Real Change for Manufactured Housing Results

by Michael F.B. Barnabas

For decades, I've watched the ups and downs of this industry from within. Let me outline solutions and the road to long term prosperity.

1. Everything should revolve around the final end user, the home owner or resident of a manufactured home.

2. All the parties involved – manufacturing, retail, community, developer, transport, installation, finance and insurance – must keep that end user, our Industry's Customer, at the top of our minds.

3. The convenience and satisfaction of the customer is the key to long-term industry health.

A satisfied customer becomes our best advocate. A satisfied customer brings referrals and that naturally results in more customers coming to our industry. A satisfied customer helps us with public officials, during elections, when comments on regulations arise.

Up to this point, only the foolish would disagree. As obvious as this is, we are not providing the customer, our residents and home owners, with the best possible experience, are we?

If we were, then:

• land lease communities would be full
• retail centers would be opening, not closing
• factories would be humming with orders, and new manufacturing operations would be coming on line
• repossessions would be reduced, because walk-away defaults would decline
• lending could be more profitable and stable
• and the entire industry's future would be more secure and bright.

Let's be candid. We don't make it easy for people to buy our homes. To finance our homes. To resell our homes. We don't give enough peace of mind to land lease community residents in too many instances, and the land lease community is a very significant part of the industry today.

We can argue that the GSEs have the duty to serve. We can plead that FHA should make it easier to make loans; less capital should be needed for lenders to enter into the market. We can say the HUD Code preempts, or a whole raft of issues. But if there were enough public demand for our homes, local jurisdictions would want to let us site more manufactured homes. Happy homeowners and residents are the key to our future.

Sufficient customer satisfaction would cure our ills. What we need to do is create more satisfied customers. We need to reach out to more of our past customers and residents, and see how we can convert more of them into satisfied customers.

How do we do that?

Here are some thoughts.

Simplification

• The industry is far too complex and far too political.

If the industry is complex to us as "insiders," what must it be for potential customers, who might consider our product?

We need a system that makes it easy to buy, own, enjoy and when the time comes, easy to resell.

Specific strategies and steps

Factories need to provide customers a one-warranty-call-does-it-all solution for customers.

That means, factories need to be involved in installation, to make sure the home is set on a proper foundation that meets all relevant codes. No more, who is responsible? The factory assumes the responsibility for customer satisfaction.

Since there is no free lunch, that means the pricing for factory-based service must be included in the home. While some will balk at this idea, the reality is that the factory can contract the work out just the same as retailers or communities so often do. Let the factory assume liability, let the arm wrestling over who did what wrong (factory, installer, foundation provider, etc.) take place behind the scenes outside of the customer's eyesight. So this doesn't have to cost a lot more, since most factories already have a service coordinator(s). Simplification for the customer is the answer.

This means factories should become selective regarding who they work with. GM, Ford and Chrysler have standards for retailers. In the new car automotive world, there are minimum financial requirements, as well as proof of sufficient understanding of the business to allow that person to become an authorized retailer. The same is true for many franchise business operations. The same should be true for manufactured housing.

Standards for new home retailers, developers and land lease communities would go a long way towards solving the image issues we now face.

There would still be room for used home "dealers" in this paradigm.

Manufacturing should also take responsibility for offering training and marketing support to their retailers. When you get a franchise for almost any product or service, support comes along with that investment.

This support goes beyond the sign, or website. It must continue on to training manuals, codes of conduct and best practices. The Taco Bell franchisee doesn't have to figure out how to market their restaurant; the Corporate office does that work for them. While local new car auto dealers may do some of their own advertising, they also have the benefit of national or regionalized factory created marketing campaigns.

Industry Newcomer Training

It is often the new people in our industry, if they survive long enough to figure it all out, that are the most creative and can rapidly become successful. We could improve the health of our industry by providing a certified program that orients would-be investors. This is different than those boot camps that take someone's money, and 48 hours later, claim the person is trained enough to be successful. That is unrealistic. Orientation and training are huge issues for our industry; we don't have the practical equivalent to Realtors and their standards. That isn't to say that Realtors and their system are perfect either, but professionally, they are generally better.

Financing

Short term, it is clear that the industry has to go it alone without federal help in financing. Land lease communities have in the last decade pioneered chattel or rent-to-own solutions to the tune of perhaps 5 billion dollars. This has kept occupancy stable for many, although frankly, I think most communities that have such in house programs should be full if they had the right marketing and sales methods in place. But the point is that entrepreneurs must be willing to privately source their money, be it a local bank, credit union or other investor sources. I am not saying we abandon the hope of getting federally insured or secured loans. I am saying that we can't wait for that to happen; we need a three track approach:

1. Use current industry lenders.

2. Develop private financing alternatives.

3. Keep up the lobbying effort for the GSEs (or what follows them) and FHA, and use residents and current customers as a key part of the lobbying effort.

The financing issue doesn't stop here. That is only the start. If we want long- term health, we have to make financing profitable for lenders, competitive for customers and that requires change from current practices.

First, it must be said that many in our industry, sales people, office staff or community managers for example, have very little clue as to why our industry has higher interest rates than conventional housing on chattel loans. This points to an educational issue within those companies and the industry at large.

Let's recap some points, and then point to forward-looking solutions.

• Loans on our manufactured homes are smaller than conventional housing
• The costs of originating and servicing those loans are the same, or higher than conventional housing
• Repossession rates are often higher than conventional lending.

All of these are factors that need to be understood, in order for the issues to be successfully addressed. I should add that these are not the only reasons for the cost differential, just some of the bigger ones, and the same disclaimer could be added to almost every piece of this article. This is introductory material, more details could be added.

So what are some of the financing paradigm shifts needed?

• Lenders themselves add to their own woes by creating a multi-tiered pricing structure for manufactured home loans.

Since when do you pay x percentage interest rate for a new site built house, but a different financing interest rate for one 5 years old or 15 years old?

This feeds off concerns over depreciation. This outdated practice also exacerbates the lenders and buyers problem.

The use of book values tends to reduce home values, as books are often improperly used, even if the data happens to be accurate.

The real challenge for lenders is the same as for customers. That challenge is the exit strategy. What do you do when you want to sell? How do you handle the repossession?

What is clear is that even large lenders, the most successful, such as Vanderbilt and 21^st, don't have a good handle on the repossession issue. If they wholesale homes 65% of the time as they reportedly do, that is both lazy and short sighted. Clearly companies or individuals who buy those repos know how to resell them at a profit. It would be more effective to team up with repossession remarketing experts than it would be to wholesale the homes. That could cut costs, improve recovery and help make lending more competitive.

Customer satisfaction is also an issue in the repossession milieu. Simply put, make customers happier, help them to afford their homes, and you have fewer repossessions. Give customers an exit strategy that works well, and you have fewer repossessions.

The answer to remarketing is the shocker. Realtors. Before you balk, listen to what needs to be done. Just as there is a nationwide network of Realtors, so too, there must be a national network of manufactured housing remarketers and resellers. This could be done via some consortium concept; it could be accomplished by one well-funded operation opening in key markets and then spreading outward. This goes beyond a multi-list, as valuable as that may be. It must be a hands-on people process. Short term, it is possible to do this with Realtors, if the Realtors have savvy industry professionals working with them.

Realtors don't understand our homes or business, they don't make much on a manufactured home listing, the financing isn't easy to get done, and thus they have little interest or motivation.

But if the rate of turn on a manufactured home was accelerated, if the financing was simplified, if the process of selling the home was easy, Realtors would be interested. That would save lenders on repossession costs. That would make the retail customer's exit strategy easier.

A significant side benefit from this would be that Realtors are often among those groups who oppose us. Teaming up with Realtors would, over time, help our image issues. Teaming up with Realtors would help us at the capital, be it county, state or national.

Customers and everyone else in the industry would benefit by having a secondary market resale mechanism.

While this can't be done overnight, by working with realtors in select markets, a pilot program could be established that could rapidly be duplicated once the success of the model is proven.

Frankly, I think that MHI and other industry players would be wise to fund this type of effort. This will yield more benefits to the industry as a whole than a lobbying effort would. It could become self-funding, which lobbying certainly won't be.

In fact, I will go back to the top of this article's theme regarding lobbying. We are quite possibly wasting our money on lobbying until we get the rest of the food chain right. We need happy customers, we need to set up a process that yields them, and then we will have the best type of lobbyist available. Masses of consumers who would be eager to help, because it is in their best interest to do so.

This brings me to retailers and communities. These are unique, but potentially complementary industry groups.

Good retailers know the importance of customer satisfaction. They work for it throughout the sales process, and once the prospect becomes a customer, the wise retailer makes sure that they don't over promise, don't under deliver and that the end result is a happy home owner.

Communities are often in the retail business today. They will be living with their home buyer, so they, too, have a motivation to get and keep them happy.

Frankly, manufactured home communities are both the healthiest part of the industry and also the segment that has perhaps some of the larger challenges. Many of our image issues result from old, please pardon the phrase, mobile home parks that are what people identify our industry with. Older, rusting metal-on-metal homes. Is that the image we want? Well, far too often, it is the one we currently have. The media doesn't help us with this, but that is a topic for another article.

Another issue for communities is that the public at large and thus public officials don't understand the benefits of land leasing. The benefits to land leasing aren't properly explained. To put it differently, communities aren't properly marketed. With existing residents, the ongoing benefits of the land lease aren't properly reinforced.

So it is no wonder that many companies are afraid to ask their residents for help, because they won't want to awaken the sleeping giant of residents who may not side with management. But the solution is to engage those residents in a process that wins them over, not hide and run from them. Routine reinforcement of the benefits of land lease is the key.

There are land lease operations where residents have homes that appreciate in value. This isn't an accident; it is a result of prudent management.

Some of the factors that yield appreciation for land lease locations include:

• Communities that are land lease (site rental fee) sensitive. They don't over charge.
• Communities, older or newer, that are well operated. Streets are clean, maintenance is done, lawns are mowed, debris and violations are not accepted.
• Management doesn't come off like the Gestapo, they approach residents with respect, explaining the reasons for the rules, and showing them that those rules protect them and their home's resale value.
• Community operators who are forward looking enough to make updating the homes in older locations a workable process for residents. This keeps communities improving instead of declining.

The flip side of the last point makes the case. Those communities who don't mind filling a site with an older home are hurting themselves long term. Those who are busy buying used inventory are short sighted. Part of the advantage, in theory at least, to a good land lease operation is the ability to routinely update the look and quality of the neighborhood. Site builders can't easily duplicate that neighborhood updating process, but land lease community owners can do so. It is an inherent advantage for manufactured housing community owners to encourage routine improvements in the housing stock of their locations. Everyone, residents to owners, win when that happens. Communities with newer homes are often worth more when they come on the market.

Communities who do these steps get and stay full. When they are full, the only way into the location is to buy an existing home. Because the community has appeal, there is enhanced demand for existing homes. All of this leads to appreciation.

No one can create a comprehensive solution for all the industry's ills in under 8 pages. So this isn't a comprehensive solution, either. What this represents is a starting point. Hopefully, some people will set their personal agendas and habits aside long enough to consider these ideas and work towards implementing them. Hopefully those with ideas or proven experiences of their own will submit them or post them as comments online.

I often hear calls for marketing campaigns for our industry. The facts are that we are not ready for a national campaign, even if someone put up the money to do so. I often smile to myself when I read how this or that group can't raise the money to do a national marketing campaign, when there are individuals in this industry who could personally fund a marketing campaign if they wanted to do so.

What makes far more sense than a national effort is to do demonstration or pilot projects of these ideas in select local markets. Factories have already done turn-key services for certain community operators or developers. So that part of this plan isn't new. Manufacturers, lenders, retailers, communities and others could collaborate for their own benefit locally to accomplish elements of this plan. Their reasons to do so are compelling, those reasons being survival and profitability.

It should be noted that none of this is new thinking. Ideas like these have been done in other industries, and it needs to be done in ours. There are also professionals in our industry doing elements of this right now, today. They simply aren't bragging about it. If they were forward looking, they would realize that when the industry is in crisis, their own future depends on the general success of the industry at large.

I sometimes smile at the finger pointing that can go on in this industry. It is useless, a waste of time.

Don't worry about who did what wrong when. Let's get over it, and work on solutions. Don't worry about protecting a job, or some pet belief that is nothing more than a habit that needs to change. If the doctor tells you to change your diet, take a pill or do some other healthy regimen, you do it or suffer the consequences. The same is true for us as business people and industry professionals. We change or we die off like a dinosaur.

Let me close with the first point again. The bottom line is and always will be the consumer. Once we take care of the consumer, once we refashion an experience that is consumer oriented, the rest of the industry's issues will take care of themselves.

There is reason for encouragement when we see some community operations that are now working for enhanced resident satisfaction. A big part of our future will be determined by how we handle past and new customers. The real campaign is for the hearts and minds of the 19 million people who currently live in one of our homes.

By winning over customers, past and present, we are building our own future success. We could summarize the whole thing with this phrase: do unto others as you would have others do unto you. ##

Michael F.B. Barnabas is a pen name. The inspiration came from columnist M.H. Ronin in George Allen's newsletter. Posted comments, for or against, are welcome. Suggestions on future articles can be sent to my email, This e-mail address is being protected from spambots. You need JavaScript enabled to view it ; more will come via future columns.