WASHINGTON — The Federal Housing Finance Agency is facing criticism from bankers and credit unions over its planned pilot program to allow Fannie Mae and Freddie Mac to securitize manufactured housing loans.
Several industry groups are urging the agency to scrap or delay the program, arguing that the government-sponsored enterprises should have a better understanding of the so-called chattel loan market, where the loan is not titled as real estate, before entering it.
"The FHFA should not rush a process that requires an immense amount of attention to detail and patience, especially considering the limited data about chattel lending," Ann Kossachev, the regulatory affairs counsel for the National Association of Federally-Insured Credit Unions, wrote in a letter to the FHFA. "More time should be allotted to permit the GSEs to fully evaluate the chattel loan market before making a decision on whether to craft a pilot program and what the pilot program should look like."
Kossachev worries that lenders will rush into the manufactured housing market to mine the higher interest rate loans and ignore the fact that chattel loans generally have high delinquency rates.
"Delinquencies in the chattel loan market often occur later in the life of the loan, such that the manufactured home is worth much less than the outstanding unpaid loan balance," she wrote. "This type of circumstance creates a risky environment susceptible to a crash."
Similarly, the Independent Community Bankers of America doesn't want to see the GSEs purchasing or securitizing chattel loans, according to Ron Haynie, senior vice president for mortgage finance policy at the group.
"Chattel loans carry higher risk. We don't think it is a good idea for the GSEs to get into chattel loans, especially since they are undercapitalized," Haynie said.
But other industry groups, including the Mortgage Bankers Association, are backing the plan, arguing that it could expand credit availability.
"MBA believes that FHFA and the Enterprises can create a chattel loan pilot program in a safe and sound manner for both the Enterprises and consumers," wrote Stephen O'Connor, the MBA's senior vice president for public policy and industry relations.
The FHFA's manufactured home initiative could "improve chattel financing terms and conditions for very low-, low- and moderate income families" though the creation of a secondary market for a MH loans," O'Connor wrote. "Increased consumer protections paired with lender recourse, risk-sharing, and the availability of mortgage insurance will support a uniform structure for chattel financing and will allow both lenders and the Enterprises to more effectively manage and mitigate remaining chattel lending risks."
At issue are manufactured homes, which are a critical source of affordable housing for more than 22 million working families, according to the Manufactured Housing Institute. Close to 60% of new manufactured homes sell for less than $70,000. The median income for manufactured home owners is about $26,000 a year. In 2016 the industry produced nearly 80,000 manufactured homes, roughly 9% of new single-family home starts.
"The affordability of manufactured homes has long made these homes the preferred choice for many families, including first-time homebuyers, retirees and families in rural areas," Lesli Gooch, a senior vice president of government affairs with the institute, wrote in a March 10 letter.
The Conference for Economic Development has also been advocating for Fannie and Freddie to support a secondary market for manufactured housing loans for some time.
"The majority of banks and nonbank lenders do not participate in manufactured home lending," wrote Doug Ryan, the group's director of affordable homeownership. He said it was "disappointing" that community banks and credit unions had played only a limited role in the market.
More than 2,700 lenders originated at least one manufactured home chattel loan in 2015, according to Home Mortgage Disclosure Act data, but many of those lenders originated just one.
"A usable chattel product from the GSEs could help address this in part, as many lenders will not keep loans in portfolio," Ryan wrote.
The Conference for Economic Development has identified four lenders that provide an estimated 52% of the market share of chattel lending on manufactured homes in this country: Triad Financial Services ($1 billion of assets), San Antonio Federal Credit Union ($1 billion) and two affiliates of Berkshire Hathaway — 21st Mortgage Corp. and Vanderbilt Mortgage and Finance ($34.5 billion combined).
For the Manufactured Housing Institute, much is riding on the success of the pilot program.
"The pilot program should be designed to incorporate a representative sample of the market by including a cross section of loans varied by new home purchases, refinances, preowned home resales, seasoned loans held on portfolio, and loans varied by geography and socioeconomic diversity," Gooch said. "While the program will be evaluated over time, the goal is to structure the chattel pilot program so the enterprises have a strong comfort level that the proper protections are in place and the program is sustainable. In later phases, once performance of the loans in the pilot phase demonstrates that chattel loans can be safe and profitable, such purchases should be expanded significantly."