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Manufactured Housing: Underutilized and Misunderstood

December 10th, 2014 No comments

What will it take for manufactured housing, the principal source of unsubsidized, affordable homes in the United States, to reach its potential?

Limited and expensive financing options make life even more difficult for the financially vulnerable residents who live in manufactured housing DHS_post_MontanaHome_11.03_.25_nhi=credit-posted-industry-voices-manufactured-housing-mhpronews-(MH) communities. The continuing consolidation of ownership is taking a toll, and the industry just can’t seem to shake the outdated, negative stereotype of a rusted, flimsy structure with a dog chained to the front porch.

Manufactured homes, frequently mischaracterized as mobile homes or trailers—even though once placed, they're rarely moved—house over 18 million Americans. Most are just getting by; the median annual household income of residents is $30,000. The homes are much less expensive to rent or own because they’re built in factories, so they cost less than half the estimated $94-per-square-foot national average for new site-built homes.

Not only is manufactured housing misunderstood, it’s underutilized. “We don’t have enough public housing to fulfill our needs,” says MH industry expert Lisa Tyler of Paris, Tennessee. “Manufactured housing presents a solution. It’s inexpensive, energy efficient, and a great value. There’s a lot of opportunity for growth in the industry, but a lot of obstacles, too.”

One such roadblock is the way most MH is legally classified as personal property rather than real estate, according to a recent report on manufactured housing from the Consumer Finance Protection Bureau. That means MH homebuyers pay higher loan rates, 6.79 percent on average, and have fewer consumer protections than owners of site-built homes, who paid 3.6 to 4.2 percent in 2012 for a conventional mortgage with a 30-year fixed rate.

And then there’s the persistent image problem. Industry insiders are dismayed that manufactured housing continues to be stigmatized, despite the fact that factory built homes constructed after 1976 must adhere to the U.S. Department of Housing and Urban Development (HUD) code that provides guidelines and oversight relating to quality, safety, and durability.

“Today, manufactured homes are often built with higher quality, more energy efficient and sustainable materials than site built homes, and many are set in lovely, tree-lined communities with responsible, hard-working residents," says Tyler. “The mainstream media tells us that people who live in manufactured homes are 'trailer trash,' drug dealers, or wife beaters. Sadly, many people still have trouble getting past that horribly unfair stereotype.”

Mom and Pop: Unsung Heroes

Residents and owners of manufactured housing communities are also grappling with a wave of consolidation that began in the 1990’s, and continues unabated. Sun Communities Inc., for example, just announced it bought seven MH communities in the Orlando area for $257 million. So far, investors are mostly targeting larger communities, says L.A. “Tony” Kovach, publisher of leading trade publications MHProNews.com and MHLivingNews.com. “But we’re going to see things evolve over the next five years, as investors come knocking and begin targeting smaller sites, those with 150 units or less,” says Kovach, who's based in Lakeland, Florida.

These sites are traditionally the territory of small, local owners and operators, informally called Mom and Pop’s.

“The majority of parks were created by private owners, who manage this valuable resource for low and moderate income people who want a home of their own,” says Paul Bradley, the founding president of ROC USA, a nonprofit based in Concord, New Hampshire that promotes resident-owned communities (ROCs). “But they don’t get credit for it. These stewards of affordable home ownership are unsung heroes.” While smaller owner-operators have their flaws, “most of them are truly decent people who’ve managed their communities respectfully,” adds Bradley.

Meanwhile, many of these MH owner-operators are looking to retire, or get out of the business due to economic pressures and shifts in the industry. As fewer of their adult children want to take over the family business, more Mom and Pop’s are selling to larger operations, which, in turn, sell to investors. That’s when the fortunes of residents can change quickly.

“The difference between how a consolidator runs a business and how we did is one of values, frankly,” says Marc S. Seigle, a retired attorney and former owner, along with his family, of a MH community in Elbridge, NY. Seigle says they raised rents on tenants from $190 to about $300 over 25 years—just enough to cover inflation, taxes and insurance costs.

“There’s always a great deal of talk about the importance of quality affordable housing, but it’s pretty much eyewash—just talk,” says Seigle. “I saw an article in The New York Timesabout Wall Street investors making their fortunes in this industry. I thought, they suddenly discovered they could do what the rest of the world does with folks who don’t have much clout—gouge them. I’m saddened but not surprised to see it.”

A Better Way

Owner-operators of MH communities who're ready to exit the industry don’t have to sell to consolidators. There’s a better option, says Bradley. Residents can collectively buy the land, and create a ROC. Bradley’s organization, ROC USA, has helped secure community ownership for over 150 resident corporations to preserve and improve affordable communities, and help residents build their individual assets. Impressively, none of ROC USA’s communities have gone bankrupt, into foreclosure, or been resold.

Seigle’s family was the first to partner with ROC-USA, back in 2008. He says they received their asking price, and there was no downside to the deal. “I spoke with a consolidator, and it was quite clear to me they’d jack up the rents if we sold to them,” says Seigle. “The fact I was able to sell to my former customers, so they would have some control and I knew it would be well maintained—made it even a sweeter deal.”

Former MH community owner George Everett was also pleased with his ROC USA transaction. He sold the 32-unit Green Acres Cooperative, tucked deep inside the Rocky Mountains in Kalispell, Montana, to the nonprofit in 2010. “I know many of those who live in the community real well. Ninety-five percent are good, hardworking people who didn’t deserve for a developer to come in and suddenly raise the rent so high they’d have to leave their home.”

“I’m a conservative person, but I’d do it again,” says Everett, a former realtor, and a Republican who served in the Montana legislature for eight years. “I still drive past there and talk with the manager sometimes. It seemed to work out well for everyone.”

dana-hawkins-simons-nhi-org-posted-industry-voices-manufactured-housing-mhpronews-com-75x75-Dana Hawkins-Simons directs NHI's Opportunity Housing Initiative, a project that supports the expansion of long-term affordable housing programs and policies. She is an award-winning journalist and former senior editor of U.S. News & World Report. Reprinted on request, as first published in Rooflines,

(Photo of the Green Acres Cooperative by Lorie Cahill.)

Dick Moore’s Industry and Finance Perspective

November 16th, 2011 2 comments

 

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