Manufactured Housing: The Struggle Continues

When asked about the state of manufacturing housing in California, Jess Maxcy replies in a brief, yet blunt manner: ‘It's in the tank.’

Maxcy, the president of the California Manufacturing Housing Institute (CMHI), is also looking ahead and sees plenty of tunnel but little light. ‘I think that 2009 will be a mirror image of 2008,’ he says.
In many ways, this could be defined as ‘more of the same’ for the sector – manufactured housing has been experiencing problems for most of the past decade. During the period from 1998 to 2002, an overproduction of supply and problematic underwriting generated a spike in default and foreclosure rates. During this period, the manufactured housing industry experienced falling revenues and the departure of many leading companies.

Yet the go-go years from earlier this decade never extended into this sector. ‘Manufactured housing was not part of the housing boom,’ observes Tom Beers, vice president of economics and housing finance with the Manufactured Housing Institute (MHI), the national trade association for the sector. ‘The type of loan products that fueled the boom did not apply to manufacturing housing.’

While the rest of the mortgage market got swept up in reckless origination, manufactured housing lenders spent the decade confined to following traditional and often rigid lending standards.

‘Those still around after 2001 focused on doing business very carefully,’ continues Beers. ‘In 2006, only 50 percent of loan applications for manufactured housing were approved, versus 85 percent of site-built homes. And that's with having a stronger credit criteria – the average FICO scores for manufactured housing loans are north of 700.’

Yet the conservative lending practices did not keep the sector safe from the chaos that ultimately rocked the industry. ‘Even when buyers could meet the increased standards, the lenders were still reluctant to lend,’ says Maxcy. ‘Consequently, sales plummeted.’

Indeed, 2008 sales were far below expectations. At the start of 2008, MHI forecast shipments of manufactured homes would rise during the year by as much as 10% over the 2007 total of 95,000. As of November 2008 – the most recent data available – the sector reported 61,200 shipments. Prior to 1998, the industry was recording 350,000 shipments annually.

‘Shipments are now at lows where we don't have the data to go back far enough to show how low they are,’ adds Beers.

The precipitous drop in shipments has resonated among the manufacturers. Among the hardest hit companies are Patriot Homes in Middlebury, Ind., which went out of business last month after 35 years, leaving 125 employees out of work; Wick Building Systems in Marshfield, Wis., which laid off approximately 70 employees and closed its plant for January and February; and Nationwide Custom Homes, which plans to shut down its Siler City, N.C., plant in March and lay off 102 workers.

The companies that remain in the sector are also struggling. ‘Most of the publicly traded [manufactured housing] companies have stock prices below $1.00,’ says Beers. ‘And one of them – Fleetwood – was just delisted.’

So what does 2009 hold for manufactured housing? Despite today's gloomy news, the industry is hopeful for a better environment. CMHI's Maxcy reports that his state's sector is trying to hold its own.

‘So far, everyone has hung in,’ he reports. ‘One manufacturer closed one of its California factories, and it is conceivable others might follow. But we've not had a lot of retailer attrition – they hung in through the end of the year. If there is any sign of change in the number of dealers, it will happen in the first quarter.’

Maxcy also points out that California is still experiencing a significant housing shortage, which can be filled by manufactured housing. ‘The need for dwelling units in California is tremendous,’ he says. ‘Once all of the bargains are scooped up in the foreclosed houses, the state will be back to producing 140,000 to 160,000 dwelling units for single and multifamily housing.’

On a national level, Beers reports last August's updating of the Federal Housing Administration's Title I loans will help raise lending limits, thus making the product more attractive. ‘This raises loan limits from $46,000 to $70,000,’ he says. ‘By providing more flexibility with higher loan limits, it lessens the risk on lenders still making loans.’

Beers also points to the federal imposition on Fannie Mae and Freddie Mac to better serve the sector. ‘Fannie and Freddie were underserving the manufactured housing industry,’ he says. ‘In 2006, manufactured housing made up 10 percent of all home sales, but they made up less than one percent of Fannie and Freddie purchases.’

Beers adds that the Federal Housing Finance Agency will begin grading Fannie and Freddie in 2010 to determine if they are meeting the secondary marketing needs of the sector.

‘Eventually, the financing will return to the marketplace,’ says Maxcy. ‘We're tough – we'll come out of this.’


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