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Manufactured home industry seeks relief from Dodd-Frank

The manufactured home industry says it needs relief this year from federal regulations that are causing lenders to stop doing unprofitable, low-balance loans, which are common in mobile home sales. The industry wants Congress to pass a recently re-introduced bill that would allow lenders to originate high-interest mortgages to manufactured home buyers without having them be considered high cost and "predatory" loans.

Under the bill, first introduced last year as the Preserving Access to Manufactured Housing Act,  low-balance "chattel" mortgages — typically used to finance mobile home sales — would be treated more like consumer car loans. Salespeople could broker the manufactured home loans without being considered loan officers, so long as they don’t receive compensation from the loan proceeds.

The bill's supporters say salespeople are more like Realtors because they are compensated from the sale of the mobile home, and not the loan.

Buyers of manufactured homes don’t have the option to choose from a range of low-interest government and private loans. They must apply to a small pool of lenders who do chattel loans, a higher-interest loan collateralized by the home itself. The property typically remains owned by the mobile home park. These loans often require at least a 10 percent down payment. Even with good credit, a borrower usually has to pay a rate of 6 percent or more, or at least roughly 2 percent more than on a standard mortgage.

If the bill passes, these loans could become even more expensive for people with poor credit ratings. The industry, however, says access to credit is the most pressing concern right now. One major lender, U.S. Bank, stopped doing most manufactured home loans. Others are fleeing with the high cost of compliance, the industry says. Since January 2014, manufactured home lenders have been held to standards of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) that define high-cost loans and limits to loan officer compensation.

“The people who are needing affordable housing and the people who live in manufactured housing now are potentially having financing sources taken away from them,” said Richard Ernst, chairman of financial services for the Manufactured Housing Institute.

“You are losing money, particularly on the lower-balance loans," Ernst said. "You cannot even afford to originate a $25,000 loan because you will never get your money back. So, why do them?"

Loans of less than $50,000 with interest of more than 8.5 percent are currently designated as high-cost. The proposed bill would bump up the allowable interest rate to 10 percent or more, and increase the number of loans that could charge the higher interest rates. Loans of less than $75,000 would qualify, covering almost all manufactured housing loans.

Ernst said it is important for lenders to avoid the high-cost designation because these are typically shunned as “predatory” by banks and investors, and they won’t hold them in their portfolios. Lenders also need to make additional disclosures, and the borrowers must seek financial counseling before closing on a high-cost loan.

Under Dodd-Frank, Ernst said, unlicensed salespeople are prohibited from helping buyers obtain financing, even though they could help speed along the process and steer borrowers away from lenders that are likely to reject their credit. As the rule stands, salespeople can only give buyers a list of lenders and send them on their way.

“All we want to be able to do is give this customer some guidance,” Ernst said.

Other industry analysts said the lending environment for manufactured loans continues to be a challenge because these loans are considered risky and haven’t performed well when bundled and sold as bonds.

“Part of this is a cost issue and the fact that these are smaller loans on average,” said Tony Petosa, senior vice president of Wells Fargo Multifamily Capital, which finances mobile home parks.

Petosa said mobile home communities are reluctant to start financing programs because they are confused by the compliance requirements under Dodd-Frank, and worry about getting sued if the loan goes bad.

“They just feel that they are opening themselves up to liability,” Petosa said. “Frankly, a lot view this as just not worth it."

The capital markets have largely shunned the manufactured home industry since the early 2000s, when the insurer Conseco Direct Life went bankrupt as a result of a huge number of bad manufactured home loans originated by its company, Green Tree Financial, said J. Peter Scherer, former president of Origen Financial, once one of the largest lenders of manufactured home loans.

Scherer said there is no secondary market for chattel loans that could bring a flow of cash and lower the cost for consumers. Most of the loans are held in the portfolios of life insurance companies and a few private lenders. The industry is dominated by Berkshire Hathaway. However, a few banks and hard-money lenders do manufactured loans.

“The government’s mandate is to promote affordable housing for Americans and it is very hard to understand how they can claim that they are responsive to that mandate when, in fact, they don’t provide anything for that situation,” Scherer said.  “That single mother trying to make a life for a family in manufactured housing has no reasonable likelihood that there is any kind of a government program out there that has her name on it. That is the crime, and the regulators really don’t want to understand it.”


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