FHA policy updates aim to revitalize chattel, home renovation program

The Federal Housing Administration released updated policy changes aimed at revitalizing Title I loans used for purchases of manufactured homes secured by personal property, and home improvement.

The changes, which are effective immediately and become mandatory for loans closed on or after May 9, 2022, include measures aimed at making appraisals easier to execute. They also expand some parameters for qualification, according to the Department of Housing and Urban Development.

Policies that have been brought up to date and more in line with guidelines in the FHA’s broader Title II program include rules for student debt calculations last modernized in June. Medical debt also has been excluded from reviews as is the case more broadly in FHA underwriting.

Appraisals for manufactured homes secured by personal property now can be done using the traditional comparable sales method. Previously, only the National Automobile Dealers Association manufactured housing guide could be used. Now both are eligible for use in valuation.

“The new guidelines allow underwriters to be able to include more forms of income from the borrower in order to increase their chances of being approved for FHA mortgage insurance. Other underwriting rules concern how student loan debt is calculated to make it match requirements for FHA’s Title II mortgage insurance programs. So there is now more consistency in the underwriting requirements to be eligible for FHA mortgage insurance,” said Thomas Booker, chief strategy officer at underwriting technology provider Candor, in an email.

“All of this adds up to a broader calculation of the crucial debt-to-income ratio that ultimately determines if a first-time homebuyer — who this appears to be geared toward — can ultimately pay back their mortgage commitment, in a timely and responsible manner,” he added. “HUD reasons that the supply of manufactured homes will be more accessible to qualified borrowers if they evolve the underwriting requirements to determine who can be defined as a qualified borrower.”

Affordable housing advocates have in particular been calling for policy changes that improve the availability and price of manufactured home loans secured by personal property, which tend to have higher denial and interest rates than other small residential loans. Government-sponsored enterprises Fannie Mae and Freddie Mac have tested support for the so-called chattel manufactured home loan market, but never made it broadly available. While the FHA has offered financing for these loans, relatively few get funded. The updated policies could help to that end.

“This nation is in an affordable housing crisis and manufactured housing will be a key part of the solution,” said Lopa Kolluri, principal deputy assistant secretary for housing at the FHA, in a press release.

Currently, more than half of applicants for personal property loans secured by manufactured housing are denied, compared to roughly one-third of those who seek to obtain MH financing secured by real estate, according to a Consumer Financial Protection Bureau analysis of Home Mortgage Disclosure Act data published earlier this year. In comparison, only 7.4% of those who apply for a traditional site-built home get denied.

The FHA’s update to its Title I policies could be “a positive first step toward expanding options to afford a home, particularly in manufactured housing communities,” said Lesli Gooch, CEO of the Manufactured Housing Institute, in an email.

Traditional mortgage lenders may be wary of using the Title I program to lend on manufactured homes titled as personal property because they consider them prone to depreciation but acknowledge it could be a stepping stone to ownership.

“This step may initially make a small impact given the limited number of lenders, but the fact that they’re looking to try to improve the efficiencies here, and will hopefully do so for some other programs, is all very encouraging,” said David Battany, executive vice president, capital markets at Guild Mortgage, a traditional lender active that finances manufactured housing titled as real property. “Any HUD program that’s approved is going to be helping first-time home buyers.”