News & Notes Archive - Feburary 2009
Near death carbon monoxide poisoning of Utah baby linked to potentially fatal design flaw in manufactured homes. ABC News breaks story nationally. HUD’s safety oversight brought into question. Homes with combustible gas heating and air conditioning may be at most risk.
In a February 4, 2009 article on its network web site, ABC News reported the story of a couple in rural Manti, Utah whose infant son, born in the winter of 2007-08, was tiny, sickly and seemingly at death’s door. Concerned neighbors, who knew the couple–David and Mary Conrad–were practicing vegans who ate no meat products, suspected the infant’s diet may be the cause.
Last spring state welfare authorities charged the Conrads with nutritional and medical neglect of their child, Daniel. Desperate to find the real cause, the couple consulted Thomas Rodgers, a family friend and a former scientist who suggested carbon monoxide poisoning may be the cause, especially since the couple and their four other children, age six to 16 who are healthy, had all experienced from time to time low level nausea, a classic symptom of the poisoning.
Investigating the roof of their manufactured home, David Conrad discovered that the exhaust vent of the home’s gas furnace was only three feet away from a motorized fresh air intake vent. Carbon monoxide-laden exhaust fumes could easily be sucked down into the vent where the colorless tasteless gas would contaminate the indoor air.
Adding to the likelihood that this was precisely what occurred during a snowy very cold winter, was the presence of dense cold air that causes hot exhaust gases to hover near the roof instead of escaping skyward. A slight breeze in the direction of the fresh air vent would be all that was needed to result in contamination. Note: the ABC story has a link to a video “Watch the hazardous gasses in action.”
Conrad and Thomas blocked the fresh air intake vent with duct tape, opened a window to draw in fresh air, and their son Daniel began to improve immediately. Still, the couple had to spend the next eight months, aided by now supportive neighbors, battling the state’s Child and Family Services in court to keep their child. The Conrads were successful, and Daniel is now 16 months old and healthy. The family has since been warning other families of the potential danger.
A happy ending, but considerable pressure is bound to be brought to bear to change the HUD regulations for the minimal distance between roof vents. Here’s what the current HUD code says:
§3280.611 Vents and venting.
f) Vent terminal–(1) Roof extension. Each vent pipe shall extend through its flashing and terminate vertically, undiminished in size, not less than 2 inches above the roof. Vent openings shall not be less than 3 feet away from any motor-driven air intake that opens into habitable areas.
Utah’s local and state building codes currently require vents to be at least ten feet apart. The Conrads, whose case had attracted the interest of the Sierra Club and state legislators, argue that HUD should require a minimum of ten feet.
HUD’s role has been called into question. Remarked, Rebecca Morely, director of the National center for Healthy Housing, “Is HUD the best regulator of the units (HUD homes)? There should be more oversight. Who is responsible for quality control for both health and safety?”
A spokesman for HUD’s manufactured housing division, when notified of the Utah case, said that this was the first incident of this kind that has ever been brought to its attention. He advised that the issue would likely be handed over to the agency’s Manufactured Housing Advisory Committee (MHCC), a committee of stakeholders (scientists, engineers, consumers and industry professionals) with an eye to changing the design regulations.
Comment: With this story gaining momentum and national attention, once again HUD-ville takes a big hit to its image. It’s hard not to believe that its homes are nothing more than cheaply constructed, poorly designed housing for the working poor.
Last summer the buzz was all about formaldehyde out gassing from travel trailers and single-section HUD-code homes used for temporary housing by hurricane victims. This is absolutely the last thing this industry needs to experience.
However, as a journalist, I extend congratulations and kudos to ABC news reporter Susan Donaldson James for a first-rate, well-sourced investigative report that exemplifies what good solid journalism is all about.
Yes, something needs to be done soon. I know several members of the MHCC and all are dedicated, committed volunteers who receive no pay, only travel expense reimbursement. They will move quickly and the regs will surely be changed. God only knows if there will be any litigation, but if any should eventuate, it will likely be expanded into a class action law suit. But against whom? The manufacturers? HUD?
I will follow this story and report on any future developments here in News & Notes.
As recession deepens, MH plant closings mount. Industry production capability could shrink 30% by summer. What this could mean for home buyers.
Figures released early this month by the Institute for Building Technology & Safety (IBTS), the Washington, DC-based organization that tracks numbers for HUD, show a total of 169 production facilities around the U.S. are currently engaged in building HUD-code homes. That figure is down from 180 in October of last year.
But the worst may be yet to come. Some plants shut down over the holidays due to lack of orders, which are typically low during the winter months. With many retail dealerships struggling to make ends meet, and with sources drying up for so-called inventory flooring loans (loans to pay for lot models until they’re sold), orders from retailers for model homes may drop dramatically. This in turn could trigger a corresponding increase in plant closings.
One industry professional familiar with these trends told me he would not be surprised if by summer the total number of still-operating plants was in the 125 range, amounting to a roughly 30% contraction since last fall in the MH industry’s total production capacity.
Put another way, by this summer another 43 plants could be idle. For many companies, this will be catastrophic, forcing them into bankruptcy or sale. This is particularly true of builders that produce only HUD code homes, versus a mix of HUD and modular code dwellings. Unfortunately, the MH industry is generally weak, with very few players strong enough to buy their competitors, or even assume their debt.
Companies that are able to produce, in addition to HUD code homes, modular-code homes and RVs (especially park models), should fare better during the crunch, but the outlook is still grim. Adding to the challenge, some parts and materials suppliers to the RV and factory-built home industry are themselves in survival mode, and may go under.
In late January, Liberty Homes, the Goshen, IN-based builder, announced it was closing its Statesville, NC plant, laying off 90 workers. Patriot Homes, also HQ’ed in Indiana, has closed its Texas plant, and another facility in Indiana, and reportedly laid off its entire engineering staff before last Christmas. And Fleetwood, as reported last month, is closing seven of its plants.
For its part, industry stalwart Palm Harbor Homes reported company sales for the fourth quarter of last year were $89.6 million, down from $140.6 million during the same quarter a year previously. PH’s shipments to its most important markets–Texas, Florida, Arizona and California–were down nearly 38%. Larry Keener, Palm Harbor’s CEO said they expect this downward trend to continue through calendar 2009. The company is looking to free up some working capital by leveraging some of the more than $100 million in unleveraged assets on its books.
Also hanging in there is Cavalier Homes, a publicly held builder HQ’ed in Addison, AL. On January 27, 2009, Cavalier agreed to sell its in-house finance company, CIS Financial Services, Inc., to Jacksonville, FL-based Triad Financial Services, one of the industry’s oldest (and consistently successful) manufactured home lenders, for $750,000 cash plus CIS’s loan portfolio. According to the company’s CEO, “Bobby” Tesney, the transaction was in no way an indication of any change in Cavalier’s fortunes. “We think we will be here for the long run,” he explained in a subsequent phone call. In fact, Cavalier has excellent cash reserves and no long term debt, so the builder looks to be in good shape to weather a long downturn.
For home shoppers, the good news is this remains a buyer’s market with retailers bending over backwards to sell you a home, and at a very competitive price. But be certain the manufacturer from whom you’re contemplating buying is still in business and will be there to take care of your warranty needs. And don’t completely rely on your retailer for assurances. Verify all dealer claims. Visit this site for the latest news, and don’t hesitate to email me if you have any questions.
With some big banks moving to block mortgage brokers from offering their loans to consumers, home buyers may have fewer choices.
In its February 1, 2009 edition, the New York Times reported that some large national banks, such as JPMorgan Chase, are no longer accepting home loan applications processed by mortgage brokers. [See also the story that follows this item.] Ostensibly the reason is, during the go-go subprime home loan years, many independent mortgage brokers played fast and loose with the documentation criteria they used to qualify borrowers, allowing many to obtain loans way beyond their ability to pay. The banks in turn suffered the losses, not the mortgage brokers who pocketed their origination fees and incurred no further liability.
There is much truth in that argument, but regrettably a decrease in the number of reputable independent mortgage brokers (who typically offer a wider variety of loan products than the local bank) means home buyers will have less choices and may be obliged to borrow from local institutions who often charge higher interest rates.
For their part, the mortgage brokers counter that it was the lenders, not the brokers, who determined the submitted loan documentation was satisfactory and thus it was the banks’ sloppy standards that ultimately were the source of so many subprime loans going south.
The brokers certainly have a point. In my view both parties are to blame. For several years there, the banks were busy selling their brokered loans to Wall Street’s masters of the universe for big money and they, like the brokers, could have cared less how bad the loans were because they, too, were off the hook if the loans went south. But that’s another story.
This said, I recommend my clients talk to a reputable mortgage broker as part of the process of shopping for the money before shopping for a home. For more on working with mortgage brokers, please see the discussion on mortgage brokers in chapter 4 of The Grissim Buyer’s Guide to Manufactured Homes & Land.
Speaking of mortgage brokers, Clayton Homes’s subsidiary finance company, 21st Mortgage Corporation will cut them off as of March 1, 2009. But wait, there’s more....
Pity the nation’s independent MH dealers. As I reported in the Grissim 2009 Report, last month the Clayton-owned subsidiary finance company, 21st. Mortgage Corp., announced that due to lack of funds to lend, it was largely pulling out of the inventory flooring business for dealers who sold homes other than those built by Clayton and Clayton-owned subsidiary manufacturers. Then, on January 30, the other shoe dropped.
Tim Williams, 21st’s president, sent an email “to all MH retailers and mortgage brokers” announcing that due to the bank’s inability to find money to lend indie dealers to finance retail home sales, effective March 1, 2009 the bank will limit its financing programs to the following (I’m quoting here):
- We will no longer offer any of our programs to Mortgage Brokers.
- We will offer FHA Title I financing for any brand home subject to retailer meeting FHA requirements.
- All other finance plans will only be offered for sales of the following homes:
a. 21st Mortgage repossessions
b. New homes built by Clayton Homes, Karsten Homes, Southern Energy or any other Clayton Homes subsidiary. The dealership must be a 21st Mortgage approved retailer.
c. For any brand of home floor planned with 21st Mortgage prior to March 1 2009
d. For any brand of home sold from a retailer’s inventory provided the retailer replaces the inventory with a home built by a Clayton Homes subsidiary.
Williams’s letter went on to say:
“We will continue to seek adequate funding so we can once again become an active lender meeting all your needs. You need to take appropriate action to apply for financing with alternative lenders, including CU Factory Built Lending, Triad Financial, and US Bank. Many retailers have found the FHA a viable alternative and I urge you to talk with your credit manager and become familiar with the terms available.”
This announcement was directed to independently owned MH dealerships that have long used 21st Mortgage’s lending programs for homebuyers. But Clayton Homes’ also owns a second finance company, Vanderbilt Mortgage, which offers similar loan programs exclusively through Clayton Homes-owned dealerships. If 21st. is having difficulty raising capital to lend, it would make sense that Vanderbilt is also dealing with the same problem.
At this writing, there has been no change in Vanderbilt’s program. However, I have learned from a reliable source that an executive at one of the alternative lenders mentioned above recently received over a two week period calls from the credit managers of 18 Clayton-owned dealerships asking about the availability and terms of both his company’s chattel and home mortgage programs. Do they know something we don’t?
The above developments will not impact homebuyers who intend to pay cash or otherwise obtain financing from their local bank or credit union. The rule here is: dealer arranged financing for your home purchase should be absolutely your last resort. The interest rates are almost always higher than you will find elsewhere in the private sector. Shop carefully for the money before you begin shopping in earnest for the home of your dreams.