WASHINGTON — The Federal Housing Finance Agency is expected to issue a proposal soon that would require Fannie Mae and Freddie Mac to purchase manufactured housing loans from lenders.
The so-called "duty to serve" plan would force the two government-sponsored enterprises into the mobile home business, where more than two-thirds of manufactured housing lending is backed by the vehicle, not the land it stands on.
An estimated 2.9 million households live in 50,000 manufactured housing communities across the country. Industry groups argue the proposal is desperately needed to improve lending standards and credit availability for manufactured housing.
"They are the most vulnerable homeowners in the country because they don't have good financing. They don't have security and tenure. It is a really bad business model," said Ishbel Dickens, executive director of the National Manufactured Home Owners Association.
Most mobile home owners pay rent to the owner of a manufactured housing park and separately pay a mortgage on their vehicle. But Dickens noted that low- and moderate-income homeowners don't have security because a manufactured housing park can be sold to a developer or retailer at any time, forcing the homeowners to move or sell their homes.
Currently, there is no secondary market for manufactured housing loans that aren't secured by land, what is dubbed in the industry as "chattel loans," which forces the lenders that offer such credit to hold them in portfolio.
"It is understandable that a lot of people are not going to lend on a home that has no security with respect the land it is anchored on. And the landlords don't help the situation because they refuse to provide long-term leases," Dickens said. "After 10 years, the land is valuable and the manufactured home is almost worthless."
Both industry and consumer groups view the FHFA plan as an opportunity to boost manufactured housing lending, lower financing costs and provide better consumer protections through the development of a secondary market for such loans.
Duty to serve can help in terms of providing "more consumer protections for people using chattel loans," Dickens said. "It is not the complete answer but it is very much a step in the right direction."
Though the GSEs do not currently buy manufactured housing loans, they do provide financing to owners of rental communities based on the land and infrastructure. Freddie typically finances higher-end manufactured housing communities with clubhouses and pools.
"Those pieces can also be part of the duty to serve. But we think they have to dig deeper than what they are doing right now," said Doug Ryan, director of affordable housing initiatives at Corporation for Enterprise Development, a nonprofit that promotes asset building and wealth building initiatives for low and middle income families.
Members of the Manufactured Housing Institute have been meeting with consumer groups to come to an agreement on consumer protections that can be presented to FHFA Director Mel Watt.
Dick Ernst, chairman of the group's financial services committee, said the GSEs are supposed to be making a market for all forms of housing, but they haven't done a very good job on the manufactured housing side.
"We are very, very close to meeting with Mr. Watt to begin serious discussions on Fannie and Freddie providing a secondary market for home-only or chattel transactions, which is a big part of our industry," Ernst said.
Consumer groups also are looking for FHFA to bring manufactured housing lending into the mainstream.
"We want to see a strong duty to serve proposal that will trigger a lot of interest in this space, including new product development by Fannie Mae and Freddie Mac," said Ryan.
One of the reforms will likely include extended rental leases for the homeowner's pad at the manufactured housing park. Currently, the standard lease is for one year.
"We do see this as an impetus for the industry to offer longer-term leases," Ryan said. "The lease must be as long as the mortgage. We are committed to that," he said.
He would also like to help foster the development of better quality, energy efficient manufactured homes on the market.
"But at the end of the day, we need the financing environment to improve and we need FHFA and lenders to make that happen," Ryan said.
Congress created the duty to serve requirements in 2008 as part of the Housing and Economic Recovery Act. FHFA issued a proposal for public comment in 2009 but it was never finalized, likely due to concerns about Fannie and Freddie launching into another business while they were in conservatorship. That may still prove to be an issue, but as it's become increasingly unlikely Congress will deal with GSE reform anytime soon, FHFA is under pressure to follow HERA.
When the agency issued its first duty to serve proposal back in 2009, Freddie said that "loans not secured by land present substantially greater risk compared to land-owned homes." In addition, the availability of mortgage insurance or other forms of credit enhancement is uncertain. "Indeed, absent the availability of such credit enhancement, the purchase of chattel loans would be a difficult proposition for Freddie Mac," the company said.
Freddie and Fannie did not comment for this article.
The FHFA is expected to take another stab at the proposal soon, likely in the coming weeks. When that happens, Ryan said he wants to approach lenders with ideas for pilot programs in particular markets.
"We are having conversations with Fannie already," Ryan said. "The GSEs recognize they have to be involved in chattel loans."
The FHFA proposal is not the only initiative designed to boost manufactured housing lending. Industry groups like MHI, Mortgage Bankers Association, National Association of Federal Credit Unions and other industry groups are focused on passing a bill that they say would help credit availability for such loans.
New Consumer Financial Protection Bureau rules went into effect in January 2014 that for the first time placed chattel loans under the protections of the Home Ownership and Equity Protection Act. If lenders make manufactured loans with balances of $50,000 or less and charge an interest rate that is 8.5% above the prime rate, the loan would be subject to extra provisions under HOEPA. Among other things, borrowers must receive credit counseling and lenders cannot charge prepayment penalties or fees for loan modifications.
Lenders complain that the rule makes it harder for them to offer manufactured housing loans. They are pushing bills in the House and Senate which would raise the HOEPA threshold for such loans. The House approved one in April and Senate Banking Committee Richard Shelby has included a provision to address the issue in his regulatory reform bill, which passed the panel earlier this year.
Consumer groups oppose the bills, and the CFPB may adjust its caps on points and fees to ward off possible congressional action.
At a July 15 Senate Banking Committee hearing, Senators Tom Cotton, R-Ark., and Bob Corker, R-Tenn., told CFPB Director Richard Cordray that many families in rural areas depend on manufactured housing as their most affordable option.
"In rural areas, there is not a lot of new single-family homes or a large stock of multifamily rental units," Cotton said.
As part of the Qualified Mortgage rules, CFPB capped points and fees at 3% for loans of $100,000 and more. But the cap was set at 4% and 5% for smaller balance loans. Despite this accommodation, Corker said, "the costs of doing $20,000 or $40,000 loans are bumping up against the regulations."
Cordray indicated some changes may be needed.
"I do remain concerned that credit is tight at the lower dollar level," he said. "I think we should look at it some more. Maybe there should be changes there."
