An Industry in Search of an Answer to Its’ $ Problem
Blog # 391 Copyright 2016 COBA7® 3 April 2016; community-investor.com web site
Perspective: ‘Land-lease-lifestyle Communities, a.k.a. manufactured home communities and ‘mobile home parks’, comprise the real estate component of manufactured housing.’
This blog posting is the national advocacy voice, official ombudsman (press), research reporter, & online communication media for all LLLCommunities in North America!
To input this blog &/or affiliate with Community Owners (7 Part) Business Alliance®, a.k.a. COBA7®, use Official MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764.
COBA7® Motto: ‘U Support US & WE Serve U!, & Goal for its’ print/online media = to ‘Not only inform & opine, but transform & improve MHBusiness Model Performance!’
An Industry in Search of an Answer to Its’ $ Problem
No, you’re not going to read ‘the answer – or answers’ in the paragraphs to follow.
But we do hope, observations, remarks, & questions penned here, stimulate discussion.
Let’s begin by briefly describing ‘what went wrong’ post 1998, when ‘land & home packages’ were all the rage throughout the manufactured housing industry.*1
Remember; we shipped 372,843 new HUD-Code homes that year to more than 13,000 independent (street) MHRetailers & ‘company stores’, but with only 25+/-% of new home shipments going into (then) manufactured home communities. Business was so good, that when local housing markets became saturated with our housing product, we started ‘playing games’, so to speak, with the chattel capital that kept our production engine a-running.*2 Result? By year 2000, as an industry and realty asset class, we turned our homebuyers/site lessees, financially, ‘UPSIDE DOWN in a Mobilehome Park’! *3 Consequence? An estimated 250,000 repossessed manufactured homes – to now directly compete with new homes coming off the production line! So, by year 2009, our annual shipment rate – given the difficulty in securing chattel capital for new ‘home only’ sales transactions on-site, and heady competition from the quarter million ‘repos’ on the market, plummeted to just 49,789 new HUD-Code homes shipped! And we’ve remained today, at a seven year annual average nadir of only 57,202 new homes.
By the end of years 2014 & 2015, there were less than 4,000 MHRetailers left, of any sort, to be found nationwide. However, an estimated 40+ percent of all new manufactured housing shipments were shipping directly into mostly larger land-lease-lifestyle communities, especially those consolidated into 500+/- property portfolios! And during year 2016, for the first time in MHIndustry history, an effort is afoot in the Midwest, to encourage small to mid-sized LLLCommunity owners/operators to begin – if they haven’t already – buying new homes directly from HUD-Code home factories, then selling them – and when need be, seller-financing them, to homebuyer/site lessees on-site!
NOTE to blog reader! To learn more about, even register for, the 5/25 & 26 ‘Two Days of Plant Tours & Home Sales Seminars’, at the RV//MH Hall of Fame in Elkhart, IN., print off all three attachments listed on the BEBA (Blast Email Blog Alert) email message introducing this week’s blog posting!
But all that does not solve what’s become the perennial (i.e. year 2000 thru 2015, a.k.a. MHIndustry’s ‘still shifting paradigm’) new ‘home only’ finance ‘problem’, for sales transactions occurring within 50,000+/- LLLCommunities nationwide.
The alternatives? Well, here’re the ways some, if not many, of us view the matter today:
• Independent third party chattel capital lenders. For the only complete list of firms, serving the manufactured housing market, refer to the ‘18th National Registry of ALL Lenders’. It contains names and contact information of four national, four super regional, and eight regional lenders and servicers. Available by phoning (317) 346-7156. Usually retailed as Option II affiliation with the Community Owners (7 Part) Business Alliance®, or COBA7® for $544.95, but FREE to anyone reading this particular blog posting. Mention blog # 391 when you call. And yes, they have chattel capital to lend, but tend to ‘cherry pick’ the home loans they underwrite, i.e. making loan funds available, just not easily so….Does anyone see this lending climate improving in the near future?
• From time to time, during the past three decades, there’s been talk throughout the manufactured housing industry and LLLCommunity asset class, about ‘coming together & pooling funds’ to create our own chattel capital lending source. To date that has not happened. Is it a viable opportunity today, in the current heavily regulated lending climate?
• Floorplan Plus, a.k.a. (in some circles) as equity partnerships. Financing for LLLCommunity owners/operators, to acquire new homes to seller-finance or rent on-site, has been available for decades. These funds come from private investor relationships, even local lending institutions, all carefully cultivated over time. A third party variant of this occurs when independent third party lenders (e.g. 21st Mortgage & its’ C.A.S.H. Program, Triad, etc.), and now some larger home manufacturers (Cavco, Legacy, & Champion – latter via a national lender) craft and offer chattel capital programs secured by one form or another of guarantee by the community owner selling new homes on-site. Clayton Homes uses its’ in-house lender Vanderbilt Mortgage, in addition to 21st Mortgage.
• Lease-Option. While not easily pigeon-holed as a lending source of chattel capital – because it’s not; the methodology is far more prevalent across the U.S., than many realize. The ‘key to success’ is getting the definition, transaction structure, and process right! To that end, know today there’s an informal task force comprised of attorneys and land-lease-lifestyle community owners, working to codify and popularize L-O in most, if not all states. Should you be using lease-option in your rental homesite filling program? For more information, visit www.leaseoptionmhsales.com
• ‘Captive finance’ occurs when large and mid-size LLLCommunity owners/operators of property portfolios and not, create arms length home finance companies. The startup and ongoing cost, complexity, and requisite overhead, generally put this otherwise attractive alternative out of reach of small (single property) owners/operators. Is there a ‘captive finance’ in your firm’s future?
• Renting of new and resale manufactured homes on-site in LLLCommunities. This alternative has been around since the mid-1970s. The ‘drill’ then was to lease the home, as apartment, until it could be sold on contract to the tenant, or the property was put up ‘for sale’ – then’sold’ for sure! Today the drill isn’t as stringent, since some lenders, and some would be investors, are OK with rental units and contract sales (a.k.a. ‘park-owned homes’) on-site. Is this an option for you?
• Freddie Mac’s secured lender agreement and long term lease program, fizzled in 2005 & 2006, as the national economy faltered. All the background work, policies even forms remain intact. Perhaps it’s time for a resurrection? Wonder if anyone will recommend this avenue to FHFA, during the present rulemaking period, as a credit worthy pilot relative to chattel capital and financing of manufactured housing?
• Titling Reform. Sensing an opportunity, via Duty to Serve (‘DTS’) mandate, encouraging FHFA (Federal Housing Finance Authority) and GSEs Fannie Mae & Freddie Mac, to invest in manufactured home financing, has led to a renewed call for adoption of the Uniform Law Commission’s Uniform Manufactured Housing Act (‘UMHA’). This is indeed a controversial topic that begs public discourse, but has received none! So, said shortfall might lead to a panel discussion, on this topic, at the 25th anniversary Networking Roundtable later this year. Interested in titling reform, pro & con?
For an ‘invite ‘ to said event, phone the Official MHIndustry HOTLINE: (877) MFD-HSNG or 633-1464. (7-9 September at Grand Ol Opry in Nashville, TN.)
• Federal programs. FHA Title I & FHA221(d)4. Former program is burdened with stipulations and requirements; the latter supports the purchase of new HUD-Code homes to be used as apartments. For more information, consult the appropriate federal agency. Also read chapter # 5 in the Manufactured Housing $ Primer, PMN Publishing, 2010.
Bottom line? Manufactured housing and LLLCommunities continue to function, marginally at best, using the hodge podge plethora of ‘home only ‘ chattel capital resources just described – or hinted at. With that said, what does the $ future of the industry/asset class hold? Probably one or more or combination of present day and indeterminate approaches, e.g.
• Return of reasonably accessible, plentiful, chattel capital from several sources
• Sea change to manufactured housing business and finance models, i.e. titling and realty-related matters, attracting conventional mortgage monies to the industry and asset class.*4
• Debut of a nybrid ‘home only’, practical lending model yet to be articulated by industry stakeholders and interested parties..
All this simply scratches the surface of what makes manufactured housing finance such a complicated, and at times, difficult subject to fully embrace, understand, and apply to one’s business interests, especially when selling new and resale manufactured homes on-site within land-lease-lifestyle communities.
See YOU at the ‘Two Days of Plant Tours & Home Sales Seminars’ on 5/25 & 26, at the RV/MH Hall of Fame in Elkhart, IN!
1. During decades prior to the short-lived ‘L&H package’ popularity, fully half or more of new HUD-Code home shipments, by dint of sales thru independent (street) MHRetailers, went into (then) manufactured home communities – where MHRetailers oft pre-leased vacant rental homesites, to ensure placement opportunities.
2. Housing finance abuses were addressed by the S.A.F.E. Act in 2008, and Dodd-Frank legislation (creating the Consumer Finance Protection Bureau) two years later. The unfortunate downside of state and federal finance regulation, has been ‘severe limiting of seller-financing on-site within LLLCommunities’ – heretofore, one of the last, perennial forms of ‘affordable housing finance’ functioning in the U.S.
3. Apt title of a muckraking article featured in the now defunct Manufactured Home Merchandiser magazine, Chicago, circa 2000.
4. Some would say, “Improve on the New Hampshire $ model, resolving issues of ‘title’ (?) transfer upon abandonment; reduction of ‘repo’ costs (e.g. court time & related legal expenses), and more, before proceeding.’