Citing the fact that information on manufactured housing is ‘scarce,’ in comparison to traditional single-family housing, the Consumer Financial Protection Bureau (CFPB) says in a recent white paper that it is considering adding a new field in its Home Mortgage Disclosure Act (HMDA) data collection form to indicate whether a manufactured housing loan is secured by real or personal property.
Although manufactured housing represents only 6% of all U.S. housing and only a sliver of mortgage lending, the CFPB says it is nevertheless of interest because ‘it is an important source of affordable housing, in particular for rural and low-income consumers,’ and also because ‘manufactured housing may raise particular consumer protection concerns due to the nature of the retail and financing markets for manufactured housing.
‘This is particularly true to the extent that buyers of manufactured homes are more likely to belong to groups, such as older or lower-income families, that might be considered financially vulnerable,’ the bureau says in its recent white paper titled ‘Manufactured Housing Consumer Finance In The United States.’
As the white paper states, about three-fifths of manufactured housing residents who own their own home also own the land it is sited on. As a result, these owners have the option to title their home as real property and obtain a mortgage loan – or to title the property as personal property and obtain chattel financing.
About 65% of borrowers who owned their own land and obtained a loan to buy a manufactured home between 2001 and 2010 financed the purchase with a chattel loan, according to the white paper. These chattel loans often have lower origination costs and close more quickly than mortgage loans but may be priced between 50 to 500 basis points higher. The CFPB points out that borrowers with these loans have fewer protections under the Real Estate Settlement Procedures Act and various state foreclosure and repossession laws, compared to traditional single-family home loans. The CFPB notes that it is an ‘open question’ whether consumers are aware of these tradeoffs.
In April, government-sponsored enterprise Freddie Mac reported that it was gearing up to begin financing manufactured housing communities (a.k.a. trailer parks). The unit of the GSE that funds apartment buildings is set to start working with lenders to move into the funding of ‘factory built homes.’
Basically, Freddie plans to offer commercial loans to the land owners on which the trailer parks reside. Those loans will be packaged into bonds along with more conventional apartment loans and sold onto the secondary market.
Freddie issued $3.9 billion of commercial-mortgage bonds linked to multifamily properties during the first quarter. Sales of the debt reached $28 billion in 2013.
The CFPB's white paper explores not only how manufactured housing is financed but also the types of consumers who purchase or rent such housing. For example, compared to site-built homes, manufactured homes tend to be located in rural areas and are often headed by a retiree. In addition, such households have median incomes and net worths that are half to one-quarter that of other households.
Interestingly, the white paper discusses the potential impact of certain provisions of the CFPB's new mortgage rules on manufactured housing. For example, changes in the Home Ownership and Equity Protection Act (HOEPA) thresholds and the rules on qualified mortgages/ability-to-repay, loan originator compensation, appraisals for certain higher-priced mortgage loans, and escrow requirements for first-lien higher-priced mortgage loans may have an impact on this unique housing segment.
To access the white paper, click here.