Modern manufactured homes have vastly improved from the trailers of the 1960s and early 1970s. Significant advancements in construction materials, assembly technology and logistics efficiency have resulted in factory-built homes that rival many site-built homes.
Unfortunately, manufactured housing continues to suffer from a poor image problem among many groups in the mortgage industry, as historical perceptions obscure the many benefits afforded by modern manufactured housing.
Although concerns about low commissions and the added complexities of underwriting manufactured housing may have merit, originators should consider manufactured housing as an emerging financing opportunity, especially for those willing to view it through a different lens.
A manufactured home is built in a factory and constructed to comply, at a minimum, with the Manufactured Home Construction and Safety Standards (the Department of Housing and Urban Development, or HUD, Code) enacted in 1976. All factory-built homes constructed after June 15, 1976, must comply with the HUD Code or local building codes.
A manufactured home will be identified by HUD-certification labels and a data plate. A mobile home, on the other hand, lacks such certification and is generally a factory-built home constructed prior to June 15, 1976.
There are many reports about the national challenges of housing availability and affordability. Many markets are experiencing shortages of construction labor. These shortages manifest in delayed construction starts, increased construction cost, inconsistent quality and isolation of rural markets from new housing opportunities.
In addition, because housing plays a critical role in our national economy and the needs of our population, Congress and federal regulators have instituted actions to encourage housing opportunities for underserved markets. These efforts include the so-called Duty to Serve requirements of the 2008 Housing and Economic Reform Act.
That legislation created the Duty to Serve obligations assigned to government-sponsored enterprises Fannie Mae and Freddie Mac by their regulator, the Federal Housing Finance Agency (FHFA). Among the obligations, there is a focus on rural markets, manufactured housing and affordable-housing preservation.
“ It is important to understand the requirements of the jurisdiction where the manufactured home is located. ”
Because manufactured housing is closely associated with rural locations and represents an affordable-housing solution, all three Duty to Serve focus areas can be addressed by supporting manufactured-housing lending. Along this same line, Fannie Mae recently announced its Manufactured Housing Advantage program. The program prescribes additional construction requirements and features for eligibility that may further encourage manufactured housing as a conventional alternative to site-built housing.
Manufactured housing leverages the advantages and efficiencies gained from producing in a controlled environment. Those advantages include the following:
- Reduced construction cost, including assembly-line efficiencies, automation as well as centralized labor, materials and equipment.
- Dependable construction timing, including predictable scheduling, no weather delays and ease of inspection.
- Availability of continuous assembly, including multiple-shift manufacturing.
- Reduction of risks from weather, including damage to construction materials from outside exposure and weather stoppages.
To leverage manufactured housing as an opportunity for expanded housing availability and affordability, the mortgage industry should continue its focus on prudent and sustainable lending practices. At the same time, it should examine whether antiquated negative biases towards manufactured housing result in credit policies and practices that neglect this valuable component of our housing market.
The opportunity to engage the manufactured-housing market is considerable, and the potential for growth is significant. According to a 2018 report by the U.S. Census Bureau, 93,000 new manufactured homes were shipped in 2017, and each successive year since 2011 has averaged a 10 percent annual increase in shipments.
The 2017 Manufactured Housing Facts report by the Manufactured Housing Institute indicates that 9 percent of U.S. single-family housing starts in 2017 were manufactured homes. In addition, the report shows that some 22 million people in the U.S. live in manufactured homes.
If you’re interested in taking a deeper dive into the world of manufactured-house lending, it’s important as a mortgage originator to consider some important factors related to doing business in that sector. They include the following:
Property requirements: Be critical of any under-writing guidelines that require manufactured homes to have multiple sections, and question limits on land-to-value ratios that may unintentionally penalize affordable housing.
Underwriter/risk training: Examine whether your staff has sufficient awareness and training on manufactured housing. In some cases, denials and other barriers to loan consummation originate from a lack of understanding of manufactured housing.
Outreach/marketing: Examine whether your out-reach and marketing efforts have unintentionally limited exposure to manufactured-home builders, retailers, installers and borrowers.
Decline rationale: Examine previous loan denials on properties where a manufactured home was the primary dwelling unit. Understand the rationale for the loan denials and determine whether opportunities for improvement exist.
On the latter point, it’s worth noting that, in some cases, denials occur because of a missing HUD data plate or HUD-certification labels. If this is the case, consider training your staff to reach out to the Institute for Building Technology and Safety to obtain the data-plate and certification-label information. This simple and inexpensive step may save a loan.
Declinations that resulted because of the use of distant comparables in rural areas or because the appraiser included a mixture of manufactured-home comparables and non-manufactured home comparables should be examined closely for reasonableness. In some cases, appraisal reports with these characteristics are appropriate and could have been approved rather than denied.
Declinations that occur because the manufactured home does not appear to be considered real estate also should be examined. Our nation has a patchwork of state and local laws and regulations pertaining to titling and de-titling — and the subsequent conversion of manufactured housing into real estate to qualify for lender financing.
It is important to understand the requirements of the jurisdiction where the manufactured home is located. In some cases, loan denials are driven by incorrect understanding. In other cases, it could be remedied by the property owner through a simple administrative effort (e.g., via an affidavit or a de-titling process in cases where the manufactured-home owner also owns the land). This presents another opportunity for loan approval.
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Although financing for manufactured housing presents some additional complexities not often present in site-built housing, those who adapt and pursue this market will enjoy the benefits of limited competition and the opportunity to play a valuable role in supporting affordable-housing availability.