For the manufactured housing industry, the current crisis facing the mortgage industry and the national housing market resonates with a strong sense of been-there/done-that. During the period from 1998 to 2002, when overproduction of supply and questionable underwriting resulted in high default and foreclosure rates, the manufactured housing industry saw its revenues drop and many of its leading companies go out of business.
Today, the industry's fortunes appears to be brightening, although some clouds continue to obscure the hopes of a sunny near-future.
According to the Manufactured Housing Institute (MHI), the industry's national trade association, shipments of manufactured homes are expected to rise in 2008 by as much as 10% over last year's total of 95,000. While this is still some distance from the pre-1998 figure of 350,000 shipments annually, it nonetheless offers signs of a recovery – especially since manufacturing housing shipments were in decline for most of this decade.
Furthermore, the projected increase in shipments does not appear to be a one-shot aberration. The recently published study ‘Prefabricated Housing’ from Bharat Book Bureau estimates manufactured housing will achieve above-average growth through 2011, and ultimately approach $6.4 billion in sales. (At its peak, in 1998, the manufactured housing lending market reached $15.6 billion.)
{OPENADS=zone=7}There is also the possibility of a boost from Washington. The FHA Manufactured Housing Loan Modernization Act, introduced by Rep. Joe Donnelly, D-Ind., is designed to increase loan limits on the Federal Housing Administration's Title I loans from $48,600 to $69,678 and then index them on an annual basis. The legislation also includes a provision to enable more lenders to originate manufactured housing loans. As of this writing, the legislation has passed the House of Representatives and is before the Senate Banking Committee, and Rep. Donnelly predicts President Bush will sign the bill into law.
While many people promote manufactured housing as a viable strategy to achieving affordable housing, that does not mean the sector's lenders are rolling out the welcome mat for B & C borrowers. Based on its earlier crisis, today's manufactured housing lenders tend to be overwhelmingly on the fixed-rate conservative side.
‘Lending policies were too loose for a large part of the 1990s,’ says Mark Dillard, president of the Manufactured Housing Institute of South Carolina (MHISC). ‘A lot of folks were buying homes that should not have been buying.’
Current lending policies are anything but loose. According to the MHI, only 53.5% of all manufactured housing loan applications were approved in 2006, whereas 79.8% of all conventional mortgage loans were approved during that year.
Typical of this industry's tough approach to borrowers is Triad Financial Services Inc., a Jacksonville, Fla.-based manufactured housing lender. Triad's borrowers record an average FICO score at 720 and a delinquency rate at 1.5%. In an interview last year with Secondary Marketing Executive, president and CEO Don Glisson made it clear his company was not lending to borrowers with troubled credit ratings.
‘If buyers are subprime customers, more than likely they won't be approved for one of our loans,’ said Glisson. ‘Our loans are old-fashioned, fixed-rate and amortized.’
{OPENADS=zone=15} Glisson also added Triad Financial sells its loans to commercial banks, savings banks and credit unions, but maintains the servicing. Within secondary marketing, manufactured home mortgages make up a very small percentage of the government-sponsored enterprises' loan purchases. According to the MHI's 2008 National Policy Agenda, manufactured housing loans constitute 0.49% of Fannie Mae's total loans purchased and 0.86% of Freddie Mac's.
The industry has a mixed relationship with the government-sponsored enterprises. On the positive side, Fannie Mae's recently introduced MH Select, created with input from MHI, will provide secondary marketing financing for manufactured housing. ‘The initiative will clearly and unconditionally demonstrate that today's manufactured homes can be built to meet or exceed the aesthetic standards of site-built homes while also delivering the same loan performance,’ says Gail Cardwell, MHI president.
But then there's Freddie Mac's new policy, which begins this month, that charges a ‘delivery fee’ to lenders purchasing manufactured home mortgages of 50 basis points, or 0.5% of the loan balance. This delivery fee is added to the current 0.5% of the loan balance Freddie Mac is already charging for manufactured home loans.
For the MHI, these fees are problematic since they are inserted alongside Freddie Mac's policy of adding a 50-basis-point penalty for mortgages that score A-minus or lower, which includes most manufactured home loans. The MHI states Freddie Mac brings a total penalty of 175 basis points, or 1.75% of the loan balance, to manufactured home loans, which the association views as unfair.
‘Freddie Mac's tax of homeownership unjustly penalizes tens of thousands of manufactured home buyers,’ says Cardwell. ‘This additional charge does not accurately reflect risk and comes at a point in time when Freddie Mac should be providing liquidity to the marketplace and accepting a lower return to promote affordability, in accordance with its public mission and charter.’
{OPENADS=zone=13}But more troubling to the industry is the overall slumping housing market and the fraying national economy.
‘We're not immune,’ says Jess Maxcy, president of the California Manufactured Housing Institute (CMHI). ‘We're experiencing our second down year since 1995, and we're down significantly – shipments were down 42.4 percent in 2007.’
Maxcy adds the decline in shipments has drastically changed how the manufacturers operate. ‘Essentially, no one is building inventory,’ he says.
But MHISC's Dillard sees the inventory situation as a positive development. ‘Excess inventory has been sold off,’ he says. ‘That was clogging up the pipeline for new production.’
Nonetheless, the industry is pushing ahead to play up the benefits of manufactured housing. CMHI's Maxcy notes his organization has set up model homes at seemingly unlikely venues, including a NASCAR event, the California State Fair and the National Date Fair.
‘We are getting our homes on display in venues where people normally don't expect to see a manufactured home,’ he explains. ‘We are trying to appeal to a broader range of potential buyers.’