In December 2010, the manufactured-housing sector received an unexpected piece of good news: A report issued by Fitch Ratings credited the sector as being one of the mortgage industry's more stable performers due to very slight increases in loss severities, net loss rates and 60-day delinquencies over the last year. A review of Fitch's rated manufactured-housing portfolio yielded over 90% in rating affirmations, and Fitch upgraded another 2% of its top-rated tranches because of the sector's improvement in the relationship between credit enhancement and expected pool loss.
For some people within the sector, this represented the first major glimmer of hope in many years.
‘We're coming out, and we're feeling very good,’ says Thayer Long, executive vice president of the Manufactured Housing Institute. ‘The manufactured-housing industry is improving – we are stabilizing after about a 10-year protracted decline in new-home production. The last two years represented the flattening of the bottom. We believe trends indicate upward movement over the next few years.’
{OPENADS=zone=6}
Unlike other parts of the mortgage industry, manufactured housing spent most of the previous dozen years in the doldrums. Between 1998 and 2002, a surplus of supply and problems in underwriting created a dramatic rise in default and foreclosure rates. The overall manufactured-housing industry saw its revenues fall and many leading companies disappear.
But just as the sector was slowly beginning to find its way back to normalcy, the problems that beset the rest of the mortgage industry came crashing down.
‘The housing crisis in site-built housing spilled over to the point that it affected us,’ says Jess Maxcy, president of the California Manufactured Housing Institute. ‘We didn't start the problem, but it impacted us.’
Complicating matters was the sector's lack of access to secondary marketing channels.
‘Fannie Mae and Freddie Mac historically ignored the manufactured-housing market, despite its loan performances,’ Long says, adding that 21% of homes built during the last two decades were manufactured houses.
However, the first signs of a turnaround for the sector began to take shape last summer, when Ginnie Mae announced the creation of a mortgage-backed security program targeting manufactured-home loans. The program, according to the agency, was designed to ‘provide for prudent risk management,’ and it was launched following changes in the Federal Housing Administration's Title I Program for manufactured housing.
Furthermore, the Fitch Ratings report determined that while foreclosures have been catastrophic for the traditional housing markets, the manufactured-housing sector was not experiencing the same levels of tumult. Tara Sweeney, senior director at Fitch, praises the proactive work of servicers in keeping the sector's homeowners in their residences.
‘The servicers kept them from running into later-stage delinquencies,’ she says. ‘The servicers were very hands-on, and some made contact with borrowers as early as three days after the first warning of delinquency.’
According to Long, the sector can expect a strong near-term future. ‘We're bumping along, like the rest of the housing market,’ he says. ‘But once the economy picks up, we will be in a great position to take advantage of the recovery.’
However, the sector still has problems waiting to be addressed, let alone solved. Bob Blackman, president of Auburn, Maine-based Maine-Ly Mobile Home Financing, points out that many would-be borrowers are facing very limited lending prospects.
‘I've been doing this 31 years, and these last 18 to 24 months have clearly been the most difficult in regard to viable sources of financing for manufacturing housing,’ Blackman says. ‘We have plenty of people who'd love to purchase, but not a lot of options for financing.’
Blackman blames the situation on the lingering effects of the economic crisis and the challenges of the regulatory environment.
‘Right now, there is not a lot of pressure on banks to make profits,’ he continues. ‘I've been told by bank CEOs that they're not being told to make money – they are just being told not to lose any.’
‘This year will not be much different from 2010,’ says Maxcy. ‘Financing is still a difficult hurdle. Banks are just not in the lending business right now.’
Long believes the situation may be difficult, but it is not impossible. ‘There are opportunities in a credit-constrained environment,’ he says. ‘I think financing is available for customers with good credit and who are able to put down a significant down payment.’
Sweeney adds that the financing woes are hardly unique to manufactured housing. ‘The whole residential mortgage-backed securities market is also having a hard time picking up,’ she says.
Nonetheless, the evidence would suggest that the sector's positive signs are not mirages.
‘The optimistic side of me believes that a slow turnaround will probably begin – at the earliest – in the spring,’ says Maxcy. ‘But there will be no real momentum until the fall. Right now, numbers are so low that trying to guess what will happen is just a game.’
An inevitable loosening in lending will only benefit the sector, Blackman adds. ‘My feeling is that 'greed' will, at some point, take over, and people will look to expand the market and find additional assets to lend to,’ he says.
(Please address all comments regarding this article to Phil Hall, editor of Secondary Marketing Executive, at hallp@sme-online.com.)