News & Notes Archive - September 2008
Amidst the economic gloom and doom, the recently passed Housing and Economic Recovery Act of 2008 contains very good news for manufactured home buyers
As I write this Wall Street is in turmoil with more investment banks going belly up, and economists are declaring the country is no-kidding, seriously entering a deep recession. Yet amidst all the bad news is a kernel of very positive developments for potential buyers of manufactured homes that has largely escaped notice, this in the form of the recently passed Congressional legislation aimed at mitigating the home foreclosure disaster sweeping the U.S. in the wake of the sub-prime mortgage meltdown.
The Housing and Economic Recovery Act of 2008 also contains revisions and updates to a number of provisions relating to the Federal Housing Administration (FHA) that are designed to make home ownership easier and more affordable. Many economists and housing industry leaders believe the law will have a major positive impact.
For example, if you want to buy a single-section or multi-section manufactured home for placement in a land-lease community (i.e., a mobile home park) where you own the home but not the land, you may now be eligible for an FHA-program that guarantees your loan up to about $70,000. This means qualifying lenders can make loans to borrowers at lower rates, knowing that the U.S. government will back those loans in the event of failure. Under this so-called Title 1 Program (which pertains to home-only, or chattel loans), the previous loan cap had been $49,000, which was way below the average $60,000 cost of a manufactured home. As important, the new law provides for automatic inflation-based increases going forward.
Elsewhere in the new law, if you’re contemplating a home-and-land purchase (where your manufactured home is legally tied to the land as real estate), you, like site-built home buyers, qualify for a $7,500 tax credit that can be used toward the down payment.
The Housing and Economic Recovery Act of 2008 goes into effect next month (October). Here’s a short excerpt from the FHA’s web site containing Q&As about the new law:
- Q: How will this law make it more affordable to own a home?
- A: There are a number of provisions that will make homeownership more affordable:
- Creates a refundable tax credit for first-time homebuyers that works like an interest-free loan of up to $7,500 (to be paid back over 15 years).
- Grants states $11 billion of additional tax-exempt bond authority in 2008 that they can use to refinance subprime loans, make loans to first-time homebuyers and to finance the building of affordable rental housing.
- Raises conforming loan limits for the FHA, Fannie Mae and Freddie Mac to $625,500. Because of the high cost of housing in California, a majority of the state’s residents were previously shut out from these programs. Raising these loan limits will lead to lower interest rates on some loans, greater refinancing opportunities, and enable more borrowers in high cost areas to avoid the type of nontraditional and frequently abusive loans that led to the current crisis.
- Provides couples using the standard deduction with up to an additional $1,000 deduction for property taxes ($500 for individuals).
- Q: Does the law provide help to those who still cannot afford to own a home?
- A: Yes. The bill includes a number of provisions to increase the supply of affordable housing, which has been a major problem in California pre-dating the current foreclosure crisis. For example:
- The bill creates a new permanent affordable housing trust fund – financed by Fannie Mae and Freddie Mac and not by taxpayers – to fund the construction, maintenance and preservation of affordable rental housing for low and very low-income individuals and families nationwide in both rural and urban areas.
- In addition, the legislation provides a temporary increase in the Low-Income Housing Tax Credit and simplification of the credit to help put builders to work to create new options for families seeking affordable housing alternatives.
- Note: For the full Q&A that addresses the law’s main features relating to the foreclosure rescue plan, click here: Federal Housing Authority
Below is a recent interview I conducted with the chief economist with the industry trade group Manufactured Housing Institute who has some interesting things to say about the just-passed Housing Bill and Fannie Mae and Freddie Mac as it related to manufactured housing, and what this means to MH buyers. I recommend especially his answers to the last three questions in the interview.
Interview: 15 minutes with...Tom Beers
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:
Tom Beers, VP of Economics and Housing, Manufactured Housing Institute
Who: Vice President of Economics and Housing Finance for the Manufactured Housing Institute
Background: Age 33. Born in 1975 in Cincinnati, OH. By age five moved to San Diego, CA where his father was a psychologist with the Kaiser Permanente Medical Group, his mother a social worker with the Armed Services YMCA. Attended UC Santa Barbara, majoring in economics. Graduating in ’97 with a specialty in labor economics, moved to D.C., landing his first job at the Bureau of Labor Statistics in the Department of Labor. “The job was a lot more exciting than it sounds. I worked in the office that publishes the unemployment stats on the first Friday of the month. It was always interesting to watch the stock market right after our data were released. While there, he got his Masters in Economics from Johns Hopkins University.
In 2000, moved to a private sector position for eight months, working for Imake Consulting, a structured financial analysis company, helping model mortgage-backed bond deals for major banks, including security offerings by Fannie Mae and Freddie Mac. “I learned a lot. This was real-time business economics, not Ivory Tower research. Money was starting to pour in from all over the world to fund U.S. mortgages. Of course, this was long before the subprime mortgage boom began.”
In 2001 accepted a job with the National Association of Realtors (NAR) running their survey research department. “NAR had huge masses of data, so there were lots of opportunities to drill down to answer questions. Beers married his fiancee Maymie in 2004.
In 2005 when a vacancy for an economist opened up at MHI, Beers was intrigued, interviewed for the job, and landed the position. “Everyone said ‘You’re coming at the perfect time. We’ve bottomed out and you’ll be here for the ride up.’ The first two months our shipments were up year-to-year. Ah, the Tom Beers effect. Then they went back down (laughs).”
- Q: I understand you had to hit the ground running when you came to MHI.
- A: I sure did. I had a lot to learn quickly. There’s a lot more to know about MH than mainstream housing: so many different lenders, different types of loans, sub markets. Plus, a number of issues came up quickly, involving financing, from predatory lending to the settlement process for home closures, and I got closely involved with our Government Relations Department as an advocate on Capitol Hill.
- Q: Do you get out in the field much?
- A: I do. Sitting here in DC it’s easy to look at statistics and make projections, but I go to a lot of state and regional trade association meetings and get great info talking to lenders, retailers, community owners, folks on the front lines. I love my people in the trenches. I learn about new lenders getting into the picture, and micro-level trends, things that don’t show up in the stats. I try to give as good as I get, providing them with tailored reports and projections specific to their regions.
- Q: Congress appears about to pass an omnibus housing bill that contains provisions germane to MH that have a lot of industry folks genuinely excited. Your take?
- A: There’s a lot to be excited about. This bill could very well determine the future of personal property lending, how chattel loans are financed. It raises the loan limit on personal property home loans guaranteed by the US Government under the FHA Title 1 program from $49,000 to about $70,000, and provides for automatic inflation-based increases going forward. That’s a huge bump. In addition, the loan insurance program has been revised so it’s now much more straightforward for lenders. And most important, these Title 1 loans are eligible to be securitized through Ginnie Mae (Government National Mortgage Association). This provides liquidity for FHA loans which will attract new lenders to the program. To give some perspective here, Title 1 once insured 50,000 loans a year, but over the last ten years or so, that number has been less than 2,000, because the loan cap was so low, and there was a moratorium on new qualified lenders, not to mention a cumbersome insurance system.
- Q: Could that trigger an influx of new home owners going into land-lease communities?
- A: Absolutely. The main impediment to improvement in this market space has been the unavailability of affordable, common sense financing. Now, a homebuyer can move into a new home in a community with a government-insured loan, pay a few hundred dollars a month in rent, with a monthly payment of, say, around $600, putting some money down so they have some skin in the game, and they know they’ll have a fixed monthly loan amount for the duration of the loan. That’s a very good option for a lot of people who two years ago may have been stuck with a site-built home they’d be losing about now.
- There’s another component in the bill that is crucial to MH’s future: there’s a “duty to serve” directive given to Fannie and Freddie that mandates they enlarge their portfolios to serve the needs of people looking to buy a manufactured home. I believe they’ll move into areas they’ve never considered, such as purchasing chattel loans, including those for single-section homes. That in turn will provide a whole new avenue of liquidity for lenders. Then, I think eventually you’ll see other larger institutions, traditional lenders, move back into this market.
- Last, Fannie Mae’s new MH Select program should also help, providing manufactured homes that look and feel like site built homes with the same loan terms as site-built housing.
- Q: Won’t tighter credit standards have a dampening effect?
- A: Yes and no. MH lenders have been dealing with tighter credit for years. The subprime boom did not help them, it hurt them. Here’s something that really surprises people: the average FICO score of today’s MH buyer is far higher than that of site-built buyer. Look at Origen’s portfolio, for example. The average FICO is in the 710-720 range. That’s because MH lending has long since corrected for its excesses in the 90s.
- Put it all together and the potential is there to see some really dramatic changes over the next couple of years. Our industry could be in for an exciting time.