Chattel manufactured homes found to refi far less often than mortgages

It’s unlikely many chattel manufactured-home owners were able to take advantage of the market’s record low rates last year, according to a recent study by the Consumer Financial Protection Bureau.

Borrowers with loans secured by personal rather than real property made up 46% of manufactured housing borrowers in 2019 and of this group, only 5% used the loans to refi. The CFPB has not yet analyzed Home Mortgage Disclosure Act data on an aggregate basis yet for 2020. However, individual lender reports from the past year suggest that the percentage is similar. Rate-and-term refinancing constituted almost 4% of chattel manufactured home lending and the cash-out refi share approached 1% last year, according to ComplianceTech’s analysis of the HMDA data. In manufactured housing overall, roughly 21% got a rate-and-term refinance and 6% got a cashout loan last year.

Small loan amounts tied to the particularly low price point of some manufactured homes likely account for some of the discrepancy, but in general, the data confirms anecdotal evidence that chattel financing for manufactured homes is less favorable than mortgages with real property securing them. Price points for chattel manufactured homes can be in the five-figure range, as opposed to the low six-digits for larger or higher-end houses in this market that are secured by land.

“Compared to mortgages, chattel loans have higher interest rates, shorter loan terms, lower loan amounts, fewer [consumer] protections and are rarely refinanced,” CFPB researchers wrote in the report, which analyzed new data points added to HMDA reports in recent years. Rates for chattel loans can be closer to 8% while real estate-secured rates tend to be roughly half as high.

The Manufactured Housing Institute took issue with the report’s focus on financing conditions, and suggested they needed to be viewed in the broader context of the sector’s low prices.“The report compares the financing of manufactured homes to site-built homes without acknowledging the offsetting affordability advantages,” the Manufactured Housing Institute said in an emailed statement on Tuesday.

The findings in the CFPB’s report are significant to mortgage lenders because some have been looking more closely at manufactured homes recently as a means of addressing housing shortages that are particularly intense at lower price points.

“Manufactured housing is becoming an increasingly viable option for middle-income families, due to the lack of affordable housing inventory,” writes Laura Brandao, president of mortgage lender American Financial Resources, in an email. “On any given day more than half of our pipeline is loans being processed for manufactured homes.” (Manufactured housing has been a specialty of AFR’s so its volume is particularly high.)

Mortgage-related government-sponsored enterprises Fannie Mae and Freddie Mac had at one point in the past started to test chattel lending as part of a directive to do more to address the needs of underserved markets, but ultimately put their efforts on hold.

Manufactured housing in general helps address the lending disparities some groups experience more than others, but chattel lending may do more to help some demographics with a preponderance of low-income individuals. Overall, whites, Hispanics, American Indian and Alaska Native borrowers are overrepresented in the manufactured housing market as a whole, and Black and Asian Americans consumers are under-represented compared to traditional site-built homes, according to the CFPB’s report. However, Black homeowners are over-represented in the chattel-financed market at nearly 10%, compared to almost 4% for manufactured home mortgages and 7% site-built originations, the CFPB’s report shows.

The mortgage market generally prefers to encourage manufactured home lending on real property rather than chattel due to the difference in collateral. While chattel loan terms are shorter than mortgages, they still are relatively long, at 20 years or so, and they are secured by a depreciating asset, as opposed to land that can appreciate.

“For some people, chattel is their only affordable price point, but I think if we could move up some of those people to a lower payment on a real estate-secured home, they could get more benefit from price appreciation,” David Battany, executive vice president, capital markets, at Guild Mortgage.

In the paper, researchers declined to address how to strike the right balance between unsecured chattel homes’ lower price point and the more favorable financing available in the mortgage market, citing the need to look in more detail at loan performance information not available in HMDA data and hybrid solutions like resident-owned communities. In ROCs, a nonprofit organization distributes equal ownership shares in the land to tenants.

“That could be a step in the right direction. In a perfect world, you could have different levels. You could start with a situation where you don’t own the land but then move up, have an interest in the land, and later, get in a situation where you own the land outright,” said Battany.