Black buyers of manufactured homes have been rejected for loans at far higher rates than white manufactured homebuyers in recent years, according to a new Pew Charitable Trust study. One of the reasons why may be the types of loans being sought.
Between 2018 and 2022, Black borrowers were denied 83% of the time when applying for conventional loans and 80% of the time when applying for personal property loans, also known as chattel loans. In contrast, white applicants were denied just 51% of the time for conventional loans and 63% for personal property loans.
Black borrowers also were much more likely to apply for personal property loans (43% of the time) than white borrowers (26% of the time). These are the loans most often offered by manufactured-home dealerships. The acceptance rates went up when applying for Federal Housing Administration (FHA) loans, but Black homebuyers rarely applied for FHA loans.
Recent changes by the FHA and Ginnie Mae could open more lending competition, meaning that tens of thousands of families could qualify for loans, mainly in the Southeast U.S. where the Black population and manufactured homeownership overlap. Scotsman Guide spoke with Rachel Siegel, a Pew senior officer, about the research as well as the recent federal changes.
Could manufactured housing be key to overcoming the market’s affordability and inventory struggles?
Absolutely. Manufactured housing already has a federal building code standard. They’re made to a very high level. But research that we’ve done with Harvard Joint Center of Housing Studies has shown that these structures can be up to about $100,000 less expensive than comparable site-built homes. There’s a lot of promise in using manufactured housing as a source of lower cost housing supply. Some of that is unrealized because of the challenges in financing.
Pew found a stark difference in the denial rates between Black and white manufactured home applicants, correct?
Yes. A lot of that was driven by differences in the way that manufactured homebuyers — this is specifically landowners who could apply for mortgages or could apply for personal property loans for just the home — applied for very different types of loans. That seemed to drive at least a piece of the denial rates.
Why are Black borrowers seeking to use personal loans more than white borrowers?
We don’t have a perfect vision of why. All the folks that we studied own their land or were buying their land. It is possible this was inherited land that they own with other people in their family, or it was farmland where they already had a home on the land and couldn’t title a home as real estate. And a home has to be titled as real estate to get a mortgage. In those scenarios, a person would have to get a personal property loan. At the same time, it brings up the question of whether there are some information gaps, honestly.
Why aren’t more Black homebuyers applying for FHA mortgages?
About half of Black manufactured homebuyers who own land were applying for conventional mortgages, and they could have applied for FHA mortgages, which they would’ve been more likely to be approved for. One big question here is, to what extent is it consumer preference and to what extent is it information gap on their borrowing options?
Whether a borrower applies for financing through a manufactured-home dealership or a lender or broker matters greatly, right?
Previous research by the University of North Carolina Center for Community Capital surveyed recent manufactured homebuyers. What they found was that when manufactured homebuyers got a lot of their information from the seller or the dealer, they were more likely to apply for a personal property loan even when they own the land. By contrast, when a landowner or buyer went through a real estate agent or broker to get the information, they were much more likely to apply for a real estate mortgage.
When you came out with this research, you suggested expanding the FHA’s mortgage program and updating Title I could make a huge difference. The federal government did that.
The Title I program has existed for a long time, but the loan limits hadn’t been updated since 2008. Of course, housing prices have changed a lot in that amount of time and unfortunately made it very obsolete. Ginnie Mae also reduced some net worth requirements for lenders to reduce barriers to entry to make these loans.
Just five lenders make almost 80% of personal property loans every year. They largely keep these loans on portfolio. To bring in more competition, we really need to have this Title I program updated in a way where new lenders can start making these loans.
What could these changes mean for Black manufactured homebuyers in the future?
Black manufactured home applicants are more likely to apply for personal property loans, both when they don’t own land as well as when they do. This really opens up an opportunity to serve this population better and improve access to safe and affordable credit for people who are really ready to become homeowners.
