted revisions to EISA.

If 2010 has been a pivotal year for MHI and the industry, 2011 will be a critical year for the industry. The market appears to have stabilized, however significant economic headwinds, a fragile housing market, and an active legislative and regulatory environment still threaten the industry.

We are all in this together. In particular, state association members, homeowners and residents represent the lifeblood of the industry, and MHI will be giving special attention to its grassroots mobilization efforts in 2011. MHI will be gearing up on effectively engaging these constituency groups and stressing the importance of direct member and industry involvement in the government relations process.

MHI is here to serve. We always welcome suggestions and feedback. If you are not involved, I encourage you to become active at the national level. The industry needs your voice.

###

Thayer Long is Executive Vice President of MHI, the preeminent national trade association for manufactured and modular housing industries, representing all segments of the industries before Congress and the Federal government. He can be contacted directly at (703) 558-0678. For more information on MHI, visit www.manufacturedhousing.org.

Manufactured Housing Must Become Mainstream Housing

October 3rd, 2010 2 comments

by Thayer Long

MHI logoThe National Manufactured Housing Construction and Safety Standards Act of 1974 and subsequent changes found in the Manufactured Housing Improvement Act of 2000 laid the foundation to bring manufactured housing into the mainstream housing market. Over 35 years has passed, and great strides have been made in fulfilling this destiny. Over the past two decades we have represented over 20% of all new single family homes built in this country. This is a significant achievement, even given the fact that the last decade has seen some dismal numbers for this industry. But even the biggest industry supporters agree that the manufactured housing industry has yet to realize its tremendous potential. When will manufactured housing be considered mainstream housing?

That day will come when the industry fully embraces the concept that we belong in the mainstream housing arena.

America needs manufactured housing to be mainstream housing. We build high quality homes at a price most can afford. This concept is nothing new. I think we all see the benefit of having manufactured housing considered as an equal in the housing world. But the effort to get there has been the real challenge. We need to think outside of our traditional core set of issues. We need to acknowledge that the mainstream housing world is bigger than anything our regulators at HUD throw at us. We need to throw out some of the rules we used to play by and adopt some new ones.

First we need to start thinking of ourselves as mainstream housing. In the past, we have traditionally thought of ourselves as a niche in the overall housing market. If an issue didn’t specifically mention manufactured housing or there wasn’t a direct connection to our business, we chose to ignore it. Frankly, this way of thinking worked in the past. But those days are quickly coming to an end. The housing market is evolving, the consumer is changing. If we want to expand our presence and increase our business, and above all if we want the parity in the housing market we all desperately seek – we need to think broader in scope. If we want to be taken seriously, then we need to be prepared to think mainstream.

I know there are some that like the niche that we operate in and think the market and conditions need to change to us, instead of us to them. Some are afraid of what being part of the mainstream will mean, that we will lose our identity as affordable housing. As long as we can provide value to our customer, the demand for our homes will be there. But if we cut ourselves off from the rest of the housing market, we will be marginalized.

Indeed, in many ways we are being pushed into the “mainstream” market whether we like it or not. MHI, for instance, has over two dozen issues that we consider priorities for the industry because of the way they will impact your business. Only a handful of them could be considered “manufactured housing only” issues. In reality, we are touched by a large set of regulations, including things like the SAFE Act, Truth in Lending, and Fair Housing laws. This has caused angst for many, yet these laws, and many others, are found in the rest of the housing world. Please don’t misread; I’m not calling for additional regulation by any means. But I am pointing out that if we want a “level playing field,” if we want the same access to capital that the site-built world has, if we want to be treated fairly, it will require us to understand a different set of rules and adhere to laws and regulations that we are unfamiliar with.

Second, we need to act like mainstream housing. MHI’s Three Point Plan to industry success includes 1) improving financing, 2) aggressively updating the HUD-Code, and 3) protecting preemption. All three points are geared to both moving the industry ahead in the mainstream and ensuring that our homes remain affordable to those who need it.

In the area of financing, all lender practices in the housing world are under increased scrutiny by the government and investors for safety, soundness and transparency to consumers. We need to be part of this debate, to show that we are willing to, or in some cases already have, put in place the same principles other market participants share. Without it, our ability to access capital on the same terms as the rest of the housing market will be limited. Second, by promoting updates to the HUD-code on a regular basis, we ensure our homes are designed and built using new, efficient and innovative construction techniques, and are built using codes and standards that are relevant in today’s building environment. We cannot build to codes adopted years ago and still expect equal status from the rest of the housing world. Third, by following points one and two, we will protect the preemptive status of manufactured housing, the most potent advantage our industry enjoys and which is the single largest contributing factor to our affordability. Thus, by thinking and behaving mainstream, we will ensure our viability for years to come.

The path to success and prosperity will be found when manufactured housing is no longer considered a stigma. What is required to make that leap can appear very frightening, which is why as an industry we have spent so much time using the same arguments and expecting different results. No amount of arm twisting from HUD or legal wrangling will change that perception. That change will happen only when, as an industry in a unified voice, we make the conscious effort to move manufactured housing into the mainstream housing arena. ##

Thayer Long is Executive Vice President of MHI, the preeminent national trade association for manufactured and modular housing industries, representing all segments of the industries before Congress and the Federal government. From its Washington, D.C. area headquarters, MHI actively works to promote fair laws and regulation for all MHI members and the industry. He can be contacted directly at (703) 558-0678. For more information on MHI, visit www.manufacturedhousing.org

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

Follow-up to May 26 Housing Alert

May 27th, 2010 No comments

This Industry Voices post is a follow-up to the May 26 MHI Housing Alert.

MHI members have been working hard on issues related to the SAFE Act, both on the national level and the state level for almost two years, and we appreciate all of your efforts leading up to this point. Based upon some questions MHI is receiving about the Housing Alert of May 26 on the SAFE Act and H.R. 5369, I want to emphasize that the proposed legislation does not seek an outright exemption for retailers of manufactured and modular homes. The language in H.R. 5369 is intended to exempt activities which are administrative and clerical in nature that facilitate the sale of a home to a consumer such as assisting customers in completing paperwork by answering questions, etc. Language in the SAFE Act as originally passed by Congress in 2008 should have accomplished this goal, however, as we all know, the model legislation developed for the states canceled out this exemption.

Initially, our strategy was to advocate for an outright exemption, but Members of Congress indicated that this was not an option. They clearly communicated that the intent of the SAFE Act was to regulate the activities of individuals, not specific professions. The introduction of H.R. 5369 is an important step in bringing the influence of Congressional leadership into the process and will serve as a tool to elevate the need for clarification and relief for this industry before both Congress and HUD. The bill, in combination with over 5,000 comment letters submitted on the proposed rule to implement the SAFE Act, will assist MHI members and states in accomplishing the goal of allowing clerical and administrative tasks to be exempt activities under the SAFE Act.

If you have any questions, please contact us.

Thayer


Thayer Long | Manufactured Housing Institute
2111 Wilson Blvd. Suite 100 | Arlington, VA 22201
Phone: (703) 558-0678 | Fax: (703) 558-0401 | Email: tlong@mfghome.org

Editor’s Note: The Capitol Switchboard, (202) 224-3121 or use:http://www.usa.gov/Contact/Elected.shtml

MHI SAFE Act comment letter filed with HUD March 1st

March 2nd, 2010 1 comment

MHI filed the following comment letter today regarding HUD’s proposed rule on the SAFE Act.

The deadline for comments is this Friday, March 5th. Please fell free to incorporate all or portions of MHI’s comments into your letter.

You can submit comments electronically through the Federal eRulemaking Portal at http://www.regulations.gov


March 1, 2010

Regulations Division
Office of General Counsel
U.S. Department of Housing and Urban Development
451 Seventh Street, S.W., Room 10276
Washington, D.C. 20410-0500

RE: Docket No. FR-5271-P-01
SAFE Mortgage Licensing Act: HUD Responsibilities Under the SAFE Act

Dear Office of General Counsel:

The Manufactured Housing Institute (MHI), a trade association representing all segments of the factory-built housing industry including manufacturers, lenders, community owners, retailers, and state associations, appreciates the opportunity to comment on the Department of Housing and Urban Development’s (HUD) Proposed Rules to Implement the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) (12 U.S.C. §§ 5101-5113).

When reviewing the below comments we encourage HUD to keep in mind two of the purposes of the SAFE Act: (1) increase uniformity; and (2) reduce regulatory burden. The manufactured housing industry has been adversely affected by the SAFE Act in ways that are inconsistent with the purpose of the SAFE Act. State laws are not being applied uniformly to retail sellers of manufactured homes or personal property-only finance companies as compared to the application of the SAFE Act to traditional mortgage lenders. In addition, the regulatory burden is much greater for the manufactured housing industry than that of the mortgage lending industry.

Section 3400.103(c)(1) – Takes an Application

  1. Amend the Rule to Incorporate Clarity from Preamble

In its preamble HUD clarifies that “takes a residential mortgage loan application” does not include an individual whose only role with respect to the application is physically handling a completed application form or transmitting a completed form to a lender on behalf of a prospective borrower. For clarity purposes, we encourage HUD to place this language in the body of its final rule. So section 3400.103(X)(x) will read:

An individual “takes a residential mortgage loan application” if the individual receives a residential mortgage loan application for the purpose of deciding (or influencing or soliciting the decision of another) whether to extend an offer of residential mortgage loan terms to a borrower or prospective borrower (or to accept the terms offered by a borrower or prospective borrower in response to a solicitation), whether the application is received directly or indirectly from the borrower or prospective borrower. An individual whose only role with respect to the application is physically handling a completed application form or transmitting a completed form to a lender on behalf of a prospective borrower does not take an application.

  1. Factual Scenarios – Examples of Not Taking an Application

We seek HUD’s concurrence that the following activities when performed by a manufactured housing retailer or salesperson would not constitute “taking an application.”

  1. Giving a home buyer access to a kiosk in order to complete an application on-line which goes directly to a funding source.
  2. Directing a home buyer to complete a paper application for financing.
  3. Assisting a home buyer with general questions regarding the completion of a loan application by clarifying what type of information is necessary for the application or otherwise explaining the qualifications or criteria necessary to obtain a loan product.1
  4. Suggesting that a home buyer may have incorrectly completed or neglected to complete parts of the application.
  5. Describing the steps that a home buyer would need to take to provide information to be used to determine whether the home buyer qualifies for a loan or otherwise explaining the loan application process.2
  6. Transcribing information from the home buyer and directing to funding sources. For example, entering information into an online application system on behalf of the buyer when the entered data goes directly to the lender.

Section 3400.103(c)(2) – Offers or Negotiates

Examples of Offers or Negotiates. In its proposed rule HUD provides three examples of offering or negotiating terms of a mortgage loan: (a) presenting mortgage loan terms to a borrower for acceptance; (b) communicating directly or indirectly with a borrower for purposes of reaching an understanding about prospective loan terms; or (c) recommending, referring, or steering a borrower to a particular lender or set of loan terms, in accordance with a duty to or incentive from any person other than the borrower (emphasis added).

  1. Presenting Mortgage Loan Terms to a Borrower for Acceptance. We understand this example of offering or negotiating is intended to focus on activities that are the equivalent to an extension of an offer. Consistent with traditional contract terms, in order to qualify as an offer, the item or terms that are being presented to the home buyer must be items or terms that are capable of acceptance. Otherwise, an offer has not been made.

Therefore, MHI seeks HUD’s concurrence that the following activities when performed by a manufactured housing retailer or salesperson do not rise to the level of an offer under the SAFE Act.

  1. The mere sharing of general information about a financing source, such as available financing.
  2. Acting as a passive conduit between the home buyer and the financing source without engaging in specific discussion of financing options from a particular funding source.
  3. Discussing hypothetical financing options.
  4. Presentation of a spectrum of options.
  5. Giving the home buyer a list of available financing sources without recommending any of the sources.
  1. Communicating Directly or Indirectly with a Borrower for Purpose of Reaching an Understanding about Prospective Loan Terms. We understand that it is HUD’s intention to capture communication between the home buyer and the manufactured housing retailer or the salesperson that rises to the level of mutuality, i.e., agreement on specific loan terms.

Therefore, MHI seeks HUD’s concurrence that the following communications between a home buyer and a manufactured housing retailer or salesperson do not rise to the level of negotiating under the SAFE Act.

  1. Discussing the home buyer’s ability to afford a particular home, i.e., examples of monthly payments for a particular home.
  2. Discussion of various alternative financing options.
  3. Presentation and/or discussion of generic facts sheet or generic rate sheets (which may be provided by financing sources).
  4. Closing personal property transactions. A retailer may assist a home buyer by receiving closing documents from the lender. The retailer will deliver the closing documents to the home buyer for review and signature. Since the home buyer and the lender already agreed upon the loan terms, there is no offering or negotiating. Additionally, there is no reasonably available alternative for closing personal property transactions, as third party closing agents limit their services almost exclusively to real estate-secured transactions (e.g., closing attorneys, title agents, etc.).
  1. Recommend, Refer or Steer A Borrower to a Particular Lender or Set of Loan Terms, in Accordance with a Duty to or Incentive from any Person Other than the Borrower. We understand that in order for a manufactured housing retailer or sales person to trigger this example of offering or negotiating, the retailer or salesperson must act as a result of a duty to a financing source or the retailer or salesperson acts in order to receive an incentive from the financing source. Without the duty to the financing source or the incentive from the financing source, this example of offering or negotiating will not be met.

MHI therefore seeks HUD’s concurrence that the following examples do not constitute recommending, referring, or steering a home buyer.

  1. Forwarding a completed application to only those financing sources that will consider the home buyer’s application.
  2. Forwarding a completed application to a limited scope of lenders.
  3. Giving the home buyer a list of available financing sources without recommending any of the sources.

MHI seeks HUD’s concurrence that the duty must flow to the financing source and the incentive must come from the financing source and therefore, the following would not qualify as a duty or incentive.

  1. The desire to sell a manufactured home.
  2. The commission resulting from the sale of a manufactured home.
  3. A sales person’s salary.

MHI seeks HUD’s guidance on whether the following items are considered incentives or duty to act on behalf of the financing source.

  1. A pre-arranged agreement between the retailer or sales person and the financing source with regard to available financing and underwriting guidelines.
  1. Compensation or Gain. The receipt of compensation or gain is critical to the trigger of licensing requirements under the SAFE Act. We therefore seek HUD’s agreement that the following examples are not considered compensation or gain.
  1. A sales person’s commission for the sale of a manufactured home to the extent that the commission received is the same in a financed transaction as that in a cash transaction. In this situation, there is no direct or indirect correlation between the compensation or gain and the taking of an application or the offering or negotiating of a loan.
  2. Any benefit which is the same in a financed transaction as that in a cash transaction. In this situation, there is no direct or indirect correlation between the compensation or gain and the taking of an application or the offering or negotiating of a loan.
    Loan Processor. Section 3400.23 of the proposed rule provides that a loan processor is an individual who performs his or her duties at the direction of and subject to the supervision and instruction of a state-licensed loan originator. We seek HUD’s clarification that the state-licensed loan originator who supervises an individual who tangentially performs clerical and support tasks is not required to be that individual’s direct supervisor. As long as the state-licensed loan originator directs, supervises and instructs the loan processor, he or she is not required to be the loan processor’s immediate/direct supervisor.

De Minimis Exemption. We encourage HUD to follow the recommendation of the Federal Agencies and consider a de minimis exception for certain individuals.3 In their draft final rule, the Federal Agencies suggest that an individual who does not regularly or principally function as a loan originator, for example has acted as a loan originator for 5 or fewer residential mortgage loans in the past 12 months, is not subject to the SAFE Act. Similarly, we ask HUD to consider the small manufactured housing communities who may take very few applications in a 12 month period. Consideration is requested based on the uniqueness of the industry. A small community is not motivated by the same incentives as a mortgage lender. A community is motivated to find the best home for the buyer and maintain that person within their community. These are typically family-run businesses with very few home sales within any 12-month period.

    HUD’s Express Authority to Review State’s Laws. We respectfully suggest that HUD’s review of state SAFE Acts is limited in scope. In HUD’s July 2009 Report to Congress, HUD acknowledges that it is “charged by the SAFE Act with establishing and maintaining a loan originator licensing and registration program for any state or territory that does not have in place a process for licensing and supervising loan originators that meets the requirements of the SAFE Act, or that fails to participate in the NMLSR.” The requirements of the SAFE Act that Congress authorized HUD to review for compliance is limited to three sections of the SAFE Act. Specifically, section 5107 of the SAFE Act, entitled “Secretary of Housing and Urban Development Backup Authority to Establish a Loan Originator Licensing System” provides that after the time periods for compliance allowed by the statute, if the “Secretary determines that a State does not have in place by law or regulation a system for licensing and registering loan originators that meets the requirements of sections 5104 and 5105 and subsection (d) of [section 5107], or does not participate in the Nationwide Mortgage Licensing System and Registry, the Secretary shall provide for the establishment and maintenance of a system for the licensing and registration by the Secretary of loan originators operating in such State as State-licensed loan originators.” HUD’s review of state compliance is limited to sections 5104, 5105 and 5107(d). HUD is not given express authority to approve or deny state definitions of loan originators or exclusions for individuals traditionally regulated by the states.
    State’s Sovereign Rights to Create Exclusions. The states have the right to interpret their SAFE Acts in order to enact and implement their own laws covering or excluding certain persons and activities. Congress did not give HUD the broad authority to preempt a state’s interpretation and implementation of section 5102 of the SAFE Act. We respectfully suggest that HUD will exceed its statutory scope of review if it interprets states’ exclusions as non-compliant with the SAFE Act. A determination by HUD that manufactured housing retailers and salespersons are included in the definition of loan originator will be given deference only if there is ambiguity in the SAFE Act and Congress either explicitly or implicitly delegated authority to HUD to cure that ambiguity. See, American Bar Ass’n v. F.T.C., 430 F.3d 457, 469 (D.C. Cir. 2005).

Delayed Effective Date. Section 3400.107 of HUD’s proposed rules authorize HUD to approve a later effective date upon a state’s demonstration that substantial numbers of loan originators (or of a class of loan originators) face unusual hardship. We request HUD consider allowing the demonstration of unusual hardship to be proven on a national basis by industries suffering unusual hardship.

In addition, we request HUD consider issuing a statement to the states permitting a delayed effective date in the licensing of loan originators. A delayed effective date will give states time to address HUD’s comments and amend laws, if necessary. Once the laws are in final form, the industry will be able to appropriately interpret laws and determine who must be licensed as a loan originator.

Moratorium on Enforcement of Loan Originator Laws. For the reasons stated above, we also believe that a moratorium on enforcement of the current state SAFE Act laws is in the interest of all affected until the state laws are final and compliance is achievable. We therefore, request HUD consider issuing a statement to the states permitting a moratorium on enforcement of the licensing requirements for state-licensed loan originators.

Loan Assumptions. We encourage HUD to agree that assumptions are not the equivalent of a new loan subject to the SAFE Act because assumptions do not result in the extinguishment of an existing loan and the replacement by a new loan, but rather the loan is assumed by a new obligor.4 We strongly urge HUD to consider the importance of consistency in the application of the SAFE Act and apply the rational from the Federal Agencies draft final rule, that individuals engaged in assumptions are not acting as loan originators as defined in the SAFE Act.5

Application of the SAFE Act to the Manufactured Housing Industry. Congress expressly stated two objectives of the SAFE Act are to create uniformity and reduce regulatory burden. These two objectives are not being met when it comes to the manufactured housing industry. In fact, there are unintended consequences placing significant increased burden on the manufactured housing industry as a result of the states’ implementation of the SAFE Act. There is also unequal application of the laws and licensing requirements on the manufactured housing industry.

As the states enacted their SAFE Acts, many also amended their mortgage lending laws to incorporate the SAFE Act definition of mortgage loan. This resulted in the inclusion of personal property transactions in state mortgage lending laws. Personal property finance lenders are now finding themselves subject not only to state sales finance and installment loan laws and licensing regimes, but they are now also subject to mortgage licensing and compliance requirements.

The result is dual licensing requirements for personal property lenders (and transactions) in many states. The traditional mortgage lender is not subject to the same dual licensing requirements. This is an unequal application of the SAFE Act to the manufactured housing industry and a significant increase in regulatory burden.

Personal property finance lenders must immediately become licensed under a mortgage lending scheme and/or comply with the substantive requirements of the state mortgage lending laws. This will result in duplicative disclosures to the consumer for the same transaction, conflicts between rates and charges, and in many instances duplicative examinations for the same transactions by different state agencies. Personal property finance lenders have been put in a disadvantaged competitive position. The cost of the new regulatory burdens will outweigh remaining in the business of personal property financing.

We seek HUD’s assistance in guiding the states to reconsider the application of their amended laws and focus on the intent and purpose of the SAFE Act: (i) to license individuals (not to create new licensing requirements for already sufficiently regulated entities); and to (ii) create uniformity and reduce regulatory burden.

Implementation of the SAFE Act through NMLSR is not Meeting its Minimum Goals. HUD is required to oversee the successful implementation of the NMLSR system. This requires state licensing of individuals acting as loan originators, including obtaining a unique identifier. Although not a prerequisite of the SAFE Act, the NMLSR creates sponsorship of an individual loan originator as a condition precedent to license approval. An individual loan originator can not work until he or she is sponsored by an entity in the NMLSR. Typically, the sponsoring entity must be the loan originator’s employer.

In the manufactured housing industry, at least three types of entities may employ loan originators: (i) personal property-only finance lenders; (ii) retail sellers of manufactured homes; and (iii) owners of manufactured housing communities. These entities typically hold sales finance company licenses, installment loan licenses, or retail seller licenses. Because NMLSR does not include these licenses in its system, these entities are unable to sponsor their employees. This is a fatal flaw in the NMLSR system. We encourage HUD to address this NMLSR flaw by creating an exempt status to allow these personal property finance lenders, retail sellers and community owners to sponsor their loan originator employees.

1This example is taken from the FFIEC’s draft final rule.
2This example is taken from the FFIEC’s draft final rule.
3See Federal Agencies draft final rules pages 18-19.

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MHI and its members look forward to working with HUD in the months ahead regarding the matters raised in this comment letter.

Sincerely,

Thayer Long
Executive Vice President
Manufactured Housing Institute