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CFPB Report on Manufactured Housing Signals Areas of Future Concern

October 6th, 2014 No comments

On Tuesday, the Consumer Financial Protection Bureau (“CFPB”) released a white paper summarizing their research on the manufactured housing industry. The Bureau relied upon information compiled by various surveys, data available pursuant to the Home Mortgage Disclosure Act (“HMDA”), and voluntary submissions of information by institutions in the manufactured housing industry. Although the CFPB acknowledges that they are still seeking additional information on the industry, the report, among other things, provides a detailed description of the manufactured housing market, the demographics of consumers who reside in manufactured homes, and the impact of the current regulatory climate on the industry.

The CFPB also developed seven “key findings” from this research, many of which likely will come as no surprise to those actively involved in the manufactured housing industry. For example, the Bureau explains that manufactured homes are more likely to be located in non-metropolitan areas than site-built homes, and that manufactured homes typically cost less than site-built homes. These types of findings lead the Bureau to conclude that the industry is “an important source of affordable housing, in particular for rural and low-income consumers.” On the other hand, however, they believe that “these same groups include consumers that may be considered more financially vulnerable and, thus, may particularly stand to benefit from strong consumer protections.”

With respect to the specific protections that may be necessary, the CFPB declines to make any conclusions and, in fact, leaves certain questions open for further research. For example, the white paper describes how consumers in the manufactured housing industry can either utilize real-property financing or chattel financing, and explains some of the short-term and long-term trade-offs that exist between the two options. However, it appears that the Bureau is concerned with, and wants more information on, “[t]he extent to which consumers are aware of these trade-offs and how consumers weigh them.” This information indicates that the CFPB will pay particular attention to whether or not borrowers are adequately informed about the trade-offs associated with pursuing chattel financing instead of real-property financing.

The report does acknowledge that some of the title XIV Dodd-Frank Act amendments, including those made to the Home Ownership and Equity Protection Act (“HOEPA”) and the Truth in Lending Act (“TILA”), expand protections for consumers in the manufactured housing market. They also briefly describe the actual and theoretical impacts of these laws and the underlying regulations. For example, they admit the possibility that additional disclosure requirements and other burdens could increase the cost of extending credit to consumers seeking financing for a manufactured home. Prior to the rules being finalized, the CFPB received comments expressing concern that the proposed HOEPA high-cost thresholds would disproportionately impact small-balance loans that are often used to purchase manufactured housing. Many in the industry believe that these standards, which have been in effect since January 2014, are in fact reducing the availability of credit in the manufactured housing market because these loans are now classified as high-cost.

Similarly, the new Loan Originator Compensation (“LO Comp”) rules in TILA may also be increasing the consumer’s cost of obtaining credit for a manufactured home. Unlike realtors, manufactured housing retailers are not exempt from the LO Comp rules. In order to avoid being considered a loan originator, and to avoid having to go through an expensive licensing process, manufactured housing retailers are often not referring potential borrowers to specific creditors that they know are willing to extend financing for a manufactured home. This has resulted in consumers being left unaware of which creditors are willing to extend credit and the requirements each creditor has for approving a loan. Consumers, therefore, are submitting more applications and, because of the lack of important information, are more frequently being needlessly denied.

Despite acknowledging that the manufactured housing industry still has concerns about the impact of the CFPB’s new rules, the Bureau declines to accept that the rules have adversely impacted the market. Instead, they “will continue to monitor the effect of [their] rules on the manufactured housing industry and on consumers who purchase or seek to purchase manufactured homes.” In the meantime, the Preserving Access to Manufactured Housing Act, which would address at least some of these concerns, remains in Congress.

If nothing else, this white paper should serve as a warning that the CFPB has taken an interest in the manufactured housing industry. The Bureau is continuing to monitor the impacts of the new mortgage rules on the manufactured housing market, which could signal that the Bureau may be open to making adjustments to the rules that would reduce burdens on creditors and lower the cost of credit for consumers. However, they have also tipped their hand to at least one area of ongoing concern. Creditors originating chattel mortgages should pay particular attention to the amount, and types, of information that is being provided to borrowers and should ensure that they are fully informed of their financing options and the costs and benefits associated with each.

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Republished with permission. This article first appeared in Financial Services Litigation & Regulatory Compliance Alert, a publication of Bradley Arant Boult Cummings LLP.

About the Authors:

Jonathan_R_Kolodziej-jd-bradley-arant-boult-cummings-llp-posted-industry-in-focus-mhpronews-com-75x75-Jonathan R. Kolodziej, JD, is an associate in the Birmingham office where he is a member of the firm’s Financial Services Litigation and Compliance Team. His regulatory compliance practice involves assisting some of the nation’s largest financial institutions and mortgage companies as they implement, and demonstrate compliance with, various obligations imposed on them by the Consumer Financial Protection Bureau (CFPB) and state banking regulators.

bill-matchneer-jd-formerly-hud-cfpb-now=bradley-arant-boult-cummings-llp-posted-industry-in-focus-mhpronews-com-75x75-

William “Bill” W. Matchneer, JD, recently joined the Washington DC office as senior counsel. He retired from the CFPB in February, where he had been one of the team leads for the regulations implementing the Dodd-Frank mortgage requirements. He previously spent ten years at HUD as manager of the Office of Regulatory Affairs and Manufactured Housing and Senior Counsel for Regulatory Enforcement.

 

Related Links:

1) – MHI's Response to CFPB's Report  (Editor's Note, the MHI link includes the full CFPB report as a free download)

2) – MHARR's Response to RV legislation and CFPB's Report on Manufactured Housing

3) – CFED's Doug Ryan sounds off on Consumer Financial Protection Bureau (CFPB) Report on Manufactured Housing and MH Financing

4) – Manufactured Housing Institute Responds to Doug Ryan-CFED commentary on CFPB report on Manufactured Housing Finance

(Editor's Note:  The views expressed by Messrs. Kolodziej and Matchneer are their own and/or those of the organization they work for, and should not be construed to be the views of MHProNews or our sponsors. Other viewpoints on this or other industry topics are encouraged.

MHProNews plans an Industry in Focus Report using extensive comments from a range of industry professionals on this topic. Watch for it mid-week at the news/reports module link above.)

SAFE Act – The Final Rule – and what it means to the manufactured housing industry

July 6th, 2011 No comments

The SAFE Act’s final rule has been released by HUD just as predicted – before July 1st. So for those engaged in captive finance who have put off dealing with the problem, it is now time to get busy.  Because the time before enforcement is shorter than might be expected in some quarters.  Predictably, there is some confusion already and the lengthy document is not even cold. This article should clarify for those who need to know and understand what the final rule means to them.

We have had a team of experts and attorneys going over the document so we can provide authoritative answers that those engaged in captive finance can count on for guidance.  A decision was made to put this article in the form of questions and answers for clarity. But the questions are not necessarily actual questions from readers.

First – The Feds verses the States – Who is in Charge?

The final rule clearly reiterates what was stated in Savanna, Georgia at a meeting when questioned by me some time back.  This sets the minimum standards for compliance with the model legislation but lacks both the power and will to restrain the states from setting higher standards.  States can set additional standards, but they cannot usurp the minimum standards.

Are retail sales people now exempt from licensing in relation to the SAFE Act?

If they follow the rules they are, but, if they fail to follow the rules, they are not.

The final rule is somewhat more liberal than anticipated, which is a huge relief for the entire industry.  But there are still rules.  A salesperson may take, and assist in the filling out, of an application for transmittal to someone else at another legal entity who actually offers to negotiate loan terms, as far as the federal government is concerned.  States are free to disagree, and to place more restrictive rules in place.  Another key feature is the salesperson may not negotiate terms or be compensated by those who do.   However, the mere sharing of general information about a financing source, discussing hypothetical financing options, i.e., options not related to a specific financing source, giving the homebuyer a list of available financing sources without recommending any of the sources, discussing a buyer’s ability to afford a home, presenting or discussing generic facts or generic rate sheets, and/or closing personal property transactions would not be covered under “offers or negotiates”.  While sales commissions on the sale of the home itself are not considered compensation or gain for purposes of the SAFE Act, if the commission is paid out by the same entity that does offer and negotiate to make a loan, those sales commissions may be subject to scrutiny as compensation or gain, and those entities engaged in any form of owner financing are urged to contain their lending in a separate legal entity, including those engaged in rent to own, lease purchase, and lease option transactions.

Is Chattel Lending for Manufactured Homes, RVs, and Boats Exempt from the SAFE Act?

No.

Is Seller Financing Exempt from the SAFE Act?

Only if it is your own residence, or vacation home.

May a Person or Entity that made a loan prior to the SAFE Act modify that loan for the benefit of the borrower without being licensed under the SAFE Act?

HUD chose to defer judgment to the Consumer Financial Protection Bureau on that issue.  It should be noted that many states do require such and other licensure if the modification is permanent. Since this is an additional requirement, neither HUD nor the Consumer Financial Protection Bureau will act to ameliorate any such state requirements.

May we utilize our attorneys to originate our seller finance loans so we do not need to license?

An attorney may not act as a “straw man” for the actual lender unless the highest laws of that state specifically define those duties as part of the practice of law in that state.  Attorneys are allowed to prepare documents and provide legal advice, as well as assist in a transaction without licensure, but they may not act as originator or lender with SAFE Act licensure.  Many states will have additional requirements for lenders, attorney or not.

May we utilize a licensed loan originator to avoid our need to be licensed when seller financing?

From the federal government perspective of the SAFE Act, the answer is yes.  With that said however, there are serious complications that the final rule chose to ignore.  In all but a very few states, the practice of lending requires state licensure, so while an individual or entity engaged in providing some form of financing for the manufactured homes they sell may be able to avoid SAFE Act licensure, they must obtain state licensure as a lender.  Many states will require SAFE Act licensure as part of the process to obtain or maintain the other required licenses.  Because some states require the originator to also service the loan in total, the process becomes even more complicated.  Some states have already adapted the stance that SAFE Act licensure is necessary to modify even loans that predated the SAFE Act.  If you are interested in pursuing this strategy, make sure you have sought out competent advice on the requirements for the state or states in which you plan to operate.  There are other programs that do meet all the requirements necessary to avoid licensure of both SAFE Act and state lending licenses available in the manufactured housing industry if avoiding licensure of any kind is your goal that avoid the pitfalls of using an MLO only firm.

Is there now reciprocity between states to avoid all the duplication for multi state operations?

It is the federal government’s statement that it does not wish to encourage a “race to the bottom,” and thus is not encouraging such reciprocity, but cannot stand in the way of the states if they choose to participate in some form of reciprocity.

This synopsis of the Final Rule was created with the assistance of two nationally known law firms under retainer to Rishel Consulting Group.  It is not offered as a legal opinion to anyone reading this material, and their liabilities are limited to their retained client, Rishel Consulting Group.  Additional detailed information on the Final Rule is available in the July issue of Captive Finance News. # #

Ken Rishel, Rishel Consulting Group, ken@rishel.net

HUD’s William Matchneer Speaks at MHI’s Winter Meeting

February 4th, 2010 No comments

William Matchneer, HUD’s Associate Deputy Assistant Secretary for Regulatory Affairs and Manufactured Housing addressed over 100 members at MHI’s Winter Meeting on February 2 in Savannah, Georgia. Matchneer outlined the Department’s priorities for the manufactured housing program in 2010 as follows:

  • The long awaited proposed rule on the new Title I loan insurance will be published within the next few weeks.
  • A Manufactured Housing Lenders Summit hosted by FHA Commissioner David Stevens and Congressman Joe Donnelly (D-IN) will be held to find solutions to the financing issues affecting this industry.
  • Action will be taken to protect preemption of the HUD code by publishing a proposed rule on the changes recommended by the Manufactured Housing Consensus Committee (MHCC) and it would be in the industry’s best interest for this to be on a three year cycle of code changes consistent with other nationally recognized building codes.
  • Changes to the MHCC by-laws and rules as prescribed by the Federal Advisory Committee Act were finalized to improve the MHCC process.
  • Efforts will continue in working with manufacturers to provide technical assistance to update manufacturing plant quality assurance manuals. He emphasized that HUD is not viewing these actions as an enforcement issue, but rather an opportunity for HUD to serve as a resource to assist manufacturers in putting updated quality assurance procedures in place.
  • A proposed rule to Manufacturer Inspection and Certification Requirements and Primary Inspection Agency responsibilities (24 CFR Part 3282 Subparts E and H) will be published by this Summer.
  • Serious and thoughtful review of all comments submitted to HUD in response to its proposed rulemaking on the SAFE Act will be made. Matchneer encouraged everyone to submit comments to the proposed rule by February 16.
  • The non-career administrator position will not be filled in the next few months due to budget constraints. He assured members that we have an excellent industry advocate in FHA Commissioner David Stevens who is a highly regarded official. Matchneer is the industry’s point person at HUD. He knows how critical these issues are to the industry and is there to help. He encouraged members to continue to work through the MHI staff with which he has a great working relationship.

Other topics discussed at the Winter Meeting were weather radios, Energy Star Tax Credit extender legislation, pre-1976 replacement home legislation, FEMA emergency housing and financing issues. The two-day meeting concluded with a meeting of the MHI Board of Directors. Resolutions were passed on the SAFE Act and federal preemption. MHI will be working hard during the upcoming months on these critical regulatory and legislative issues.

MHI is the 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. For more information on MHI, visit www.manufacturedhousing.org.