The Manufactured Housing Industry Needs to...

by Edward 'Eddie' Hicks

The Manufactured Housing Industry needs to…
• improve the image of our homes and communities with the general public to overcome many years of belief that our homes depreciate, are cheaply built, are prone to failure in high winds and earthquakes, that our community residents are sub-standard citizens, and that our communities hurt neighbors home values.

The Manufactured Housing Industry needs to…
• adapt our factory built homes with innovative new designs and concepts,
• offer more realistic home financing options,
• and build new communities to appeal to a broader base of home buyers: primarily those with financial resources that are substantially better than those we are currently serving, yet still lower than those required for the purchase of a single family detached home or attached apartment unit.

The Manufactured Housing Industry needs to…
• attract new investors to land lease community developments that provide a competitive return on investment, at minimum risk of capital and/or credit ,which communities are viable in a broad range of markets with fair-to-good area employment and demographic characteristics.

If this sounds a little like the well-known secret of the equity markets: buy low and sell high, it's not. We have all of the above-listed survival tools currently at our fingertips. We just haven't learned how to put them all together. Cooks know it's not just the ingredients, but how they are all put together that makes the recipe work.

Substantial improvements to the FHA 207m loan guarantee program with its 40-year, combined construction and permanent non-recourse loan programs for LLCommunities. It has the potential to provide for community owners to improve their properties to increase the number of vacant homesites that are being leased.

For more information on the program details, go to: www.fha207m.com/.

Right now (June 2011) we are getting some minimal support from MHI with the HUD staff on potential improvement to this much maligned, but little-known loan guarantee program. If they listen to us, and have a real interest in supporting out industry, we should see some positive changes soon which will greatly help with property re-financing and rehabilitation.

A brief list of current FHA207m program issues that are being considered by the HUD headquarters staff for implementation are as follows:

1. The manufactured housing industry is being required to process the applications using MAP (Multifamily Accelerated Processing) procedures. This means the lender (Mortgagee) does the underwriting using procedures which were designed for apartments, hospitals, nursing homes, etc. The program manual specifies TAP (Traditional Application Processing) in which the HUD staff does the underwriting.

2. The MAP program doesn't take into account the fact that homes must be sold and financed to establish a viable market condition. So the required market studies don't always reflect that critical information.

3. MH LLCommunities must sell a home or lease to own or rent for a site to be leased. Therefore the available home financing programs are important to the potential success or failure of a proposed project.

4. The FHA Title I financing program was just revised in 2008 as a part of HERA, and was just implemented by FHA in July 2010, and GNMA removed their moratorium in August of 2010. The various HUD staffs don't seem to know anything about the program revisions, or how they will positively affect FHA207m loan applications.

5. The manual hasn't been modified since June 1976, and as such prohibits seniors only communities unless the residents are age 65+. They have not recognized newer laws that provide for 80% of the homes to be occupied by at least one resident which is 55+.

6. The FHA207m underwriting doesn't require any specific percentage of a project for improvement under the substantial rehabilitation financing aspect of the program. But since some of the other FHA programs require a minimum of 15%, the staff has insisted the FHA207m program also comply.

7. There are many markets in which single family homes and apartments may have relatively high vacancies, but manufactured home communities may be doing much better. HUD staff seems to pin their approvals on the overall housing market conditions, and doesn't seem to be interested in the successes of existing m/h LLCommunities, which are a completely different type of housing and doesn't necessarily mirror other housing types in a given market area.

8. Filling a manufactured home LLCommunity takes considerably more time than apartments, because of the need to sell a home and have it installed. Some staffs have only allowed underwriting based on an absorption period of a few months, which is typical for apartments. Manufactured Home LLCommunities necessarily need more time because of the need for a sale, construction of the home at the factory, and subsequent transport and installation on the homesite.

9. In many market areas, there are virtually no more home retailers (so-called street dealers), and the only way a Sponsor/Community Owner can get homes sold and installed in their communities is to also be the home retailer. There are restrictions in the existing regulations, which allow a retailer to have only two model homes on display and allow any area retailer to install homes, whether or not they meet the community home physical standards.

10. Community centers attract residents and are very popular, but are difficult to include in the first phase of a multi-phase development, because the capital costs are being amortized over too few a number of homesites. Thus many community developers eliminate them, making the communities less desirable.

11. Some lenders have proposed providing long term, real property type financing for the installed HUD code homes, but for their protection, need to encumber the real property with a "notice of contract" to protect their investment. HUD's financing agreement specifically prohibits any property liens other than the HUD insured first mortgage. Providing long term, low interest financing should be a goal of the industry. FNMA tried a pilot program about 12 years ago, but it failed because of the FHA financing agreement limitations.

12. While the processing times are limited by the regulations after the "invitation to submit" is received by a Sponsor as the result of the pre-application meeting, the staff can take their time in getting to the invitation, after the meeting has been held and the requested third party reports viewed. This makes the application process agonizingly slow.

13. At least one of the HUD offices I have spoken with has openly said, "We don't want to do any trailer park loans. We are busy with other more meaningful projects in our area. You can submit a request for a pre-application meeting, and we will have to meet with you, but I am going to tell you right now no matter what you present, we aren't going to approve your project." Raw, unadorned prejudice!

A few years ago, WMF Huntoon Paige (Prudential) staff and I met with the HUD staff and a MHI representative in Washington to discuss some of these issues, and we got nowhere. Not even a kiss-off letter as I recall.

No doubt if some changes were made to the program, it could immediately be used for the refinancing and rehabilitation of existing communities to provide for badly needed improvements. And, eventually as the overall market improves, there would be some more attention to new developments, which are sorely needed in some market areas.

There may be an upcoming seminar series similar to the one that was held in Louisville a few months ago, based on continuing interest. If you are interested, please let me know and I will come up with a list of proposed cities.

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Edward 'Eddie' Hicks is a licensed RE Broker and Mortgage Broker in the Tampa, FL area. He has over 45 years experience as a manufactured housing retailer, manufacturer and developer. In recent years, he has assisted investors in acquiring or developing investment grade manufactured housing land lease communities. He is a specialist in the FHA 207m loan program for private lender financing of qualifying communities with HUD loan guarantees. Contact him at (813) 661-5901, www.mobilehomepark.com, www.factorybuilthome.com or This e-mail address is being protected from spambots. You need JavaScript enabled to view it . For more information about the loans addressed in this article: www.fha207m.com.