A Little Bit of MHIndustry History!

Welcome to a Little Bit of Manufactured Housing History!

‘How many books have been penned describing MHIndustry chattel finance?’
Answer: ‘None before today!’

Manufactured Housing Primer debuts at the Manufactured Housing Institute’s annual Manufactured Housing Congress, this week in Las Vegas, NV. The eight chapter, 100 page, spiral bound reference resource answers ‘Almost everything you’ve wanted and needed to know about manufactured housing finance but didn’t know who to ask!’ (subtitle). The mini trade tome is comprised of writing contributions from no fewer than two dozen manufactured housing industry executives, MHRetailers, consultants, financiers, service providers, landlease (nee manufactured home) community owners/operators, and national advocacy association leaders.

Copies of the new book will be sold during the MHCongress for only $19.95 apiece; but will be available thereafter, from PMN Publishing for $24.95 post-paid. To order your copy(ies), simply phone the MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764, or email: gfa7156@aol.com Credit card orders welcome; or, mail check to PMN Publishing c/o Box # 47024, Indpls, IN. 46247.

Want a taste of this historic text, authored specifically for the HUD Code manufactured housing industry and landlease community (‘LLCommunity’) real estate asset class? Well, here’s the first chapter, penned by Dick Ernst, president of FINMARK, in Dallas, TX., and George Allen, Realtor®, CPM® Emeritus, & MHM, of Indianapolis, IN.

Chapter 1

Introduction to HUD Code Manufactured Housing Chattel (personal property) Finance in General, and within the Landlease (nee manufactured home) Community Real Estate Asset Class.

In 1994, Manufactured Housing Institute’s in–house specialist on manufactured housing finance, William J. (Joe) Owens, writing in Development, Marketing, and Operation of Manufactured Home Communities, co-authored by George Allen, David Alley, & Edward Hicks, offered this clear and helpful description of chattel (personal property) financing in the HUD Code manufactured housing arena.

Because of its’ origins in the vehicle industry, financing for manufactured housing is still largely similar to automobile financing. In other words, the home does not (generally) become a permanent improvement to the real estate on which it is located. Rather, it remains a separately titled piece of personal property. Personal property finance of manufactured homes has remained the norm through the years because, historically, the majority of manufactured home have been placed on property not owned by the homeowner, either in a landlease community, or on private land owned by someone other than the homeowner. Therefore, acquiring a real estate title to the home and land is not possible, nor is acquiring a (realty–secured) mortgage. This practice is slowly changing, with some manufactured homes being made a permanent part of the land on which they are located, and financed as real estate, just as site – built houses are. P.130


Dick Ernst, president of FINMARK in Dallas, TX., has long been considered one of the mavens of manufactured housing finance; at one point in his long and distinguished career, serving as interim president of the aforementioned Manufactured Housing Institute (‘MHI’). At this point, he picks up where Joe Owens leaves off.

Rather than repeat the history of manufactured housing chattel (personal property) finance from its’ inception 60 years ago, the following remarks focus on one of the most volatile and challenging periods of our industry’s history, from 1998 through 2009. The relevance of that decade, is that it presages the explosive growth of site–built housing and the realty mortgage market between 2001 and 2007 – and its’ subsequent meltdown, bringing our national economy to its’ knees. While dollar volume of the latter’s ‘sub prime’ meltdown far exceeds what happened in manufactured housing circles, ten years earlier, the consequences for both markets have been dire.

Let’s go back to those ‘go–go days’ of the 1990s, when the HUD Code manufactured housing industry was enjoying strong growth year after year. At the time, our industry was a darling of Wall Street. Large amounts of capital were chasing pubic (housing manufacturer) companies’ stock, driving up housing prices, and giving these firms ‘play money’ with which to buy–up other firms to expand their retail distribution networks. The new buzz within the industry was ‘vertical integration’. Led by Champion Enterprises, large retail sales operations were acquired for big bucks. Other manufacturers, like Fleetwood Enterprises, and American HomeStar, tried to keep up with Champion, as they saw their retail distribution networks going to competitors.

Retail (chattel) financing was plentiful and financially attractive, because lenders were paying MHRetailers a premium for their loans, and were very aggressive with their underwriting practices. While some lenders were portfolio lenders (i.e. keeping the chattel loans on their books), the bulk of financing, at the time, came from active participation in the Asset Backed Securities Market. Lenders were originating $100’s of millions in loans, packaging them, and selling them, while retaining servicing. Green Tree Financial was the largest ‘player’ at the time, with more than 30 percent of market share. Other lenders tried to ‘out do’ them, by buying more marginal business and or paying more for the loans purchased. Beginning to see the clear similarities between that period, in manufactured housing finance history, and the more recent ‘sub prime’ meltdown with stick – built housing?

The peak of manufactured housing’s gluttony occurred in 1998, when 372,843 HUD Code homes were shipped to MHRetailers and landlease communities. Marty Lavin, a veteran manufactured housing finance consultant, determined as much as one third of the industry’s chattel loans were made to homebuyers having a FICO score of less than 600! The soon result was a default frequency of more than 30 percent on loans originated during that time. The industry ended up with a glut of repossessed homes that took three years to absorb and resell. Now the parallel is complete! Plenty of Wall Street money chasing an industry; plenty of financing with an appetite to do even more securitizations; and, home sellers and finance companies willing to put consumers into homes with loans they likely wouldn’t be able to pay.

So, what has transpired since then? The asset–backed security business continued to operate, but the cost of doing securitizations became very expensive. Green Tree reorganized under bankruptcy protection, and stopped originating new loans. Clayton Homes, one of the largest securitizers in the manufactured housing industry, ended up selling to Berkshire Hathaway. Clayton had always been one of the most disciplined lenders in the business, but they were painted with the same brush as everyone else, and the cost of securitizaitons became untenable. As an example, if Vanderbilt (Clayton’s in–house finance subsidiary) had $ 1 billion in loans to securitize, they would be required to put up as much as $200 million in additional collateral (over–collateralization) to get the deal done. It does not take a mathematician to realize this is not a workable long-term strategy. Ultimately, when the sub prime fiasco hit, the capital markets were shaken to the core and closed down the asset backed security market completely. Even today, in 2010, there is no such market for manufactured housing. As a result, many chattel lenders went out of business.

The manufactured housing industry, and chattel (personal property) financing, look nothing like they did ten years ago. The number of lenders financing ‘home only loans’, or at least the majority of such loans, can be counted on one hand. The big four: Triad Financial Services, 21st Mortgage Corporation, CU Factory Built Lending, L.P., and U.S. Bank – Mfd. Housing Finance; plus, Clayton’s in–house arm, Vanderbilt Mortgage and Finance, Inc., provide the bulk of chattel financing, along with local community banks, along with an increasing trend toward self–finance of on–site home sales transactions by landlease community owners/operators. And since the heyday in 1998, loan underwriting and credit requirements have tightened considerably, with a minimum of a 650 FICO score required of would–be homebuyers.

What can we look forward to in the future? First the challenges. Despite specific legislation, commonly referred to as ‘Duty to Serve’, requiring government sponsored enterprises (‘GSE’), like Fannie Mae (‘FNMA’) and Freddie Mac, to finance larger shares of the manufactured housing market, we’ve seen little movement in this direction. And, FHA Title 1, passed with sweeping changes that have potential to help the industry, particularly landlease communities; but, until GNMA (Ginnie Mae) lifts their 20 year moratorium on approval of new (loan) issuers, it’ll have little impact on home sales. The good news? There’s optimism GNMA will lift said moratorium, and many more lenders will come into the manufactured housing market. Even with recent changes to FHA, increasing the front end fee and higher credit scores, those are changes the industry can live with today. Furthermore, 21st Mortgage Corporation recently received a fresh commitment of capital, which should keep them among the industry leaders in chattel financing. Finally, there will be a recovery of the financial markets; and the performance of the loans originated since 2001 has been excellent, and should attract investors looking for quality and yield!


Now for a change in perspective. While landlease (nee manufactured home) communities have long been known and popular, among income–producing property investors, for their ‘recession proof’ nature, low annual turn-over, and low operating expense ratios and general scarcity (i.e. relatively few developed anew since the mid–1970s), little has been written about the asset class’ unique ability to ‘add value’ by bringing investor–owned homes on-site to be used as ‘rental units’ and or ‘for sale’ as contract sale units. This dormant practice resurfaced right at the turn of this century, when physical occupancy in landlease communities plummeted (i.e. from its’ historic high of 95 percent in 1998) and hundreds of thousands of next to new repossessed manufactured homes came on the market. Savvy landlease community owners/operators, particularly property portfolio ‘players’, led the way…but first, a retrospective look at the past…

For much of manufactured housing history, landlease communities – and before that, ‘mobile home parks’, eschewed (avoided) wholesale placement of rental homes and ‘contract sale’ homes on vacant rental homesites. Why?

As profitable as such practices can be in the short term, the presence of what are often referred to as ‘park–owned homes’, whether they be rental, contract sale, or lease–to–own units, tended to affect the property owner’s disposition strategy in a negative way; specifically, reduced pre ‘closing’ value of rental homesites so encumbered, as well as replacement versus income value, when pricing the homes themselves. Would–be investors were frequently wont to say,

‘I/we don’t want the added management headaches and increased operating expenses associated with park–owned homes!” An attitude that frequently reversed after ‘closing’, when seller nunc buyer now views the same units as being potential ‘cash cows’. Believe it. Happens that way frequently.

There’s also the difficulty, even today, of getting mortgage originators and lenders to accept more than a very small percentage of ‘park–owned homes’ in new real-estate secured loan.

Much of that changed around year 2000, when the HUD Code housing chattel finance bubble burst, continuing in a deflated state to this day (2010). Now however, besides enjoying the widespread reputation for being ‘recession proof’ investment property, landlease communities (‘LLCommunities’) have the unique ability, unlike most other types of income–producing property, to ‘add value’, by siting resale and new ‘park–owned homes’ to be used as rentals or sold on contract to homebuyers/site lessees. What effects have this singular change in operational philosophy had on the asset class and manufactured housing industry? Recycling of hundreds of thousands of repossessed homes, from the chattel finance bust between 1998 and 2005; increased and more stable physical and economic occupancy levels, certainly among the 500+/- known portfolio owners/operators in North America; and the manufacturing and marketing of tens of thousands of new HUD Code homes that would not have been built and sold otherwise, especially since late 2008, throughout 2009 and 2010!

The latter point is particularly noteworthy, in that rarely before year 2005 did LLCommunity owners buy new HUD Code homes to site and sell in their properties. Why? Because these homes were going onto leased land, they tended to depreciate in value, over time, unless kept in immaculate attention by the homeowner, and were sited in an exceptionally well–located and operated LLCommunity. An exception to this observation occurs when developers operate in strong enough markets to allow them to control the dynamic interrelationships among wholesale and retail home prices, loan terms, and rent level of homesites.

Bottom line in historical dollars? Here’ two paragraphs from the 21st annual ALLEN REPORT (a.k.a. ‘Who’s Who Among Landlease Community Portfolio Owners/operators in North America!’), available from PMN Publishing via the website: community-investor.com or by phoning the MHIndustry HOTLINE: (877)MFD-HSNG or 633-4764, or (317)346-7156.

“As was first pointed out in the 20th anniversary edition of the ALLEN REPORT, ‘Most LLCommunity portfolio owners/operators (now) market, sell, and self–fiancé new and resale manufactured and modular homes on – site.’ So much so, this year, 49 portfolio owners/operators reported 28,642 contract sale and or rental units on – site in their LLCommunities. When six firms reporting more than 1,000 contract sales apiece, were removed from the total mix, the resulting average, among remaining 43 firms, was 185 such transactions/rentals per portfolio or a total of 7,955. The six deducted firms claim an average of 3,447 contract sales per property portfolio.”

“The estimated value of above housing transactions? While impossible to estimate precisely; 27 or the 49 firms reported $221,600,000 in personal property loans carried on their or an affiliated company’s books. And given an arbitrary average new/resale home value of $30,000/unit, that total could account for 7,387 such homes (i.e. $221,600,000 divided by $30,000/home), relatively close to the 7,955 units reported in the previous paragraph (43 firms @ 185 homes apiece). Is it possible there’s nearly a billion dollars in self–financed chattel loans on homes presently sited in all 49 reporting LLCommunity portfolios? Yes, at 28,642 homes, if $30,000/unit. Certainly ‘begs the question’ relative to number of contract sales/mortgages among all 500+/- known portfolio ‘players’, beyond the 49 of 125 reported in this year’s ALLEN REPORT. A simple extrapolation of this data suggests between $2 ¾ and $3 ½ billion dollars among portfolio owners/operators alone.”

Keep in mind, it’s estimated the 500+/- portfolio owners/operators control maybe 15-25% of the national inventory of LLCommunities. But since their property size of this year’s ALLEN REPORT respondents averages 234 rental homesites per location, the remaining 75–85% of the national inventory are generally smaller properties, ranging in size from 100 rental homesites down to only three or four apiece, in the dozen or so states where this property type is even regulated. Point? The majority of non–portfolio LLCommunity owners/operators tend to be Mom & Pop–sized investments, often passively managed, and sans the resources and experience to create a new profit center to engage in self–finance of the ‘captive finance’ or ‘buy here–pay here’ methodology.

All this brings us to today, 2010 and beyond. What’s the year ahead hold for:

• HUD code manufactured housing production and shipment?
• Manufactured housing chattel (personal property) finance?
• Landlease community operations

Your guess is as good as the folk contributing their knowledge and experience to this primer. And helping you prepare for this vague future is part of the purpose of this book. Our intent is to equip the reader with enough knowledge about various aspects of chattel (personal property) finance, and various segments of the industry/asset class, to effect considered decisions about these matters going forward.

Good Reading, Good Luck, and hopefully, a very Good Future!


What else is covered in the following seven chapters? Valuation of manufactured housing; sources of chattel (personal property) finance, finance service & consulting firms, federal programs, regulatory reform, LLCommunity – related matters, and resources not specifically described in previous segments of the primer. Another historic aspect of the primer is that, at the end of chapter # 1, it features the first Official Lexicon (a.k.a. Glossary) of MHIndustry & LLCommunity trade terms ever published. The Lexicon alone, is worth the price of the primer!

Hope you decide YOU want to read the entire work. This is a limited print run of 500 copies; so, when they’re gone, that’ll be all that’s available, for the time being. Don’t be without your handy, helpful Manufactured Housing Primer. Buy one or more at the MHCongress; use the ordering contacts listed earlier herein; and or phone (317) 346-7156. Leave a message if necessary….


So, what else is going – on, in and around the MHIndustry & LLCommunity asset class these days? A lot! Not the least of which, is significant reorganization taking place within HUD, relative to the department’s manufactured housing regulatory responsibilities. You owe it to yourself to stay abreast of these, and other timely developments, re: FHA Title I, and implementation of the S.A.F.E. Act, to name a couple. Do so, by becoming a dues – paying direct member of the Manufactured Housing Institute via (703) 558-0678 (Thayer Long); and, asking to be put on MHARR’s email newsletter distribution list, by phoning (202) 783-4087 (Danny Ghorbani).

Better yet, become a paid subscriber to the Allen Letter professional journal, also available from PMN Publishing, for $134.95/year (12 monthly issues)! And, if you’re ‘the top executive’ with any factory – built housing – related firm, or LLCommunity property portfolio, join your peers in reading the Allen CONFIDENTIAL! business newsletter (a.k.a. TAC!) the first of each month ($950.00/year, or only $750.00/year if an Allen Letter subscriber). The ‘insider’ and oft confidential trade and national news featured in each issue of TAC!, if ever learned at all by other trade publications, will generally not appear until 30 – 60 days later. This is probably one reason why no TAC! subscribers to date, after 10+ years of publication, have experienced business failure! They oft know, before their competitors, what’s happened, happening, and about to happen; so can make appropriate strategic business planning decisions in a timely and forthright fashion. Maybe these two monthly print publications are what you’ve been needing to help YOU make right business decisions during the months ahead….

George Allen, Realtor®, CPM®, MHM
Consultant to the Factory – built Housing Industry &
The Landlease Community Real Estate Asset Class
Box # 47024
Indianapolis, IN. 46247
(317) 346-7156.

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