What MHIndustry Does NOT Want YOU to Know & Do!
COBA7® via community-investor.com Blog # 343 copyright @ 5 April 2015
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 a 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!’, & the Goal of its’ print & online media = to ‘Not only inform & opine, but transform & improve our MHBusiness model!’
Introductions to Parts I, II, III, & IV of this blog posting at community-investor.com
Land-lease-lifestyle community owners/operators know I’ve lobbied for change to how the ‘30% Housing Expense Factor’ is applied to realty mortgages and personal property (chattel) loans, since the ‘Ah Ha & Uh Oh!’ Worksheet debuted in 2011. Well, here’s where we go ‘very public’ with a practical concept that ensures ‘less house’ but ‘more financial capability & stability’ for borrowers, and less profit for lenders.
The Community Owners (7 Part) Business Alliance’s WISH LIST for 2015, it seems, has become the manufactured housing industry and land-lease-lifestyle community asset class’ default goals for the year! How do we know this? Because inquiries now come into our offices, from every segment of the MHIndustry & LLLCommunity business environs, telling us so – they’re using these ‘wishes’ as corporate touchstones in 2015!
If YOU have friends and colleagues in the MHIndustry & LLLCommunity asset class who, as pioneers and leaders, deserve induction into the RV/MH Heritage Foundation’s prestigious Hall of Fame, and you don’t take appropriate steps to have them so – considered, you are doing them a severe disservice! To date, I’ve recommended a half dozen of my peers, and four have been inducted, and two are still under consideration.
Las Vegas. Not my favorite business meeting venue. As I’ve said ‘for years’, it’s the last place an industry, trying to shed its’ vehicular heritage should patronize. We are no longer ‘mobile home dealers’ so shouldn’t be gambling with blackjack dealers. I’ll be present, on 15 April, at the behest of clients and peers meeting privately to parse serious industry matters. No, I’m not a public presenter this year. But it wouldn’t hurt to inquire of the show organizers, as to when and where they’ll be asking for my help in the future.
Here’s How to Improve Homebuyer Financial Capability Once & For All!
Impetus for this weeks blog feature:
The Corporation for Enterprise Development, or CFED, via their ‘#FinCapWorks’ Program, during April 2015, challenges housing providers (That’s you & me!) to describe how to improve individual & household financial capability & stability, as an essential strategy for building financial well-being! For information, phone (202) 408-9788.
There is indeed a practical means of doing this, if and when personal property loan (chattel) and realty-secured mortgage originators/lenders have the intestinal fortitude (i.e. guts) to make one significant change in the manner they presently qualify individuals and households for home financing! After reading, copy and pass this message onto them…
Conceptually, this means ‘no longer applying all an individual or household’s 30 percent Housing Expense Factor, or HEF*1, of their Annual Gross Income or AGI, to Principal, Interest, Taxes & Insurance, or PITI’.
And for that matter, all of a local housing market’s Area Median Income, or AMI, to just PITI, for future such loans and mortgages, when previewing and ascertaining apropos price points for rental and mortgaged housing to be sold there in the future.
The following four paragraphs demonstrate this recommended ‘sea change’ in as many scenarios or perspectives, using the following ‘givens:
$51,229 AGI (i.e. the national AMI for years 2010/2011); 30% Housing Expense Factor or HEF; real estate mortgage terms at 6.5% @ 20 years; and in the case of manufactured housing sited in land-lease-lifestyle communities (a.k.a. manufactured home communities), chattel capital terms at 9.5% @ 20 years; and, a rental home site rate @ $333/month.
• In the first instance, contemporary practice regarding conventional housing sited on realty owned fee simple: 100 percent of an individual’s 30 percent HEF of AGI is applied as PITI, to gauge individual or household’s ability to qualify for a mortgage. For example, $51,229 X .30% = $15,368 PITI divided by 12 months = $1,281/month PITI, to service one’s mortgage @ 6.5% & 20 years, resulting in a maximum mortgage of $171,814. When divided by .9 (to account for 10% down payment), maximum home buying ‘financial capability’ will be $191,000; less the value of underlying realty. Keep in mind, all household utility bills related to this transaction will also have to be paid monthly, but using dollars outside of and in addition to aforementioned 30% HEF, likely increasing the (now) homeowner’s risk of defaulting.
• In the second instance, the recommended future scenario, 25%*3 of the $15,368 PITI calculated in the first paragraph, would be set aside to pay household utility bills related to this transaction. For example, $15, 368 X.75% (the reciprocal of 25%) = $11,527 PITI divided by 12months = $961/month PITI to service one’s mortgage @ 6.5% & 20 years, resulting in a maximum mortgage of $127,151. When divided by .9 (see above), maximum home buying ‘financial capability’ will be $141,000. Again, less the value of underlying realty. But this time around, household utility bills related to this transaction will be paid monthly with dollars included within the aforementioned 30% HEF; meaning yes, ‘less house’, but ‘more financial capability and stability’, putting the (now) homeowner on a path to enhanced financial security in the near, and likely long term!
Restating the obvious. We’ve all heard it said, “When buying a home, limit household expenses to 30 percent!” Some, if not most lenders, believe 30 percent HEF should be for PITI alone; others today, usually a minority, believe 30 percent HEF should include PITI and household utility bills, not including CATV expenses. The present practice results in ‘more house’ and yes, ‘more risk’ for the borrower, and certainly more profit for the lender. The latter, however, depending on size of down payment, can mean ‘less house’ and yes, ‘less risk’ for the borrower, and certainly less profit for the lender. In light of what’s happened throughout the U.S. housing market since 2007, the latter practice is a far better means of improving household financial capability and stability, as an essential strategy on the path to building financial well-being! Time for a change? Let’s hope so!
• Then there’s the matter of manufactured housing sited on rental homesites within LLLCommunities. The numbers ‘work similarly’ but for the added presence of monthly site rent (not a factor with conventional housing sited on realty owned fee simple), and higher interest chattel capital. Today, 100 percent of an individual’s 30 percent HEF of AGI is applied to PITI and site rent, to gauge an individual or household’s ability to qualify for a chattel mortgage. For example, $51,229 X .30% = $15,368 PITI divided by 12 months = $1,281/month to service PITI, but first deducting site rent of $333/month, leaving $948/month to pay one’s mortgage @ 9.5% & 20 years, resulting in a maximum mortgage of $101,702. When divided by .9 (to account for 10% down payment), maximum home buying ‘financial capability’ will be $113.000. Keep in mind, all household utility bills related to this transaction will be paid monthly with dollars, outside or and in addition to, the 30% HEF, likely increasing (now) homeowner’s risk of defaulting. But in this instance, there is no deduction for the value of the underlying leased realty or rental homesite…
• In this second instance, or recommended future chattel capital scenario, 25% of the $15,368 PITI and site rent amount, calculated in the previous paragraph, is set aside to pay household utility bills related to this transaction. For example, $15,368 X .75% (the reciprocal of 25%) = $11,527 PITI and site rent, divided by 12 months = $961/month to service PITI, but first deducting site rent of $333/month, leaving $628/month to pay one’s mortgage @ 9.5% & 20 years, resulting in a maximum mortgage of $67,372. When divided by .9 (see above), their maximum home buying ‘financial capability’ will be $75,000. But this time around, all household utility bills related to the transaction will be paid monthly, with dollars included within aforementioned 30% HEF; meaning yes, ‘less house’, but ‘more financial capability and stability’ overall, setting (now) homeowner on a path to enhanced financial security in the near, and likely long term! Note. Again, in this instance, there is no deduction for the value of the underlying leased realty or rental homesite…
Bottom line? First and third bullet point examples demonstrate conventional lending practice, relative to qualifying today’s borrowers for buying site-built homes on realty conveyed fee simple; and, manufactured homes on rental homesites in LLLCommunities. The second and fourth bullet points demonstrate how the same starting point AGI, of $51,229, can be used to buy ‘less house’ while at the same time, ‘enhancing financial capability and stability’ on the path to financial security. Will today’s lenders soon affect such a sea change en masse? I doubt it.
What’s aggravating about this matter, is how prospective homebuyers accept they must pay in excess of $200,000. to buy a contemporary site-built home, often ‘risking everything’ to do so (See first bullet point above); while, HUD-Code manufactured housing, costing half as much, on a square foot comparison basis, is eminently affordable, even when paying fair site rent in one’s local housing market (i.e. Usually 1/3rd the rent charged for a 3BR2B conventional apartment unit). There is a definite disconnect here, relative to what is and what is not affordable housing.
Implementing the not so new but rarely used guideline, described in bullet points two and four, increases home buyer’s financial capability and stability, without taking on unnecessary and additional risk, on the way to eventual financial security! *3
Anyone out there listening – and now motivated to begin a sea change for the better?
1. HEF. ‘30% Housing Expense Factor’ or Housing Measure, is one of several measures of affordable housing in vogue today; the others being The Housing Opportunity Index or HOI Measure, The Housing Wage or HW Measure, The Workforce Housing or WFH Measure, The Income to Home Value Ratio or IHVR, a.k.a. ‘Realtor’s Rule of Thumb’, and ‘The One Who Believes…’ These from the Book of Formulae, Rules of Thumb & Helpful Measures…Available for $19.95 from PMN Publishing, Indianapolis, IN. (317) 346-7156
2. 25% = estimate of percentage of AGI needed for household utility expenses, not to include CATV
3. For a more detailed study of this concept, including a discussion of front and back end ‘debt-to-income’ ratios, read ‘Contemporary Archetype of Truly Affordable Housing in the U.S.’ Available for the asking, via Official MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764.
Reviewing COBA7®s WISH LIST for 2015
Here we revisit the second of five WISHES on COBA7®s 2015 WISH LIST!
WISH # 2. “Continue to promote Community Series Homes and CSH Model production among HUD-Code housing manufacturing plants nationwide; and publicizing and growing the percentage of shipments going directly into land-lease-lifestyle communities for resale or rental use. 24th annual International Networking Roundtable theme to be:
‘Encourage manufacturers & communities to work together to build, sell & finance, & rent more new HUD-Code homes!’
Well, if you read this weekly blog posting faithfully, you know this WISH is ‘well underway’! Already a half dozen of the largest HUD-Code home manufacturers have accepted invitations to be keynote presenters at the aforementioned event, 9-11 September 2015, at the Hilton Resort Hotel on Mission Bay in San Diego, CA. Be present the morning of 10 September to hear and learn from Joe Stegmayer of Cavco Industries, Keith Holdbrooks of Clayton Manufacturing, the new CEO of Champion Homes – when named, Terry Decio of Skyline Homes, and Wally Comer of Adventure Homes. Additional MHARR manufacturers have been invited but not yet replied. Also invited CEO from Factory Expo Homes, a franchise chain of 20+ MHRetail salescenters co-located with factories throughout the U.S.
Furthermore, you’re likely aware during year 2009, when the second National State of the Asset Class caucus was held 27 February 2009, at the RV/MH Heritage Foundation’s Hall of Fame in Elkhart, IN., bringing 100 HUD-Code home manufacturers and LLLCommunity owners/operators together, the percentage of new homes going directly into this unique, income-producing property type was 25 percent. And how, once the Community Series Homes were in production that year, that percentage has increased to 30 percent by year end 2013. Hopefully we’re looking at 35 percent by year end 2014, and even higher by the end of this (2015) year. Frankly, that’s why LLLCommunity owners/operators are now oft referred to as being the New Breed of MHRetailer & Lender!
The manufactured housing and land-lease-lifestyle community business models are a – changing, right before our eyes! Look at all that’s happened between years 2000 and 2009, and up until now. Be an integral part of this dynamic unfolding of our exciting history; affiliate with the Community Owners (7 Part) Business Alliance®, or COBA7®.
RV/MH Hall of Fame Requesting Nominations for RV/MH Hall of Fame
Class of 2016.
“To be eligible, the Hall of Fame nominee must be, or have been, an active participant in any segment of the recreational vehicle, campground, or manufactured housing industries for a minimum of 25years.” This also includes businessmen and women actively engaged as land-lease-lifestyle community owners/operators.
A completed application is required, as well as three supporting letters – no more, no less!
For more information, phone (800) 378-8694 and request a nomination packet of information.
See YOU in Las Vegas? Look me up!
Yes, I’ll be at the MHCongress in Las Vegas the afternoon of 14 April, all day the 15th, and morning of the 16th. But I may be difficult to find. Why? I’ve been asked to make several guest appearances with various groups meeting privately at this year’s event. In one instance, I’ll brief folk about the fourth and present day consolidation WAVE of LLLCommunities, labeled the Asset Aggregator Wave. Who the ‘players’ are, etc..
Then I’ll meet privately with representatives from one or more of the GSEs, relative to unique financing needs of land-lease-lifestyle community owners/operators throughout the U.S. Later the same day, will be caucusing with realty-secured lenders and brokers featured in the recently released Signature Series Resource Document: ‘17th National Registry of All Lenders Serving the MHIndustry & LLLCommunities’. If you don’t yet have a copy of this seminal report listing 25 lenders/brokers, affiliate with COBA7® ASAP, at the Option II level ($544.95) by phoning the MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764. It is chock full of $$$ information!
If and when you see me in Las Vegas, ask for a FREE 3X5 plastic COBA7® ‘Did You Know?’ statistics card, bearing the alliance’s motto: ‘U Support Us & We Serve U!’