Here’s My FHFA & GSEs-hosted Listening Session Presentation
2019; copyright 2019; www.educatemhc.com
Perspective. ‘Land lease communities, previously manufactured home communities, and earlier, ‘mobile home parks’, comprise the real estate component of manufactured housing.’
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INTRODUCTION. Have you wondered what a formal presentation, at an FHFA & GSE-hosted Listening Session, reads like? Well here’s what I’ll be presenting, in your behalf, at the St. Louis, MO. Listening Session on Tuesday, 19 November.
And, for those of you reading this, and attending MHI’s NCC Leadership Forum in downtown Chicago this week – with this blog in hand, ask staff what they will be saying, in your behalf, at the upcoming Listening Sessions in St. Louis and or Washington, DC. As a member, you have a right to know.
Two+ Decades of Manufactured Housing Shipment & Finance Turmoil
(1998 – 2020)
Can End with Help from FHFA & GSEs!
George Allen, CPM®Emeritus, MHM®Master
‘Input for FHFA & GSEs-hosted 2019 Listening Sessions’
See Enclosure: ‘Ah Ha! & Uh Oh’ Formulae worksheet; EducateMHC., Franklin, IN., 2008
Setting the stage. During year 1998, 372,943+/- new HUD-Code homes were shipped nationwide; but from there onward, it was downhill till nadir year 2009, when only 48,789+/- new homes were shipped.*1 At the dawn of the 21st century, according to the Manufactured Housing Institute (‘MHI’), more than 10,000 ‘ independent (street) MHRetailers’ closed their doors; and new HUD-Code homes, particularly Community Series Homes, began to be shipped directly into land lease communities, ‘for sale’ & seller-financing, as well as rental units.*2 And that’s where we are today. How do Fannie Mae & Freddie Mac fit into this two decades long paradigm shift scenario? As an industry, manufactured housing is surviving, albeit recovering slowly, from 48,789+/- new HUD-Code homes shipped during 2009, up to 96,555 new homes shipped throughout year 2018, but still sorely in need of reasonable access to chattel capital for home-only loans in land lease communities, large and small, coast to coast!
I was present at the historic meeting, during early 2010 in Elkhart, IN, when the FHFA & GSEs informed HUD-Code housing manufacturers, that going forward, the industry would be on its own, where housing finance support was concerned, i.e. end of easy access to chattel capital to finance new home-only loan transactions within land lease communities nationwide! Why?
While naive at the time, about housing finance and the GSEs, I understood Fannie Mae & Freddie Mac’s angst with the manufactured housing industry. A decade earlier, I had penned an expose’ titled, ‘Upside Down in a Mobile Home Park’, first published in Manufactured Home Merchandiser magazine. It detailed widespread financial shenanigans and predatory lending practices – and consequences, that’d hurt and haunt the industry during the decade ahead – as described in the previous paragraph.
Fast forward a few years, to the International Networking Roundtable held in Peachtree City, GA. That event marked the return of the FHFA, Fannie Mae & Freddie Mac, to meet and talk firsthand with manufactured housing industry businessmen and women most affected by the their departure a few years earlier; specifically, the owners/operators of land lease communities, now routinely selling and seller-financing new HUD-Code homes on-site. We learned a lot from each other during the two day event; but most important of all, was the obvious pent-up optimism, and belief we could forge a new housing finance way forward together!
How so? Well this was nigh the time of Duty to Serve (‘DTS’) planning at Fannie Mae & Freddie Mac. Manufactured housing aficionados, and land lease community owners/operators, were invited to participate in open discussion sessions at GSE headquarters, as well as during formal Listening Sessions around the U.S.
Results? That’s been a decidedly mixed bag; complicated by whatever perspective is being espoused by whoever is speaking, about what, at the time. In summary; here’s how I see it:
Relative to DTS focus on manufactured housing, there’s been limited progress in the real estate-secured lending arena, speaking specifically of Fannie Mae’s MH Advantage and Freddie Mac’s CHOICEHomes programs. In my opinion, the programs are welcome and needed, but are too confusingly similar in terms of seller concessions, down payment minimums, transaction type, terms, and more. Of particular ‘rub’ are distinct differences in housing valuation methodology. And a further tripping point is MHI’s ‘new type’ of HUD-Code manufactured home, designed for underserved markets. To date, even after several years, there’s no consensus name for this ‘more expensive’ manufactured home design that qualifies for both GSE home loan programs. Bottom line? How’s a prospective homebuyer to know what (no name) manufactured home design to consider buying, and which of the two near-twin GSE loan programs to use?
Even more ‘telling’ – some would say ‘appalling’, relative to DTS focus on manufactured housing, there’s been NO progress towards a new or renewed chattel lending product program! And while volume estimates vary, the vast majority of manufactured housing finance, these days, is needed for chattel, or home-only, transactions occurring on-site in 50,000+/- land lease communities located throughout the U.S.! To date, land lease community owners/operators have exhibited an admirable degree of creativity, initiative, and chutzpah – even in the face of increased state and federal financial oversight, to consummate new home-only sales transactions on-site. We still sorely need reasonable access to chattel capital, other than via one independent third party firm that, reportedly, corners 70+ percent of the national market share of this type lending. Furthermore, we continue to need a viable secondary market for selling seasoned manufactured housing financing products!
Now, it would be easy to stop here and feel ‘I’ve done my part’ at this Listening Session – but I can’t do that. A sentence in this recent Press Release (10/28/19): ‘FHFA Releases New Strategic Plan & Scorecard for Fannie Mae & Freddie Mac’ hooked me with the following statement:
“…solving our nation’s critical housing affordability challenges will require looking beyond the secondary mortgage market and addressing the true cause of this crisis: namely, the significant shortage of housing supply.”
Here I am, a businessman with 40 years experience in a housing arena capable of shipping 579,940 new ‘mobile homes’ during year 1973, and 372,943+/- ‘manufactured homes’ in 1998; but today, year to date through September 2019, we’ve shipped only 70,497 new homes! Why? Simply because we don’t have the chattel capital financing needed for home-only loans effected within land lease communities! And we don’t have ‘that’ because no one (Think FHFA, GSEs, et. al.) trusts our integrity to lend these monies wisely and securely! But the truth of the matter is, we can do both – and more! Here’s how to increase the supply of HUD-Code manufactured home to address this nation’s affordable housing crisis…
The manufactured housing industry routinely makes home loans, in land lease communities, giving the 30 percent Housing Expense Factor (‘HEF’) lip service, by including only PITI (loan principal, interest, taxes, insurance) and rental homesite fee in monthly mortgage payments!*3 What’s missing is household expenses (e.g. electricity, heat, water, sewer) – all which must be paid each month, but separate from the ‘mortgage payment’. Consequences? 1) A riskier loan, where homeowners/site lessee can ‘buy more home’ yes, but 2) generally pay considerably more than the prudent 30% HEF. Here are results of both calculations*4:
Given: $51,229 Area Median Income (‘AMI’) per local housing market’s postal zip code via zipwho.com, &/or Annual Gross Income (‘AGI’) per homebuying prospect or household. Also 30% HEF; $333 monthly site rent; and loan terms of 9.5% & 20 years.
Risky home-only loan. $51,229 AGI X .3HEF X 100% applied to monthly PITI & rent, divided by 12 months, less $333 site rent = $948/month PITI & rent payment. When loan terms applied = $101,702 max loan amount. Risky, because household expenses, when paid in addition to mortgage & rent, force homeowner/site lessee beyond the 30% HEF goal. So, consider changing this routine practice to what follows:
Affordable home-only loan. $51,229 AGI X .3HEF X 75% applied to monthly PITI & rent (with 25% kept out of 30% HEF for household expenses), divided by 12 months, less $333 site rent = $628/month PITI & rent. Loan terms applied = $67,372 max loan amount. Far less risky an investment, but also less home purchased.
Point? If home-only loans were effected in accords with the ‘affordable’ perspective, it’s logical there’d be fewer defaults as homeowners/site lessees lived within their means. Perhaps this is one of the long sought keys to improving the security of chattel capital loans on homes sited in land lease communities.
And there are additional measures to consider. One would be to enforce strict screening of loan applicants. Also consider a measure of property owner recourse on home-only loans effected within their owned properties.
Finally; consider applying HUD’s recently published Fair Market Rents (‘FMR’) for year 2020, as a guide to ‘check & ensure’ land lease community site rents are in accords with the traditional 3:1 ratio, e.g. $999/month @ 3BR2B conventional apartment (per FMR) = $333/month site rent in a land lease community in the same local housing market. *5
This concludes my remarks and recommendations relative to this Listening Session.
Official MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764
1. (+/-) qualifier following manufactured housing industry annual shipment totals, until 2012, accounts for different totals published by MHARR & MHI. Since 2013 an official total, based on unadulterated data from the Institute of Building Technology & Safety (‘IBTS’), HUD’s contractor, is published by MHARR, NAMHCO, HUD, & EducateMHC
2. Year 2009 = 24% of new HUD Code homes (i.e. 12,000+/-) were shipped into land lease communities; by year end 2015, that percentage increased to 40%, or 28,000 new homes – and that percentage will continue to rise with access to chattel capital.
3. Housing Expense Factor or HEF @ 30 percent. One of at least six measures of housing affordability; other measures being: Housing Opportunity Index or HOI; Housing Wage or HW; Workforce Housing or WFH; Income to Home Value Ratio or IHVR; and, ‘one who believes’ he/she has consummated an affordable home transaction.
4. Reference: ‘Ah Ha! & Uh Oh! Formulae’ estimate maximum recommended ‘affordable’ & ‘risky’ purchase prices for new & resale, privately-owned homes of any type, sited on realty owned fee simple with home, or ‘home-only’ on leased land – as in a land lease community. Form available via www.educatemhc.com
5. For FMR, google ‘Fair Market Rents 2020’ to research state and city fair market rates.
Visit www.educatemhc.com for comprehensive array of products (newsletters & books) and services (PM training/certification & Performance Evaluations) tailored for land lease communities large & small, nationwide. The ‘Upside Down in a Mobile Home Park’ expose’, described in this narrative, is featured in SWAN SONG, a history of land lease communities and official record of mobile home/manufactured housing annual shipment volumes from 1955 to present day. This text is available for purchase from EducateMHC.