MHIndustry Economic Impact Study Needed! (&) Level the Chattel $ Playing Field to Same % as RE-secured Loans!
11 July 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.’
This blog posting is sole national advocate, official ombudsman, historian, research reporter, education resource & online communication media for North American land lease communities
To input this blog &/or affiliate with EducateMHC, formerly COBA7, telephone Official MHIndustry hotline: (877) MFD-HSNG or 633-4764. Also email: email@example.com
Motto: ‘U Support US & WE Serve U!’ Goal: Promote HUD-Code manufactured housing & land lease communities as U.S. source of affordable obtainable housing! Visit www.educatemhc.com
INTRODUCTION: Lotta good stuff here this week.
1. It’s ‘high time’ for the manufactured housing industry to research, publish, & distribute a Manufactured Housing Industry Economic Impact Study to federal lawmakers and regulators – showing them how valuable WE are to the national economy!
2. Hope to see YOU at the 28th Networking Roundtable, 8-10 September in Indianapolis. No other national venue promises such diversity & intensity of topics and speakers!
3. Someone had to say it! Time has come to level the loan playing field for manufactured housing homebuyers/site lessees and homebuyers purchasing product for siting on improved realty conveyed fee simple! Read on!
Manufactured Housing Valuation
‘Comparing Apples & Oranges, Half a Loaf, or Simply Confusion?’
In 1977, according to MERCHANDISER magazine, 186,462 new manufactured homes shipped that year, by the ‘Top 25 Mobile Home Manufacturers’, were valued at $2,026,097,725 or roughly, $10,834 apiece, presumably ‘wholesale’ value out the factory door, as retail value reporting had not been perfected, and an empirical determination of ‘production’ value would not come until post 2003.*1
Two decades later, in 1997, ‘Indiana’s RV & MH Industries’ Economic Impact Study’ estimated 17,300 new manufactured homes shipped from its’ factories that year, were valued at $1,205,000 or roughly, $32,306 apiece; however, not labeled as to whether ‘wholesale’ or ‘retail’ value; and again, the calculation of ‘production’ value was still six years away.*2
The Manufactured Housing Institute (‘MHI’), soon after the turn of the century, contracted with Dr. Stephen C. Cooke, to ascertain ‘production’ value of a new HUD-Code manufactured home. Dr. Cooke valued the 60,228 new homes shipped during year 2003 as being $2,600,000,000 or roughly $43,126 apiece in production value.*3 And this remains the state of this body of knowledge today. We still don’t know whether ‘production’ value is the same or ‘how different’ from a presumably marked-up ‘wholesale’ value, when a new manufactured home leaves the factory.
There are rumors afoot, that new and or updated empirical studies of manufactured housing value(s) are underway, but nothing substantive has been announced to date. If anyone ‘out there’ knows more about this timely and important subject, please let us know via firstname.lastname@example.org Why? Because, knowing the full (not just ‘production’ value) national economic impact of the manufactured housing industry – eventually to include the land lease community real estate asset class – will surely improve our lobbying presence and effectiveness in our nation’s capitol.
Just how startling can this sort of industry knowledge be? Well, here’s an illustrative example from our sister industry, the recreational vehicle (‘RV’) business model.
The recreational vehicle industry runs sophisticated statistical circles around us, as it continues to grow and prosper; all the while ensuring federal and state legislators and regulators know how valuable that industry is to the national economy! And just how valuable is it these days? Well, according to latest (published 2019) data, the industry’s total $ economic impact nationally, is $113 billion in output (i.e. $113,713,039,000); $32 billion in wages (i.e. $32,154,790,200); and provides no fewer than 596,355 jobs! In terms of tax impact, $12 billion in total taxes (i.e. $12,212,324,800); $4 billion in state taxes (i.e. $4,715,737,100); and, $7 billion in federal taxes (i.e. $7,496,587,700)! Impressed yet? You should be! And we, as an industry, should be asking ourselves, ‘Why are we so very far behind the self-knowledge curve that, $ truth be known, we’d command far more respect and cooperation as this nation’s best source of quality, energy efficient, non-subsidized, affordable housing?!’*4
Is anyone out there listening? Sure hope so. Don’t know ‘bout you, but as a businessman, and trade journalist, I’m tired of waiting for salaried and elected industry leaders to research, publish and widely distribute an economic impact report about UD-Code manufactured housing and its’ land lease community component, as this nation’s historic and forward-looking one-two punch affordable housing provider & lifestyle!
1. Data source: SWAN SONG, EducateMHC, 2017, Table # 1
2. Source: Indiana’s Recreational Vehicle and Manufactured Housing Industries, ‘An $8 Billion Building Block for Indiana’s Economic Success’, IMHA/RVIC, Indiana, 1997
3. Manufactured Housing Institute
4. ‘RVs Move America – an American Industry & Economic Engine’, by John Dunham & Associates, in www.rvmoveamerica.org,
Major Great Reasons to Attend Networking Roundtable,
8-10 September, in Indianapolis, Indiana
‘Legislation to Create a Housing Affordability Task Force Introduced in the U.S. Senate’
“A bipartisan group of 13 senators, led by Todd Young (R-IN), reintroduced the ‘Task Force on the Impact of the Affordable Housing Crisis Act’, which aims to better understand and respond to America’s housing affordability shortage. The legislation seeks to bring together a group of experts to evaluate and quantify the effect a lack of affordable housing has on individuals and provide recommendations to Congress about increasing affordable housing options.” Quoted from recent MHI Press Release.
U.S. Senator Todd Young (R-IN) is the Monday morning, 9 September, keynote speaker at this year’s 28th annual Networking Roundtable, 8-10 September, in Indianapolis, IN. For more information, and to register, go to www.educatemhc.com
What else to experience this year? Three of the most successful land lease community portfolio owners/operators in the U.S. will share their ‘trade secrets’ during two different sessions!
Fannie Mae & Freddie Mac, maybe along with an FHFA rep, will, in panel discussion format, brief their DTS programs, then describe the new Choice & MH Advantage $ programs, & more.
E-HOP, as you know, is newest and most exciting chattel capital program for communities engaged in on-site home sales & seller-financing. Hear from the creator of the program!
Screening premier of videos filmed on-site in land lease communities around the U.S.!
Special nod to ‘resident relations’ by the very firm that introduced the concept in 1990s!
Special ‘how to’ session on automating your land lease community! Don’t want to miss this!
Register NOW (before 8/31) and benefit from lower Early Bird Rate: www.educatemhc.com
Arrive early, mid-afternoon Sunday, and sit in on a Fireside Chat with me at The Alexander Hotel. This is always one of my favorite activities, talking one on one with other land lease community owners/operators from throughout the U.S. Have some special topics in mind.
And stay a day later, on the 11th, to participate in the day long Manufactured Housing Manager professional property management training & certification session. This will be the second class to use the new 8th edition Community Management in the Manufactured Housing Industry.
A Pipe Dream, or Is Reality But One Key Step Away?
“My conundrum; no ‘my problem’, with the lending segment of the manufactured housing industry? I am a great credit risk, yet when I use industry lenders, I end up paying 8% plus miscellaneous monthly fees for inventory financing. My homebuying customers are charged high rates no matter how good their credit. The best I can do for a retired person with a guaranteed income is 7.49% for a 20 year term loan.” Quoting a veteran land lease community owner selling and seller-financing new HUD-Code homes on-site.
So, conceptually and practically speaking,
‘Can the Interest Rate Spread, Between Home Mortgages Secured by Underlying Realty Conveyed Fee Simple, & Personal Property Loans (chattel capital) on Manufactured Housing Sited in Land Lease Communities, be Ameliorated to Create a Level Lending Environs?’
Perhaps!? Read what follows & tell us what you think; via email@example.com
Do you know? The usual 600 – 800 basis point lower lending rate, typical of home mortgages secured by underlying realty conveyed fee simple, than higher rates charged for manufactured housing sited in land lease communities, easily account for a difference of $90,000 in the amount of new or resale home a prospective ‘land & home’ buyer, versus homebuyer/site lessee, can; afford to buy?
Specifically, in a local housing market where Area Median Income (‘AMI’), &/or prospective homebuyer’s (or household’s) Annual Gross Income (‘AGI’) is $36,000; and where realty-secured mortgages are available for 6.5 percent interest; but 9.5 percent for personal property loans – and land lease community monthly homesite rent is $333, respective home prices pencil out to be $158,0000 and $68,000 respectively.*1
Something to be careful about here. Whether annual household expenses (e.g. electric, gas, water – but not CATV & phone) are included in the monthly PITI or PITI/site rent payment – or are paid separately each month.*2 If ‘not included’’, as is the case in the previous paragraph – and apparently among independent third party manufactured housing chattel capital lenders, prospective homebuyers can buy ‘more house’, at increased risk (i.e. housing expense bills paid in addition to 30 percent allocated for PITI or PITI/site rent. However, if said household expenses are included in the PITI & PITI/site rent payments each month (this usually 25+/- percent of the 30 percent Housing Expense Factor or HEF, set aside to pay for one’s mortgage or rent, In this instance the prospective homebuyer affords ‘less house’, e.g. $119,000 instead of $158,000; and, $41,000 instead of $68,000, but is in a less risky, more affordable homebuyer, and homebuyer/site lessee state.
Now, ‘the question’. What would it take to lessen or eliminate altogether, the three to six percent average difference in interest rates between real estate-secured mortgages and personal property (i.e. chattel) loans; in other words, on manufactured homes sited on scattered building sites conveyed fee simple, and on rental homesites within land lease communities?
Assuming this difference in loan interest rates has mainly, if not wholly, to do with perceived security or risk, and lack thereof, of the loan commitment, where presence or not, of underlying improved realty is concerned, a relatively recent lending trend suggests this practical answer to the question:
In instances where personal property loans originate on new and resale manufactured homes installed, sold, and seller-financed by community owners, on rental homesites within their land lease communities; look to them as guarantors on said loans, to enhance security, and lessen risk, throughout the transaction term. After all, the mortgaged home is sited on the property owner’s realty, and goes nowhere without his/her tacit permission.
Frankly, there’s really nothing new about this suggestion. Land lease community owners/operators have subjected themselves to lender recourse for decades. Perhaps no one has pressed lenders to value said obligations in terms of interest rate reduction. After all, even in a worst case scenario, there will likely be enough value in the underlying real estate (i.e. entire land leases community) to more than cover any losses due to defaults on home loans.
Of course there’s more to this matter than meets the eye, or is described in the preceding paragraphs.*3 What do you see the roadblocks to be? Be sure to read End Note # 3 before replying. Then forward your thoughts on this matter to me as follows: GFA c/o Box # 47024, Indianapolis, IN. 46247 or via firstname.lastname@example.org
1. Using the ‘Ah Ha! & Uh Oh! Worksheet’ for estimating maximum recommended ‘affordable’ & ‘risky’ purchase prices for new & resale, privately-owned homes of any type, sited on realty owned fee simple with home, or on leased land, as in a land lease community. Worksheet available via www.educatemhc.com Also know local housing market AMI’s are available, per postal zip codes, from www.zipwho.com
2. PITI = loan principal, interest, taxes, insurance
3. Further Considerations: 1) careful screening of homebuying prospects & counseling thereof, 2) just as careful screening of land lease community owners willing to guarantee homebuyer/site lessee loans, 3) careful management of upfront and back end Debt to Income ratios (‘DTI’), e.g. former @ 30% (with & without household utility expenses included?), and 40% when other outside debts are added to the front end PITI debt payment, & 5) whether this whole issue revolves around independent third party chattel lenders simply preserving a lucrative business model to the detriment of providing truly affordable housing when most needed in the U.S. What do you think?
George Allen, CPM, MHM