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Posts Tagged ‘Warren Buffett’

Manufactured Homes – Access & Equity – a Key Cure for America’s Housing Shortages, Wealth-Building Says Activist Donald Tye, Jr.

March 6th, 2018 No comments

Manufactured housing could cure most of the ills we have in this country as it pertains to the housing shortage.

Why then is it not being utilized as it could be?  Especially when it is known what the consent of the governed has been towards its use, i.e.: HUD?

The answer lies in the fact that super-capitalists and monopolies controlled by the few, lobby against the very democracy that afforded them the billions they have at their disposal. They are able to do this by making sure that on every level of the socioeconomic hierarchy, they have agents, allies, or directors forming what is called an Interlocking Directorate. 

These directorates can be very deceptive, because most times their job is not to steer but just to glean information to disseminate to the titular head of the organization. Many an activist, including myself, have fallen prey to this type of hidden maneuvering and manipulation.  Warren Buffett is among such Americans.

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Housing and Civil Rights, Super-Capitalism vs. Democracy

I was never in agreement with parts of the Civil Rights Movement as it pertained to making people do what they otherwise did not want to do. I believe that if you don’t want me in your store, then I should not go to your store.

However, I do believe in equal access.

I believe that people participating in a Democracy should be granted all the same access, holding to the words of the Declaration of Independence; “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed.”

Simply put, a Democratic Government should give equal access to the governed. To all people who are citizens, black, white, yellow, etc.

It is in this vein that my parents, and I as a parent, disagreed with affirmative action. If you gave me access to: living wage jobs, bank loans to purchase a home and an equally unencumbered education, then I could do the rest by myself! That in and of itself is reparations.

I have said before that home ownership is the quickest way to build wealth.

Our personal experience with buying and paying off a factory-built home, in the days before the HUD Code for manufactured housing came into being, is another indicator that manufactured homes can rise in value side-by-side with conventional housing.

HUD and public officials need to make enhanced preemption of manufactured homes a reality. What else will fix the problem millions face caused by locals and officials blocking access to wealth-creating affordable? ##

RevDonaldTyeJrManufacturedHousingAdvocateIndustryVoicesMHProNews338

Rev. Donald Tye, Jr.
Actively Retired
Minister, Investor, and Business Professional

 

(Editor’s Notes: Rev. Tye has recently returned from Puerto Rico, where he saw the post-hurricane challenges first hand.  He’s also involved with investors in transformational studies in housing.  Tye is actively advocating for the use of the enhanced preemption passed into law by the Manufactured Housing Improvement Act of 2000.  The links below are related topics that sparked the letter provided by Tye above to MHProNews for publication.

Tye has also provided a sample of legal research from Harvard University on the challenges and problems that can be created by interlocking directorates. Stay tuned for that report…Titles to articles and illustrations are routinely provided by the publisher, as is the case here.)

 

Progressive “Nation” Reports on Monopolies Cites Buffett, Clayton, Others – MH Industry Impact?

YIMBY vs. NIMBY, Obama Admin Concept Could Unlock $1.95 Trillion Annually, HUD & MH Impact

Urban Institute Ask for Correction in Analysis of their Manufactured Housing Research, “Follow the Facts,” “Follow the Money”

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

May 24th, 2016 1 comment

TOPIC

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

FreddieMacFannieMae-logos-creditBeforeItsNews-PostedMHProNews-

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

BACKGROUND

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

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

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

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

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

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

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

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

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

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

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

FAST FORWARD

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

WHAT’S THE POINT?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

 

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

Unintended Consequences Can be a Good Thing

August 15th, 2012 No comments

Dan Rinzema posted in MHProNewsAs I read Lance Inderman's, Tyler Craddock's and DJ Pendleton's recent articles, a number of things came to my mind. One of them was The Law of Unintended Consequences. The Law of Unintended Consequences states that any purposeful action will produce some unintended, unanticipated, and unwanted consequences. A corollary states that the unintended consequences can turn out to be even more significant than the intended action.

Except for the “unwanted” part, that is in many ways what’s happened with MHVillage since 2004, when my partners and I decided to invest substantial amounts of Datacomp’s money and employee time into it’s creation. I'll recap another time some of the good unintended consequences of MHVillage, but for the moment let me focus on something that could bring rapid, immediate value to an issue that was raised by Lance Inderman, Ronnie Richards and others here on MHProNews.com.

Some months back, MHProNews ran a story that featured a lengthy video interview of Kevin Clayton. In it, Kevin Clayton expressed what Warren Buffett told him one day. “Kevin, it seems to me that the problem of your industry is resale.”

Resale or a remarketing path is in part what makes conventional housing and real estate perform better.

Conventional home builders don't have to tell a customer what their potential exit strategy is. The home buyer knows they can sell it themselves (FSBO or For Sale By Owner) or they can use a Realtor to sell their home. But what do we have in manufactured housing that works the same?

While there has been discussion back and forth about possible resale mechanisms, or using a recent Supreme Court ruling to list and facilitate the resale of more manufactured homes, the reality is that all of those approaches have time and cost challenges. The only resource that is up and running right now today is MHVillage and our MLX system.

The MLX or Multiple Listing Exchange is a rapid, low cost way that the industry at large could be tapping into the potential revenue and enhanced resale value that arguably must be part of the future to manufactured housing success. That is important for lenders, who may need to sell a repossession, and would rather do it without moving the home. It is also important for homebuilders, community owner/operators, and retailers as well as those 9+ million manufactured and mobile home owners.

Lance Inderman is correct. We have a great product in manufactured housing. Beyond his points, what keeps more well qualified potential home buyers from pulling the trigger? A 750 credit score or cash buyer customer will ask or think the following question. “What is my exit strategy when it comes time for me to sell this manufactured home?”

When you as a manufactured homebuilder, community owner/operator, or retailer can look that 750 credit score or cash buyer in the eyes and say, well, “We have a large and active Internet marketplace called MHVillage where you can either list through a broker or sell your home yourself,” that makes sense to that strong prospective customer.

Frankly, it was beyond our expectations that MHVillage would become what it is today, where 45,000 visitors – about 85% of whom are retail home consumers – visit daily to buy, rent, and/or use other services that all drive dollars for the manufactured home businesses involved. That was a good unintended consequence for us and others – one that I hope to cover in a future article here on MHProNews.com. But beyond MHVillage, there are other efforts that make sense for manufactured housing that can get or keep us in front of good customers interested in buying a home.

For example, we see value to efforts like Tony Kovach's new consumer focused MHLivingNews.com website, which promotes the positive aspects of the manufactured home lifestyle. We plan to support, engage in and encourage that effort, including but not limited to, providing content for them. MHLivingNews.comcan help over time improve the industry's image, which Lance's article discussed.

We see value to this MHProNews site, which has become the most robust platform of its kind. Articles on best practices, news, issues and discussions of problems and solutions must take place in our Industry in order for us to move beyond survive to thrive.

There are also efforts being put in place from state and national associations to drive the industry past the regulatory and other challenges that we face. I'm sure there are other private and planned efforts beyond those mentioned here.

The point is that when we learn to work together using the resources that we have, unintended consequences will happen and can be turned in our Industry's favor. That won't happen by itself. It will only happen as more savvy associations, businesses, professionals and pro-industry trade media platforms pull together to make it happen.

We tend to think of unintended consequences as bad. But some can be good, especially when we recognize the forces at play and make them work in our favor. It all starts with simple steps, often simply making use of resources that are already available today. ##

Dan Rinzema posted in MHProNewspost submitted by
Dan Rinzema
CEO, MHVillage and DataComp

Getting Zuckered! Lessons Learned.

June 6th, 2012 No comments

(Editor's note: in every monthly issue of our Featured Articles, 6-12+ articles we receive are not published – at least at that time – for a variety of reasons, including logistical ones. That is what happened to this article for June. But when the following news item linked below about Facebook came up, we felt this article was worth sharing on Industry Voices, our thanks to MB, please enjoy.http://www.cnbc.com/id/47674474)

The handwriting was on the wall when Warren Buffett said – before Facebook's (FB) over-hyped IPO – that he wasn't going to buy; certainly not at the start. GM had just pulled 10 million in annual ads on the FB site. FBs own public offering statements indicated that the advertising model was not working yet as planned. Some experts think the true value of FB might be under ten dollars a share, not in the thirties. But some buy into hype. It had less to do with NASDAQ's errors – as serious as those were – than the simple fact that FB was overpriced.

But what's undervalued?

Manufactured housing.

Why?

Failure to properly promote! The failure to create millions of Raving Fans!

The proof is hidden in the FB experience.

The hype about FB came in part as a result of millions of raving fans.

You have tens of millions of potential customers today and tens of millions more tomorrow for manufactured housing. Those Manufactured HomeOwners have to become believers. MH Owners have to be so happy, that friends tell friends, and then businesses like yours grows like crazy.

What are you going to do about it? ##

Posted for
Michael Barnabas

CONSPIRACY or INACTION: Which is to blame?

July 15th, 2011 No comments

by Martin V. (Marty) Lavin

Our Friend

Ah, finally, I was intent on reviewing the innumerable documents, which built up on the computer I had used for several years.  As I scanned the dozens, no hundreds of files in my documents, I came upon some, which stirred memories.  Probably none more than R. C. “Dick” Moore’s “Perspective #61” of July 18, 2008.  Mr. Moore, as most know, is a longtime MH retailer and community owner.  As the spirit moves him, he puts out an occasional newsletter, Perspective.

And what was this memorable missive all about?  Well it was a fairy tale about a mysterious “friend up east” who had MH powers similar to Superman, able to unite the GSE’s, (Fannie Mae and Freddie Mac), Clayton Homes and maybe even Citibank, and Warren Buffett himself, in an effort to stifle all competition for chattel retail lending to the industry.  Wow!  Strong stuff indeed.

The gist of the tale is that our “friend” was paid by the GSE’s to advise them “not to buy MH paper.”  This would also lead to Citibank “pulling the rug” on Origen Financial and Palm Harbor.  Then, as all competition is wiped away, Buffett borrows $2 billion in the market which he deposits in the account of the Clayton Homes’ lenders, Vanderbilt Mortgage and 21st Mortgage.  While the story didn’t as much as make the back page of the Wall Street Journal, I hear Hollywood is interested enough in the story so they’ve spoken to Brad Pitt to play “our friend up east.”

Who is He!

Since “our friend” goes unnamed in the several other Moore Perspectives with stories which mention him, there has been substantial speculation on who “our friend up east” is.  Presumably with all the players involved in the alleged scenario, this has got to be one powerful S.O.B.  Who could it be to wield such power?  It’s not Warren.  He’s “our friend from Omaha.”

Some came forward during this series of Perspectives and had the gall to suggest that I, the writer herein, was the powerful and mysterious “friend up east.”  They have also suggested that Brad Pitt is a good semblance of Marty, and would be perfect for the starring role in the movie, or TV miniseries.  Well, I’m obviously flattered but can I be the mysterious, unnamed “friend up east.”  As H. Ross Perot said, let’s go to the chalkboard to figure this out.

The first clue is that “our friend” has been paid by Fannie Mae and Freddie Mac to “advise them not to buy MH loans.”  That assertion is partially right.  I did advise Fannie Mae for a number of years on many matters MH, especially about retail chattel lending.  Other than informal, unpaid conversation, which we all have with others, I did not work for or with Freddie Mac.  Nice people and all, but I never did have that paid assignment there.  Too bad.

No Secret

Parenthetically, my assignment with Fannie Me was never secret, no attempt was made to hide it, by either side, and I always had the assignment on my resume on my web site.  So, if I am “our friend up east,” Mr. Moore, who writes that he uncovered that “our friend” was being paid to advise the two GSE’s “about MH paper,” that “secret” information was hiding in plain sight on my web site.  Best place to hide is in plain sight, they say.  And while I counseled caution in buying MH loans, based on MH loan portfolio experience, I never counseled anyone not to buy any loans, only those likely to cause alimentary canal back up.  But that doesn’t establish me as “our friend up east,” does it?

A second allegation is that “our friend” and the Clayton folks were dining together.”  Well, yes Kevin Clayton is a longtime friend of mine, I’ve dined with him contentedly many times, including once in D.C. when I went to the hopper late in the dinner and Kevin managed to convince me when I returned that I had lost in a game to determine who got the check for the night’s dinners.  Since it was a very large group with lots of big eaters and drinkers the tab was well over $1,000.00.  I’d have paid, but . . . . Kevin had the last laugh, he intended to pay all along and he did.  Good boy.

Global Heart Burn

I must admit I did have dinner one night in Omaha, Nebraska with the Clayton folks during the Berkshire Hathaway annual meeting.  Kevin had invited me out as a guest and I was invited to dinner by Keith Holdbrooks of Southern Energy Homes, a Clayton subsidiary, and a whole host of Clayton “Big Shots” were there.  What was discussed at the table that night?  The only memorable discussion I recall is that the table of 12 or 14 people all believed in the myth of man-made Global Warming, except OleMartyBoy, who tried to hold his ground.  With religious fervor the group accused me of my disbelief as though I was skeptical of the Immaculate Conception, an uncomfortable situation for all.   Since that 2008 dinner my vindication is nearer.  But still, every American has the right to an opinion, even an uninformed one, and there are plenty around these days.

So the “dining with Clayton folks” can’t be used against me, unless we were discussing how man-made Global Warming could be used to de-stabilize MH chattel lending.  Can it?  Some would have you believe it can and perhaps that explains the religious fervor at the table that night.

Conspiracy Theory

So why do I go on about this?  Certainly Mr. Moore is not the only MH figure to write about an industry conspiracy.  The estimable George F. Allen, one of MH’s brightest stars, has often brought up the possibility of a conspiracy.  And of course, the conspiracy always centers around Berkshire Hathaway and Clayton Homes.  Fleetwood, Palm Harbor and Oakwood go unmentioned.  The conclusion being that the reason Clayton Homes is the best of what’s left is conspiracy related.  The strong management there, excellent home lines, disciplined retail lending by two of their companies, and the fortuitousness of being owned by cash rich Berkshire Hathaway, apparently account for nothing.  Would or could Clayton Homes be brought down to Earth if their financial backing disappeared?  Perhaps.

And finally, yes I do live in the “east,” Burlington, Vermont, being far east and regrettably, far north.  But let’s go back to the chalkboard and look at facts, not conjecture.  Here are some of the various facts to be considered to explain the industry slide.

  1. The packages of chattel loans originated and sold into the ABS market from 1995 to 2003 are amongst the very worst loans of any type ever sold to investors.  If sub prime real estate is a problem, and it is, MH ABS paper is the Uber King-of-Sub Prime.  Investors are loath to touch these MH ABS offerings, to this day.
  2. While the industry has severe operating model deficiencies, little has been done by the industry to shore up these deficiencies.  Get the same liquidity to the industry it enjoyed in 1995-1999 and securitize these loans, and the result would still be bloody.  Far too little has changed to make much difference.  And investors not always being stupid, know this.
  3. The MH industry is not seen as important enough by government to subsidize its loan losses.  It has been prepared to do so with conventional housing, but not chattel MH lending.  Scream about it if you will, but that’s the way it is.

Subsidy Withdrawn

So, how much easier it is to cry conspiracy than to accept that from 1950 to 1998, when the music stopped, the success of the industry has constantly been subsidized by lenders?  When that subsidy was withdrawn in the late ‘90’s-early 2000’s, the industry tanked.  Yet, I still hear from many “it worked for 30 or 40 or 50 years.”  Worked for whom, I might ask?  It did not work for the lenders, so most have left.

This brings us to the present, with 2011 expecting between 40-50,000 new home shipments, a continuation of a slide of 90% since 1998.  This is serious, right?  Yet the industry response has been anything but serious.  Most industry response has centered around Washington, D.C. activity.  How’s that working for us?

The question for some would be how to return to the 1974-1995 trend line of about 240,000 new home shipments per year.  This avoids the 1969-1973 bulge, during which we averaged 477,000 home shipments per year, and the 1996-1999 period when we were over 300,000 homes.  You know the record since 1998.

Whence the Volume

Let’s look at this return to a much larger industry size for a moment.  One would think that given the facts we know, the 40-50,000 home shipments might be “where it’s at” into the future.  Baring any new flood of “loose” retail lending money, how do we get back to 250,000 homes annually, or even to the 2004-2007, 125,000 homes, give or take?  We can depend on FEMA for some homes, floods, disasters and hurricanes willing, but not too many.  The LLC’s would like to buy new homes, but their forays there with buy here – pay here have not created profit enthusiasm for this model.  Thus we can’t expect much new home volume there.  Retail chattel lending is very constricted, so retailers are unlikely to help with volume.

Title I, the former “great hope” has proven to be a volume dud, not surprisingly so.  Most non-Clayton retail lenders have to stay on the positive side of 700 FICO to survive.  Can’t look to them for much volume, eh?

The Berkshire Group goes deeper, but they ain’t Greenseco re-incarnate.  Only their disciplined lending and strong servicing culture and yes, experience, makes it all work.  They are not about to pump out $6.3 billion in MH loans as Conseco Finance did in one year around 2001-02.  I would guess if the two Berkshire lenders got to $2 billion combined annually that would be a wondrous job.  So even there, not too much excitement either.

This leaves real estate placements of HUD’s, a long cherished dream to go against the site built industry and whip their azz.  We know that isn’t about to happen, no matter how fervent our dreams.  New “easy” lenders coming to the rescue?  Perhaps.  Have you tried to finance anything in your personal life recently?  If you have you well know the absolute difficulty of any sort of success.  Add in our depreciating asset, the manufactured home, and generally scratch and dent credit capability for most of our buyers, and the hope of a new lender exploding on the scene seems demented.  But hey, we all live in hope.  Remember, Tarzan always said, as he went in and out of terrible scrapes, “Where there is life, there is hope.”  Amen.  Just don’t plan your entire business on the return of Conseco, CIT Group, The Associates, Green Point Credit and the others, though heaven knows their return could carry on long enough to shore up my retirement.

Regulatory Guillotines

Unaddressed yet are the new laws affecting lending and the new consumer agency.  I can only make one comment here.  When was the last time you encountered very complex lending laws, licensing requirements, and a super consumer agency which fueled a burst of sales activity for you?  In my time in the industry since 1972, I’ve seen none.  Perhaps the impact of many new laws, such as the very HUD code itself were overstated, but without the HUD we were shipping up to 580,000 homes per year.  Have you seen that many since in one year?

My best guess, and it is only an experienced guess, is that the industry will not be able to roll back the requirement that most industry transactions will come under the purview of one or more of these regulations, will control transactions, and will cause another reduction in HUD volume.  Even as the industry struggles with ways to avoid their prohibitions, the impact is most likely to be substantial.  I do surely hope I’m wrong.

And what will be the impact of LLC owners extending their own financing for the sale, or rent with option for homes in their communities?  Again, like everything, things not done during good times but becoming a fallback during bad times usually have warts on them.  Self-financing may well be a necessity, and I readily accept that.  If you have an LLC with substantial vacancy and the normal financing available will not fill it, one must save themselves, and self-financing, properly executed, can do that.  But, it does not speak to the substantial work and personnel necessary to make it work, the need for your own capital, the ever-decreasing used homes availability, the specter of violating some arcane lending law, and not least, a liquidity crunch which would drive one to try to cash out their loans and find there are no buyers or only buyers with a huge 80-90% haircut in value.  Some deal.  Pay attention here.

LLC Fallback

So one can’t help but think that as the LLC sector, perhaps the most vibrant and last to fall goes through a contraction in numbers, that only well-located communities with a value component to their offering will weather the storm.  It has been happening already, as the supply of used homes dries up, and new homes are found wanting for self-finance, the corn fields which became communities may be headed back to corn fields or for other use.  Wal-Mart, anyone?

If you struggled through reading my “Saving Chattel Lending” you had to ask yourself, “Can it be this hard, Marty?”  I surely ask myself the same question each time I prepare one of these papers.  If it’s going to be this hard, where does one start, and of the umpteen cures I recommend, which are the five most important?  Answer:  I don’t know.  Second answer:  Note that virtually none of my suggested measures have been tried.  The only change in the industry financing model, which is “the” defect, is that we’ve gone from “fogging a mirror” to 700 plus FICO, real credit capability, a completed application, full and adequate documentation and a belief the borrower is qualified in every way to get the loan and pay for the home successfully thereafter.  That is the quantum industry leap, which has occurred, and it certainly increases lender survivability, but has destroyed lender and industry new home volume.  Want to increase home sales volume?  Find a way to attract many more folks with better credit.  Stop building many new HUD code homes and selling them and what do you think the outcome will be for most industry segments?

So I come back to an industry conspiracy.  This all has to have happened because a mysterious, unnamed “friend up east” used his magical powers to convince some very large, knowledgeable lenders to quit MH chattel lending to throw all the volume to just a few special lenders.  Now if only that powerful friend can get SACU, Triad, and USBank to leave the industry, that will be the final step in the conspiracy.

Come Now

Speaking from atop the “Grassy Knoll,” I’d feel better if the industry might look at the known factors, which have brought the industry to its knees, and worked hard to Saving Chattel Lending.  Believing in “The Conspiracy” may let you off the hook of having to do anything, but will do nothing in resurrecting the industry.  It will take far more than conspiracy theory to do that.  # #

Martin V. (Marty) Lavin
attorney, consultant, expert witness
practice only in factory built housing
350 Main Street Suite 100
Burlington, Vermont 05401-3413
802-660-9911, 802-238-7777 cell
web site: www.martylavin.com
email mhlmvl@aol.com

Editor’s Note:  As with Mr. Lavin’s earlier articles, we have honored his request to post his article “as is.”  Read his other articles:

 

As I See it – advancing Manufactured Housing Chattel Lending – So Now What?

July 15th, 2011 No comments

As we come to the 4th of July or Independence day, I decided to carve out some time to add what I hope to be constructive ideas to the manufactured housing industry chattel lending issue.

Being involved in the industry for over 25 years I have rode the shipment roller-coaster (like many of you) more than once.  However, we cannot look to the past as our salvation for the future.  Nor can we look to Washington D.C. for our salvation.  Our “friends” in Washington D.C. can’t even balance a checkbook or a budget.  As my kids learned in college, there’s book smart (passing the tests) and then there is the real business world.  All the studying done in college has had very little to do with their business life experiences (or so they tell me).

So now what?  While presenting my idea for the industry, I’m simultaneously having a Rep. Paul Ryan-Marty Lavin moment.  Put your idea out there and let the attacks begin.  Even so, I still wish to share my thoughts as they may springboard (or whiteboard) the manufactured housing industry to the answer we all seek.

1st – Washington D.C. – This is the land of unintended consequences.  Where to start?  Safe Act, Dodd-Frank, CFPB or TARP pick any of the alphabet soups, did they do anything for us?  As an industry what did we do to them?  Sure we can relive what the Green’s did to the bondholders on Wall Street.  But they were bondholders who took on a risk for a return.  Whether it was a straight deal or not is why people charge for due diligence reporting.  Did we cause the mortgage backed security world to implode?  No, for that, I say look to D.C.  Fannie, Freddie, FHA, VA and Ginny Mae all were smarter than the rest of us. They wanted homeowners, so they put programs in place to get what they wanted.  Forget underwriting, down payments, proof of income, job verification and speculators, they wanted loans.  Did mortgage brokers take advantage of the system?  Yes!  Did they write the rules? No!  Those that are guilty of fraud should be punished to the full extent of the law.  Our industry was and still is collateral damage.  I guess that’s what happens when you are to close too the bomb blast.

2nd – Banking Institutions – Coming originally from a bank and credit union background I understand where depositories are coming from with regard to the decisions they make for our industry. Over the years we have presented opportunities to a myriad of institutional sources of capital and over 250 said, “No thanks”. The irony was, most of them actually liked the opportunity and the plan behind it. Some of the ones that said no, even said it was an outstanding opportunity and program. The ones that signed on, had some of the best results they had ever experienced with installment loans. But a funny thing happened along they way.  The keys to the vault were hijacked from the decision makers and placed into the hands of auditors and regulators.  Many lenders cannot make loans due to the ever-changing capitalization requirements.  If you really want to get your banker excited, ask them what has happened to the premiums for deposit insurance from FDIC & NCUA.  With the new lending regulation and bookkeeping (ratios) requirement ball always on the move, my lenders became deposit acquisition specialists. The TARP (Trouble Asset Relief Program) program did not live up to it’s name and became a vehicle for the big banks to get bigger.  If you are not familiar with the PNC – National City merger that alone should give anyone reason to pause.  I know that lenders want to make loans; it’s how they derive their income.  Not every bank can go to the Fed window and play the daily swap game between Fed funds and Treasuries (Citi).  So we are left with an under capitalized banking system (in the regulators view) that has put a lid on lending.  Based on current economic trends, the housing market inventory (both real & shadow), the troubled alphabet soups mortgage operations and D.C. politics, I unfortunately do not see lenders running to us with bags of money for a long time.

3rd – Ourselves – While we have been in a steady ten plus year shipment decline we cannot excuse ourselves.  Our market has remained basically the same since I started all those years ago, newly wed and nearly dead.  While parts of the industry have tried to morph into “traditional housing” e.g. bigger is better, we still had rampant documentation fraud, blown up invoices, backbreaking advances, excessive loan terms, lot rents increasing into un-affordability and our own “trick” lending programs (ersatz  ARM’s & 30 year paper).  We are now being treated like the child we presented ourselves as to the world.  While everyone points the finger at everyone else as the culprit we all forgot the golden rule.  The guy with the gold makes the rules and they decided to go home.

Over my years in this business, I have observed several areas where the industry system consistently fails. In order for homes to hold their value, there needs to be a healthy system for resale of homes owned by homeowners, just as there is in site built housing. Unfortunately, no such system exists in manufactured housing. MLS does not support our re-sale market in most states.  We’ve talked about our own MLS for my whole career and while there have been some great attempts (for example mhvillage) we are still a second class citizens compared to the real estate market.  By not having a re-sale market program we only hurt ourselves as our current residents cannot sell their home and, as a consequence, get mad, depressed and finally jingle mail the keys to the lender or community and leave.

Industry lending philosophies contribute to that problem by charging higher interest rates on pre-owned homes. Even after all my years in the business, it still stuns me to this day that we charge interest rates based on the age of the home. This does not happen in site built housing, thus giving site built an advantage, and manufactured housing a disadvantage, when it comes to the performance of the collateral from a lender perspective and investment performance of the home to everyone else. It also depresses any attempts to create a healthy system for reselling existing homes.

Another problem is the method in which repossessed inventory is handled. While the lenders should have a better plan than most do, many parts of the industry conspire to keep them trapped in a guaranteed to fail program. Almost every independent retailer, and many community operators treat outside finance companies like victims to be slaughtered rather than as important partners at the table. When a home is repossessed, many hands, motivated by self-centered greed are demanding money from the lender. Retailers want full profit fees to move homes onto their sales centers where they sit unsold until the lender gives up and allows the retailer to “steal” the home so that the retailer can then sell the home and “hit a home run” on the lender’s loss. The retailer is both short sighted and greedy in this transaction, and the lender lacks the fortitude they should have to shut the retailer off from future financing.

While the environment is somewhat better on the community side, it varies greatly from community to community. When Ken Rishel was a community owner, he correctly viewed outside lenders as important stakeholders. As a consequence, he saw the value of shared risks and never charged lenders lot rent, maintenance fees nor commissions for selling their repos if his people couldn’t get a sale price higher than the deficiency balance on the loan. When he began to focus on outside lending, he persuaded other community owners to the same view. When I started Precision Financial with Diane years ago, we asked community owners to agree to much of the same terms and many agreed.

Unfortunately, those community owners are not in the majority. Most expect lenders who own homes in the community to pay tenant’s back lot rent, the rent going forward until the home is sold, a commission for selling the home, and, learning from retailers, the lender’s home often goes unsold, with the hope of “stealing it” so, they to, can hit a home run on profits when the home is sold.

Until everyone involved possesses either the moral integrity, or sees the business wisdom to treat all the stakeholders fairly, the system is broken. It may limp along as it has been doing, but the problems that hold manufactured housing back will remain.

Appraisals have also become a problem in part because of the lower prices of repossessed homes. We have loans we cannot do because they will not appraise either through comps or through NADA, or even our own proprietary system of appraisal. We are now reaping the field we sowed.  All the wholesale homes have lowered everyone’s collateral value.  Not only have home values been depressed, but also what is happening to the community value if all the home values are 30% to 50% less and occupancy is going south?

Industry Image

To go RV’ing or not to go?  There have been many ideas floated within the industry as to what is needed to change the public, regulator and banker’s perception.  This issue is above my pay grade.  However, Einstein defined insanity as “doing the same thing over and over but expecting different results.”  All I know is that we have let others define us.  It is time we define ourselves.

So now what?

I think there are 4 plausible solutions for everyone to ponder.

1. Everyone can subscribe to partnering with Clayton Homes.  Who wants to fight Mr. Buffet?  I have been an admirer of his for years and even own Berkshire Hathaway stock.

2. Captive Finance – while D.C. is not making it easy, it is a stable and reliable plan for those who have the expertise, or are willing to hire the expertise they need. That it creates new challenges is undisputed because, done correctly, it requires a whole new set of business skills that few community owners or retailer possess. Done incorrectly, it is a disaster waiting to happen. It is not a short-term solution, but rather a long-term one that almost demands affiliations with outside experts to succeed.

3. Current lenders – Be sure to take care of the ones left.  They have been with us through the darkest of times.  Take care of them today and they will be here tomorrow to take care of us.

4. Lastly, a new idea. While not a new idea, as it served its purpose in the past for another industry and may well serve a purpose for us.  I’m talking about a manufacturer based captive lending program.  While it carries risk, it also carries a stick.  If you’ve never been involved in an auto dealership that had a sizeable portfolio with GMAC, Ford or Chrysler you do not understand the size of the stick the manufacturer captive lender holds.  If you loaded them up with poor-bad paper and cause high losses, it could cost you your dealership franchise.  No one wants to risk that decision.  In the beginning, before the automobile captives became market share driven, they would only finance their own products and were the most profitable arm of the entire company.  Our company has been researching this concept for a number of years, and we are in a position to help make this happen if a group of manufacturers would actually sit down in the same room and band together to make it happen. To this point, there have been no takers. Their dislike and mistrust of each other seems to color their survival instinct.

In the end, from my point of view, lending is about the 4 C’s:

Capacity – Can they afford the purchase without strain? Will that income continue?
Character – Would their word and their handshake be enough to make the loan?
Collateral – Are the ATF & LTV viable for the terms and conditions of the loan
Credit – Have they proven they have the self-control to manage their money and do they feel responsible for paying their bills on time?

The federal government controls none of these traits.

If you have made it this far, thank you.  Will any of these ideas help?  I hope so.  If anything, at least a conversation may start. Years ago when people asked me what I thought, I told a few and they thought I’d lost my mind. When I investigated the current D.C. promulgations, people again thought I’d lost my mind.  After awhile you begin not to speak up.  I was hoping the whole time that I was wrong.  Oh, I wanted to be so, so, wrong.  To Marty Lavin, I want to wish you well and treasure all the things I learned from you. They painted you, Gubb Mix, Ken Rishel and I with the same brush; only they have been far harder on you than the rest of us.

I asked my dad one time to try and fix my golf swing.  His advice after watching me was that there are 1,000 things going on in my swing and where would I like to start.  Our industry has many things it can improve on.  We need to start.  We still have and always will have the best affordable housing option story to tell people. # #

By Pat Curran, President
Precision Capital Funding