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   ARTICLE   |   From Scotsman Guide Residential Edition   |   May 2009

Manufactured Housing: Help Wanted

Brokers looking for a new niche might want to consider personal-property loans

During tough times for the mortgage trade, some industry participants are seeking innovative ways to grow their businesses. Embracing a new niche can help. Doing so also can lead to fresh networking opportunities and new referral partners.r_2009-05_Pierce_spot

One niche that mortgage brokers can consider is manufactured housing in land-lease communities, commonly known as mobile-home parks.

As a broker, you've probably turned down at least one prospective client who sought financing for a manufactured home located in a mobile-home park. Rather than reject similar clients in the future, you could instead develop the expertise needed to fulfill their funding needs.

According to the U.S. Census Bureau, 22 million people lived in 10.5 million manufactured homes in 2000. Although manufactured-home-owners often live in land-lease communities and don't own the real estate on which their homes sit, they still have financing needs similar to those of traditional homeowners. For these reasons and others, mortgage brokers shouldn't dismiss financing manufactured housing.

Manufactured-housing ownership generally takes one of two forms:

  1. The owners own the home as personal property (like a car or boat) but lease the land on which the home sits.
  2. The owners own the home and the land. In these situations, the home often is affixed to a permanent foundation. When that is the case, the manufactured home becomes real property.

Most mortgage professionals have sources for financing real-property manufactured homes. Fannie Mae, Freddie Mac, the Federal Housing Administration and the U.S. Department of Veterans Affairs offer guidelines for financing them. To finance other types of manufactured homes, however, mortgage brokers must understand the intricacies of dealing with situations in which the buyer leases the land on which the home stands. Brokers also need to understand what constitutes a manufactured home.

What they are

Manufactured homes are built to national building codes that regulate design, construction, strength, durability, transportability, fire resistance and energy efficiency and that set performance standards for heating, plumbing, air conditioning, and thermal and electrical systems. The building codes are part of the National Manufactured Housing Construction and Safety Standards Act. The U.S. Department of Housing and Urban Development (HUD) monitors and enforces the act, which took effect on June 15, 1976; thus, it is often referred to as the HUD code.

Homes built to the HUD code are sometimes called mobile homes, trailers or factory-built homes. Regardless of what they are called, homes built to this code and marked with the HUD seal or tag -- affixed to the home's exterior -- generally are accepted as manufactured homes.

A common misconception is that modular homes and manufactured homes are the same. They aren't. Modular homes are built to state, local or regional building codes. These homes can be modules built in a factory and transported to the home site for assembly. They also can be panelized homes, which are factory-built in panels before being transported to the home site and assembled, or precut homes, which are factory-cut to design specifications before being transported to the home site where they are assembled.

Manufactured homes, on the other hand, are completely assembled in a factory and transported to the home site for installation. You typically won't find modular homes in a land-lease community.

What to know

In the past, loans for personal-property manufactured homes came from national lenders that specialized in manufactured-home finance or that had a separate platform to originate and service these loans. These companies typically were indirect lenders; manufactured-home retailers originated, processed and closed their own loans.

In the mid-1980s, these companies began to securitize and sell blocks of these loans into the asset-backed securities market. These sales performed well, and with increased demand on Wall Street, more lenders entered this specialized market. As demand for business increased, lending guidelines relaxed. In the late '90s, with losses mounting, the industry collapsed.

By 2000, many lenders and finance companies had exited the market, buried in foreclosures and losses. This left manufactured-home-owners with limited financing options. The remaining lenders tightened underwriting guidelines and moved the model for originations from retailers to mortgage brokers.

Today, the secondary market for manufactured-home loans remains difficult to nonexistent, and portfolio lenders now dominate the niche. Interest rates for personal-property loans typically are 3-percent to 4-percent greater than for real estate mortgages. Terms are shorter, but loan-to-value ratios can be as much as 95 percent. Additionally, borrower closing costs often can be financed as part of refinance or purchase transactions.

Mortgage professionals frequently overlook manufactured homes as a viable source for growing their businesses. Smaller loan amounts and decreased income per origination scare away many brokers. These loans, however, can provide substantial ancillary income and a great value-added product for referral partners with clients in need of such funding.

Marketing manufactured-home loans can be tricky. Each market typically has a handful of real estate agents who specialize in listing and selling manufactured homes. In addition to working with real estate agents, brokers can work directly with borrowers.

To work in the manufactured-home lending niche, brokers must understand the differences between personal-property and mortgage loans. For example, personal-property loans don't require title insurance; they require only a copy of the certificate of title to identify ownership and liens. Also, as consumer loans, they don't fall under Real Estate Settlement Procedures Act guidelines and don't require the same disclosures.

The security documents for a mortgage loan are a note and deed of trust. For a personal-property loan, the security document is typically a retail installment contract. In some cases, you may not even need an appraisal. Instead, you might be able to rely on a National Automobile Dealers Association book to determine value.

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Becoming familiar with personal-property lending can position you as the manufactured-home loan expert in your market and as a sought-after source of information. This often-overlooked niche could turn out to provide exactly the business growth mortgage brokers are seeking.


 


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