Watchdog calls on HUD to step up its game in manufactured housing

The Department of Housing and Urban Development should step up its efforts to make manufactured housing more accessible, a Congressional watchdog urged in a late September report.

The department can accomplish this by doing more to update its policies and procedures, which currently create barriers for both borrowers and lenders, according to the Government Accountability Office. 

Some industry stakeholders see manufactured housing as a prime opportunity to alleviate affordability and inventory challenges the U.S. is currently facing.

But the origination of such loans has been sparse with a little over 26,000 HUD Title II loans originated in 2021. No HUD Title I loans of this type  – manufactured homes secured by personal property –  were originated that year, per Home Mortgage Disclosure Act data.

The GAO recommends the department take several steps to ramp up the number of Title I loans it guarantees by making changes to loan limits, which haven't been adjusted since 2008. This is despite the average sales price of a manufactured house increasing by 66% from 2014 to 2021.

The maximum amount the Federal Housing Administration allows for a Title I manufactured-home loan is $69,678 per unit, while the average cost of a new home is a little over $100,000, the watchdog's report said.

Additionally, the GAO called on Ginnie Mae to advance the secondary market for these federally insured loans. In fiscal year 2022, Ginnie had about $167 million of manufactured home mortgage-backed securities in its guaranteed portfolio, down from $278 million in FY 2017.

"FHA and Ginnie Mae could help promote the availability and affordability of manufactured housing and achieve the long-standing purpose set out in the Manufactured Housing Improvement Act of 2000," the watchdog said in its audit report.

The almost three-decade-old legislation directs the department to review its programs for manufactured home loans and develop changes that would help promote the affordability of such properties. A 2022 HUD review of its programs resulted in a proposal to annually adjust Title I loan limits using an indexing methodology based on sale prices, but the change has yet to be implemented.

Overall, personal property loans have had a higher denial rate compared to manufactured home mortgages. In 2021, lenders denied 50% of personal-property loan applications compared with 31% of manufactured home mortgages, per GAO's analysis.

Despite the stall in changing limits, the department has signaled that manufactured housing is top-of-mind. In 2023, HUD announced an organizational reshuffle that elevated the manufactured housing program within the agency. 

HUD did not immediately respond to a request for comment. However, GAO's report does note that both the FHA and Ginnie Mae agreed with the watchdog's recommendations. Both are arms of HUD.

The FHA told the GAO that it is in the process of finalizing proposed annual adjustments to Title I loan limits. Meanwhile, Ginnie Mae is currently "identifying potential updates to program eligibility requirements."

Affordable housing is the raison d'etre of both HUD and the government-sponsored enterprises, and while the former typically reaches more lower-income borrowers, the latter dominates the manufactured housing space by several percentage points.

About 53% of borrowers taking out a conventional loan compared to 47% of borrowers who took out a federally guaranteed loan, per 2021 HMDA data analyzed by the congressional watchdog.

The Federal Housing Finance Agency's 2016 Duty to Serve rule directed Fannie Mae and Freddie Mac to turn more attention to manufactured homes and more recent initiatives have too.