News & Notes Archive - April 2007
Prospects for finding a loan for a new manufactured home have improved despite the near collapse of sub-prime lenders in the site built housing market
In recent weeks a slew of stories have chronicled the sudden collapse of several major national home lenders who specialized in making “easy money” home loans to borrowers whose credit ratings were not high enough to qualify for conventional bank home loans. These so-called sub-prime loans, characterized by high interest rates and monthly payments that increase significantly after the first few years, have resulted in tens of thousands of home foreclosures, accelerating the slowdown in mainstream housing.
Significantly, the manufactured housing sector has largely escaped the subprime crisis. Why? Because in the 1990s, the MH industry had its own experience with easy-money subprime lending. During that decade undisciplined lending sparked a huge jump in MH production (up to 353,000 homes a year at its peak) before collapsing in an avalanche of foreclosures. From 1999 to now, the industry shrank 68 percent. Annual volume these days is about 100,000 homes built.
Along with the contraction, financing for manufactured homes, especially those on leased land, such as mobile home parks, all but dried up. Loans on homes only (no land) are called personal property loan, or chattel loans. True, local banks and credit unions have always financed manufactured homes but only to those with good credit ratings. But nationally, finding financing for MH, especially chattel loans, has been a challenge for years.
Over the past two years, the lending picture has improved markedly. In addition to local banks and credit unions, there are now a number of banks and lenders nationally offering manufactured home loans, including chattel loans.
Here they are, together with descriptions:
21st Mortgage 800-955-0021
Vanderbilt Mortgage 865-380-3000
Both these lenders are wholly owned by Clayton Homes, Inc., itself a subsidiary of Warren Buffet’s giant holding company Berkshire Hathaway. Vanderbilt Mortgage sells and services loans only to homebuyers purchasing homes at Clayton owned dealerships. 21st. Mortgage provides loans only to independently owned dealerships, whether or not they sell brands built by Clayton. Note: Clayton Homes, Inc. is the 800 lb. gorilla of the MH industry (owning many subsidiary manufacturers) but its profits from its lending banks (and its insurance company) far exceed the revenue from the homes it sells. In this respect it’s more a bank than a builder.
Triad Financial 800-522-2013
Not a bank per se but a loan broker who sells their loans to banks who put up the money. Triad services the loans.
CIS Financial 205-921-4814
Like Triad, not a true bank but a broker. Wholly owned by Cavalier Homes, Inc.
CountryPlace 972-764-9241
Same as Triad. Wholly owned by Palm Harbor, serving as an in-house lender to buyers of Palm Harbor homes
Origen Financial 00-492-1874
A “true” lender, using its own money, loaned in its name.
USBank/MH 866-300-8345
A “true” lender, using its own money, loaned in its name.
SACU/CU Lending 210-258-1464
A “true” credit union lender.
Note: This is the San Antonio Credit Union (HQ in San Antonio, TX). It’s MH lending subsidiary is CU Factory Built Lending, LP. Note: Because SACU/CU is a not-for-profit credit union, with interest rates usually a click lower than the competition, I recommend you try them first. They also helped created Factory Built Owners of America -- http://www.factorybuiltowners.org – which represents MH home owners and consumer education, an excellent organization.
Interview: 15 minutes with...Fred Hallahan
Note: In my role as an industry observer and consumer advocate I speak with people at all levels of the manufactured home industry (MH) to gain insights I share with my readers to help them be better informed. Some I have interviewed for a one-page column that runs in an industry trade publication. In return the magazine runs an ad for the Grissim Guides. No money changes hands. I insist on this. Aside from book sales, I neither solicit nor accept a dime from the industry, and my readers have my assurance I intend to keep it that way. Here’s this month’s interview:
Fred Hallahan, principal, Hallahan Associates, Baltimore MD
Who: Founder and principal of Baltimore, MD-based Hallahan Associates, a business planning and marketing consulting firm serving the housing industry (including builders, manufacturers, landowners and financial providers) with special expertise in factory-built systems, in particular modular homes.
Background: Age 68, born and raised in Springfield, MA. Grew up working in his father’s retail lumber business. Earned BA in Civil Engineering in ’59 from Syracuse University (NY), followed by an MBA in ’61 from U. of Pennsylvania Wharton Graduate Division. After a brief stint in the Army Reserve, worked several years (’62-’66) for Stone & Webster (a Boston area engineering firm specializing in power plant construction) before moving to Booz-Allen & Hamilton, one of the largest management consultant firms in the U.S., his work involving long term facilities studies for industries and hospitals (“researching market demand twenty years in the future and planning capital expenditures.”) In ’72, “when my entrepreneurial spirit came to the fore,” returned to Springfield and became a home builder, teaming with his brother (who had taken over the family business) to found Landgraf Associates. Over the next 12 years, company was highly successful acquiring land and developing subdivisions (average 60 homes annually), becoming the largest homebuilder in the greater Springfield area.
In ’82, when the New England economy tanked, moved back into the corporate sector, joining MD-based Ryland Group (one of the Top 10 US builders) to become VP of Ryland Modular Homes, a start-up division. In three years company became the nation’s largest modular builder (2,200 homes annually), largely by selling into urban and suburban markets. Despite this success, by ’86 he’d determined “I just wasn’t a corporate guy,” and left Ryland amicably to found Hallahan Associates. During the two decades since, he has consulted for a substantial number of clients within the housing industry, in particular modular manufacturers, large and small, garnering a reputation as the premier consultant in this market segment. Elsewhere, through the years he has volunteered his expertise in hospital capital expenditure planning by serving as a trustee on hospitals in Massachusetts and Maryland. He recently stepped down as Board Chairman of The Franklin Square Hospital Center in Baltimore. He has two children, daughter Megahn and son Derick, by his first wife Ann, whom he married in 1965 and who succumbed to breast cancer in 1995. He has since remarried to Jan, “a wonderful woman who has twin girls, Laura and Lisa,” from a first marriage. The couple has six grandchildren, “and working on a seventh.”
- Q: You’ve just passed the twenty year mark as, among other credits, the housing industry’s go-to guru on all things modular. What stands out most in your two decades work in this area?
- A: A lot of satisfaction for the services I provide, for one. I have as clients the most progressive companies in modular housing, from small family operations to big publicly held companies. And despite its small market share, about two percent nationally, modular housing continues to attract both practitioners in the building industry as well as among the financial community: entrepreneurs and venture capitalists. The market’s fascination with modular housing continues to amaze me.”
- Q: Your thoughts on why modular housing hasn’t achieved a larger market share?
- A: Historically, there have been three restraints. The first is design. For decades most factory housing, because it’s production driven, had plain vanilla designs. That’s good for production but as you move into the reality of the marketplace, consumers want customization and the builders selling to them want home designs that set them apart from their competition. This restraint is being lifted, for example, in the Northeast—Maryland through New England. Manufacturers there can produce pretty darn close to a one-off product and still control production quality and be cost effective. Second, cost effectiveness. Modular homes are not competitive in areas of the country where direct labor and material costs are still low, large portions of the Sun Belt, for example, so growth there has been restrained. But as labor costs are escalating, especially on the east and west coasts, cost effectiveness is shifting to favor factory fabrication. In an increasing number of states modular home sales are far greater than HUD home sales, because consumers and builders with high design requirements are discovering modulars can deliver at significantly less cost than site-built homes. For example, modulars produced in low labor-cost areas like central Pennsylvania and shipped to metro New York city become very attractive for builders who can save anywhere from 10% to 20% on direct hard costs. In sum, it’s production in a low-cost area and consumption in a high-cost area that drives modular growth.
- The third restraint has been marketing—and here my opinion has generated some controversy. I believe the best thing that’s recently happened to the modular industry is the movement into modular housing by large and small HUD code manufacturers. Historically, modular manufacturers have seen their growth restrained by the lack of an extensive and diversified network of builder-customers who in turn sell to consumers. But HUD companies having distribution networks already in place to market both HUD and modular homes creates a major force in driving modular sales. Additionally, the HUD-code companies’ presence obliges traditional modular manufacturers to ratchet up their design and customization offerings to compete with site-builders. All in all, it’s a healthy and invigorating competition that exists between HUD manufacturers and modular manufacturers to attract site-builders as customers.
- Q: What’s your assessment of the post-Katrina opportunities on the Gulf coast?
- A: There is a substantial window of opportunity on the coast for customized modular housing. But there are major dynamics at play that are restraining the growth of housing of all types. The financial and political infrastructure inertia is enormous. Will that inertia be overcome? Yes, but when and to what degree is up in the air.
- Q: Any other predictions?
- A: The future growth of modular housing is tied to converting the site-builders to modular housing. Show them the price advantage and absolutely they will. Builders already acknowledge modular’s high quality that meets aesthetic, design and construction specs. Adding favorable cost parameters increasingly gives modulars greater opportunity to readily compete directly with site building.