Is manufactured housing a lending niche worth pursuing? Maybe--or maybe not. It's complicated.
Oh, what a bumpy road "mobile" homes are traveling. [paragraph] For a niche sector that accounts for only 6 percent of all housing, manufactured homes--the preferred term by housing cognoscenti--have grabbed the attention of legislators, the Consumer Financial Protection Bureau (CFPB), consumer watchdog groups and industry insiders. [paragraph] Decades-old problems and new challenges are driving the focus. H For years, manufactured housing has been considered either real estate or personal property, which complicates lending. [paragraph] Abusive lending practices created and undermined a robust market in the 1990s, leaving a limited secondary market in their wake. The lenders involved in this space are few and the largest are connected to the largest manufacturer. Homes are affordable but can be the victim of "trailer park" bias and zoning restrictions.
Now, the Dodd-Frank Wall Street Reform and Consumer Protection Act and the CFPB's new rules implementing the law have called attention to the industry's loan fees and interest rates, which fall under both "high-cost" and "higher-priced" mortgage guidelines. Of the manufactured-home purchase loans in 2012, 68.1 percent were higher-priced and 16.7 percent were high-cost, according to the CFPB. ("Higher-priced" and "high-cost" are explained later in this article.)
Whether salespeople should be regulated as loan originators presents an even bigger issue. Proposed legislation would modify the new rules. And concerns have been raised that some salespeople are steering buyers to certain lenders.
In late September, the CFPB's white paper, Manufactured-Housing Consumer Finance in the United States, declared that buyers of these homes pay higher interest rates on their loans than do borrowers for site-built homes. The industry's lending practices in the 1990s led to high loan defaults in the early 2000s, which has had a lingering effect.
"Today, more than a decade after the collapse, production and sales remain at depressed levels," the CFPB report states.
The nature of the retail and finance markets for manufactured housing may raise consumer-protection concerns, the CFPB notes. "This is particularly true to the extent that buyers of manufactured homes are more likely to belong to groups, such as older or lower-income families, that might be considered financially vulnerable," the report states.
Arlington, Virginia-based Manufactured Housing Institute (MHI) Chairman Nathan Smith said in a prepared statement that the bureau's report fails to make clear that lenders' "onerous levels of liability" are why they have already stopped lending on what could be considered high-cost mortgages and that many worthy buyers will be denied the credit needed to purchase a home.
As an example, he noted that most manufactured-home lenders have stopped offering loans for less than $25,000 regardless of the consumer's creditworthiness.
"In this regulatory environment, low- and moderate-income families are being denied the chance and information needed to own affordable manufactured housing," Smith states. "Preserving access to responsible credit must also be seen as a key consumer protection and the CFPB should be working to increase affordable housing options in this market, not eliminate them."
All told, "manufactured housing is having its moment," says Alys Cohen, an attorney who focuses on housing policies for the National Consumer Law Center (NCLC), Washington, D.C. "The goal is to protect homeowners and the secondary market, and having protections will promote a resurgence of manufactured housing," she says.
How best to do that is the question.
A prospective buyer's experience
North Carolina resident Mary Clark stumbled into the lending issues when she attempted to buy a manufactured home earlier this year for about $20,000, and move it onto her parents' 200 acres of farm land. She and her fiance will be married next year, and Clark believes this type of home could be sold and moved off the land when the couple eventually buys other housing.
But carrying out her plan has been far from easy. Clark found one home to buy but the owner sold it while she was attempting to get a loan. Another home she liked had been repossessed by Vanderbilt Mortgage and Finance Inc., the financial services division of manufacturer Clayton Homes, both based in Maryville, Tennessee.
Vanderbilt wanted $15,900 for the home. But the company and Clayton-owned 21st Mortgage Corporation, Knoxville, Tennessee, told her they wouldn't lend on homes priced less than $20,000. (Clayton is owned by Berkshire Hathaway, Omaha, Nebraska. Clayton, Vanderbilt and 21st Mortgage are considered the industry leaders in manufactured-housing production and lending.)
"We could probably have done a new home or a more expensive home [loan] through those lenders but at higher interest rates," she says. In fact, Vanderbilt had approved her for a $30,000 loan but Clark doesn't recall the interest rate and didn't want the deal anyway.
Two banks told her they'd only lend on manufactured housing that's considered real property--where the buyer owns the home and the underlying land. The other option was a personal loan for the entire amount at a 17 percent interest rate, Clark says.
Clark's adamant that she and her fiance can afford to buy and pay off a loan. They say they just can't get financing at good terms. "We both have good credit and couldn't get decent financing," she says. "I think it's weird how hard it is to get financing for a manufactured home when they are becoming the norm."
Why aren't there more?