Manufactured housing giant endorses HUD's call for regulatory relief

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WASHINGTON — The dominant player in manufactured housing, Clayton Homes, is supporting the Department of Housing and Urban Development's review of construction and safety standards on manufactured homes.

In a sign that it was considering easing standards to boost manufactured housing growth, HUD announced the review in January and invited industry comments.

John Weldy, Clayton Homes' director of engineering, said in the company's comment letter that the current constructions standards are overly restrictive.

"Our company is concerned that HUD’s Office of Manufactured Housing Program has developed in a manner that has increased the costs of operating in the industry without providing a commensurate benefit to consumers," Weldy wrote. "Some of HUD’s expansion of regulatory programs has stepped into state functions, reinterpret regulations in ways that are at odds with long-standing and accepted building practices, and implemented regulations and guidelines that unnecessarily limit consumer choice and increase costs."

Manufactured homes account for 10% of single-family dwellings, with 22 million people living in factory-built homes.

"I believe one of the biggest things that we can do for rural housing is to eliminate the huge regulatory burdens that we have on manufactured housing," HUD Secretary Ben Carson said at a Senate Banking Committee hearing last month. "This is an area that has been under-utilized and will provide tremendous advantages for us in the future."

Carson told the senators that some of the regulations on manufactured homes are "ridiculous."

"So we are inspecting all of those regulations and getting rid of a lot of them," he said.

But housing advocates are concerned HUD may go too far and undermine the quality of manufactured housing.

"The key to advancing affordable homeownership in the United States is making high quality housing stock available to purchase-ready customers," according to a comment letter by 24 housing advocacy groups including Prosperity Now.

The groups said manufactured housing can play a bigger role in advancing affordable housing, but "to do so, however, buyers, lenders, advocates and local policy makers must have confidence in the quality of all aspects of the manufactured homes, including the manufacture, installation, foundations and home amenities."

In addition to restrictions on construction, financing has also been a stumbling block for the manufactured housing industry.

The Federal Housing Administration endorsed 32,500 manufactured housing loans classified as real estate in fiscal year 2017 and 814 manufactured housing loans classified as personal or chattel loans.

But the FHA has suffered major losses from insuring MH loans in the past and is unlikely to increase its role in this sector.

"People aren't counting on FHA, which is a shame," said Doug Ryan, director of affordable homeownership at Prosperity Now.

Community banks provide financing for manufactured homes titled as real estate loans.

But most buyers of new manufactured homes get their financing from the manufactured housing dealers. These MH loans are similar to vehicle loans with longer terms, and the home is titled as personal property — also known as chattel loans.

"Manufactured housing is a good source of affordable housing in rural areas," said Ron Haynie, senior vice president of mortgage finance policy at the Independent Community Bankers of America.

"These new MH units are very nicely done," Haynie said. "You won't know it is a manufactured home if it is sitting on a brick foundation. They are energy efficient and have many of the amenities as a stick-built home."

Since MH dealers finance most of the new units. community banks generally provide financing for older MH units that are being sold to a new buyer. The banker generally holds the loan in portfolio.

"These are good loans and generally no one else wants to finance older units, as many times these loans wouldn’t be eligible for sale in the secondary market," Haynie said.

Fannie Mae and Freddie Mac are expected to enter the manufactured housing market next year to provide a secondary market for MH chattel loans. "But it will take time to develop some volume," Ryan said.

"I believe they are both committed," to the sector, Ryan said. "But they have to carefully design a program based on risk and other factors. And frankly it is really hard for them to develop risk and performance models because the data is a closely held secret by Clayton Homes."

Clayton, which is owned by Berkshire Hathaway, has two mortgage subsidiaries and sold 45,874 manufactured homes in 2017.

"All told, Clayton accounted for 49% of the manufactured home market last year," according to a letter by Berkshire Hathaway Chairman Warren Buffett to shareholders.

In its 2017 annual securities report, Berkshire Hathaway noted that Clayton has its own proprietary underwriting guidelines for manufactured homes.

"Currently, approximately 70% of the loan originations are home-only [chattel] loans and the remaining 30% have land as additional collateral. The average down payment is approximately 15%, which may be from cash, trade or land equity," according Berkshire Hathaway's annual securities filing.

Weldy, of Clayton Homes, said in his comment letter that the company welcomes the Trump administration's "interest in reforming HUD’s regulation of manufactured housing in a sensible way."

"We encourage HUD to update the standards as advised by the Manufactured Housing Consensus Committee in order to promote improved consumer safety, use of latest technologies and materials and to be more consistent with State-adopted residential building codes," he said.

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Manufactured homes Farm and rural mortgages Affordable housing Warren Buffett Ben Carson Berkshire Hathaway FHA HUD