Manufactured housing is a key source of quality affordable housing for 19 million Americans. Our greatest attribute is delivering quality and value to consumers. Through cost savings and technological advancements in the factory building processes, the manufactured housing industry can produce homes for 10% to 35% less than the cost of comparable site built construction.
The affordability of manufactured housing can be attributed directly to the efficiencies emanating from the factory-building process. The controlled environment and assembly-line techniques remove many of the challenges encountered during traditional home construction, such as poor weather, theft, vandalism, damage to building products and materials, and unskilled labor. Factory employees are trained and managed more effectively and efficiently than the system of contracted labor employed by the site-built home construction industry.
Manufactured housing's affordability means it has long been the housing choice for many low- and moderate-income families, including retirees on fixed incomes and first-time homebuyers.
When compared to all homeowners, the median annual income of manufactured homeowners is nearly 50% less—$60,000 versus $32,000.
Manufactured housing's importance as a sustainable source of affordable housing is reinforced by data indicating that in 2010 it accounted for 72% of all new homes sold under $125,000, 47% of all new homes sold under $150,000 and 27% of all new homes sold under $200,000.
Manufactured homes serves many housing needs in a wide range of communities—from rural areas where housing alternatives (rental or purchase) are few and construction labor is scarce and/or costly (nearly two of three manufactured homes are located in rural areas) to higher-cost metropolitan areas as in-fill applications. Without land, the average purchase price of a new manufactured home is $62,800 versus $272,900 for a new site-built home, which is affordable by almost any measure.
In addition to the valuable role it plays in providing reliable, efficient and affordable housing for 19 million Americans, the manufactured housing industry is an important economic engine. In 2010, the industry produced 50,000 new homes, which were produced in more than 120 home building facilities, operated by 45 different companies, and sold in 4,000 retail home sales centers across the U.S.—generating 75,000 full-time, good-paying jobs.
Despite its role as a valuable source of affordable housing, a driver of the U.S. economy, and a model of efficiency and sustainability in the larger housing industry, the manufactured housing industry has had ongoing challenges over the past decade. Since 2005, the pace of new manufactured homes sold in the U.S. has declined by 65% (146,881 in 2005 vs. 50,046 in 2010) and there has been a decline of nearly 80% since 2000 (when 250,419 new manufactured homes were produced).
While the pace of sales for new single-family site-built housing has also declined by roughly 75% since its peak in March 2005, the decline in manufactured home sales actually predates the 2007 housing market crash.
The decline in home sales and activity within the manufactured housing market coincides with a number of challenges: the growth of subprime lending in the traditional site-built lending market diminished the affordability advantage of manufactured housing, the lack of liquidity and credit in the manufactured housing finance sector has limited financing options for our homebuyers, the uncertainty and impact of new financial services and mortgage finance regulations has hindered growth, and slow pace of adoption for new standards within the HUD code has prevented the manufactured housing industry from remaining on the cutting-edge of design and construction.
Like the site-built housing market, the manufactured housing industry can appreciate the difficulty and uncertainty of operating in a stressed environment. New manufactured home construction has fallen roughly 80% over the past decade, which has accounted for more than 160 plant closures, more than 7,500 home center closures, and the loss of over 200,000 jobs. More importantly, thousands of manufactured home customers have been left unable to buy, sell or refinance homes. Without action in the following key areas, the people who live in manufactured homes and whose livelihood is connected to this industry are at significant risk.
Over 60% of manufactured homebuyers finance their purchase using a personal property loan where the dwelling alone is financed. The ability for lenders to securitize manufactured home loans in the secondary market, particularly those secured by personal property, has been very limited.
MHI and its members have long demonstrated to rating agencies, investors, Fannie Mae, Freddie Mac the Federal Housing Administration, Ginnie Mae and others that manufactured housing lenders operate within a disciplined lending environment.
Despite this performance, the government-sponsored enterprises have had little involvement and displayed little interest in financing and securitizing manufactured home loans.
Less than one percent of GSE business comes from manufactured housing and none of that comes from manufactured home personal property loans. This is in spite of data indicating that since 1989 manufactured housing has accounted for 21% of all new single-family homes sold in America.
This barrier has effectively shut off the development of a viable secondary market for manufactured home loans leading to higher financing costs. The development of a viable secondary market would dramatically improve liquidity in the credit-constrained manufactured housing market and provide potential buyers with more ready access to loans to purchase affordable manufactured housing.
As federal policymakers debate the form, shape and structure of a new housing finance system and secondary market mechanism, MHI agrees with many in Congress and other housing stakeholders that any secondary market housing finance structure should be supported by private capital. In addition, MHI believes that any secondary market—particularly if it is supported by a government backstop—should provide equal and open access to manufactured home loans secured by either real or personal property.
As part of the Housing and Economic Recovery Act of 2008, Congress directed Fannie Mae and Freddie Mac to establish a secondary market for manufactured home loans, including those secured by personal property. However, given the conservatorship status of the GSEs, the continued sluggishness of the housing market, the uncertain regulatory environment, and concern over taxpayer exposure this mandate has remained unimplemented by GSE's regulator and conservator, the Federal Housing Finance Agency.
In moving forward, we encourage Congress to support the creation of a secondary market that allows for loan products, including all manufactured home loans, to compete on a level playing field absent barriers and prejudicial treatment. Improving the prudent flow of capital to the manufactured housing financing sector will lower lenders' cost of capital. This will draw more lenders to the market, increasing competition, lowering financing prices, and enabling more consumers to choose manufactured housing.
The manufactured housing industry has always been fully committed to protecting consumers throughout the home buying process. MHI recognizes the importance of responsible lending and improving the consumer experience. MHI has also consistently urged Congress to consider the unique nature of manufactured housing lending and to avoid measures that would inadvertently curtail lenders' ability to make manufactured housing loans.
Over the past year, MHI has been working on a bipartisan basis to educate members of Congress and the administration of some of the unforeseen impacts recently enacted legislation would have on limiting access to credit for the purchase of affordable manufactured housing.
Specifically, provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Secure and Fair Enforcement of Mortgage Licensing Act would have the unintended consequence of limiting the availability of and access to credit for the purchase of low-cost affordable manufactured housing.
First, the manufactured housing industry is concerned that the significant revisions to mortgage finance and anti-predatory lending laws outlined in the Dodd-Frank Act will disparately impact manufactured home lending. The act adds significant new requirements on residential mortgage loans, including limitations on mortgage origination activities and high-cost mortgages, which will make it more difficult for manufactured home buyers to obtain affordable financing.
Many of the new regulations that would be imposed on mortgage lenders by the Dodd-Frank Act are designed to curtail questionable lending practices such as zero downpayment loans, balloon notes, and stated income loans, which helped bring about the recent decline in the housing market. While the manufactured housing industry and manufactured homeowners played no role in this decline and for the most part maintained prudent underwriting standards, the act would unfairly lump small balance loans used to purchase affordable manufactured housing into the same category as subprime predatory site-built mortgages.
Section 1431 of the Dodd-Frank Act expands the range of loan products that could now be classified as “high-cost mortgages” under the Home Ownership and Equity Protection Act. A loan would be considered “high-cost” if the annual percentage rate or “points and fees” exceeds certain thresholds. Unfortunately, the limits established in the Dodd-Frank Act were set without a full understanding of the economics of originating and servicing small-balance manufactured home loans.
While drafters of the Dodd-Frank Act recognized that large multinational banks and small community banks could not be regulated in identical ways; the same realization was not reached for manufactured housing loans. Specifically, statutory thresholds for a $200,000 loan and a $20,000 loan cannot be set and evaluated in the same fashion, which is the effect of Section 1431 as it is now written. The cost of originating and servicing these two different size loans is essentially the same in terms of real dollars. However, the cost, as a percentage of each loan's size, is significantly different. It is this difference that causes the smaller-sized manufactured home loan to potentially exceed the thresholds in the act and be categorized as “high-cost” or predatory under HOEPA, even though there is nothing predatory about the features of the loan.
In addition, the lack of a secondary market means lenders are typically forced to hold manufactured home loans in their portfolios, which makes cost of capital associated with originating manufactured home loans higher for these lenders versus those which are able to securitize real property mortgages through the GSEs or through asset-backed securities.
Under this new provision, the propensity for a loan to be classified as “high-cost” greatly increases as the loan size diminishes. According to the American Housing Survey, the median purchase price of a manufactured home (including new and existing home sales) is $27,000 (versus $107,500 for all occupied units according to 2009 American Housing Survey data). Potentially half of all loans to purchase manufactured homes, or more than four million (out of 8.7 million nationwide), could be at risk of being categorized as “high-cost mortgages.”
An internal analysis of our company's lending activities yields similar results. Of all loans made year-to-date, more then 50% would be classified as “high-cost mortgages” under the HOEPA revisions outlined in the Dodd-Frank Act.
Kevin Clayton is secretary of the Manufactured Housing Institute.
