Written By: Joel Palmer, Op-Ed Writer
Prompted by a federally mandated “duty to serve” underserved markets, the two government sponsored enterprises (GSEs) have recently released plans to begin better serving buyers of manufactured homes.
Last December, the Federal Housing Finance Agency (FHFA) issued the Duty to Serve Underserved Markets Rule, which was a requirement of the Housing and Economic Recovery Act of 2008. The rule required Fannie Mae and Freddie Mac to determine ways to improve access to mortgage financing to buyers of limited financial means in three key housing markets: manufactured housing, affordable housing preservation, and rural housing.
The rule required the GSEs to submit plans to FHFA proposing approaches to addressing those areas, which Fannie and Freddie submitted and published earlier this month.
In its plan, Fannie Mae stated that it was considering the following steps to make mortgages more accessible for buyers of manufactured homes:
• Review opportunities to lift certain selling guide restrictions.
• Increase purchases of manufactured home loans from HUD and USDA.
• Seek opportunities to purchase loans for manufactured homes that are financed as personal property while maintaining safety and soundness.
• Review product offers to consider financing strategies for government, nonprofit, and resident-owned manufacturing housing communities (MHCs).
• Research and evaluate FHFA’s proposed minimum tenant pad lease protections.
Similarly, Freddie Mac’s plan calls for “enhanced product offerings, additional homebuyer education specific to manufactured housing titled as real property and technical training for lenders and appraisers to increase financing of manufactured homes titled as real property.”
Freddie’s plan also includes initiating a chattel pilot program and a “focus on standardization and consumer protections in the chattel market.”
Chattel loans are those that are secured only by the home itself and not on the underlying property, since many manufactured homes are built on leased land. In fact, 80 percent of new manufactured homes placed in 2015 were titled as chattel, according to FHFA’s original request for input, published in January.
FHFA is seeking to bring the GSEs back into this market for the first time in nearly 20 years. This would make them more available by infusing liquidity, and GSE involvement could also provide standard product offering and terms for the chattel market.
But as FHFA pointed out in the January RFI, there are risks in involving the GSEs in this market. Manufactured home mortgages have typically performed poorly and homes often depreciate. “Moreover, the Enterprises have limited historical experience purchasing manufactured home chattel loans, with no experience after the financial crisis and during conservatorship. In addition, reliable data about the terms, features, performance, and servicing of recent-vintage chattel loans is generally not publicly available.”
These risks have prompted the National Association of Federally-Insured Credit Unions (NAFCU) to call for regulators to proceed cautiously. The organizationpublished a letter in March and a follow-up letter just a few days after the two GSE plans were released, asking the FHFA to “allow the GSEs more time to fully evaluate the chattel loans market before fully launching a pilot program.”
“NAFCU’s members have expressed concerns regarding the entrance of Fannie and Freddie into the chattel loan market given the history of manufactured housing loans in the secondary market.”
Specifically, NAFCU expressed concern about repeating the problems — loose lending practices and the GSEs failure to scrutinize the quality of manufactured home loans — that led to a wave of defaults and repossessions in the early 2000s.
NAFCU said its members “are also uncertain whether Fannie and Freddie are presently capable of recognizing and fully understanding the intricacies that credit unions face when serving manufactured housing portfolios.”
This includes the high rate of delinquency, which often occurs later in the life of the loan when the home is often worth less than the outstanding mortgage loan balance, as well as titling requirements that vary by county and by state. The industry expressed concern with disruption in the mortgage market due to lenders flocking to the chattel loan market due to the higher interest rates associated with those loans.
FHFA is asking for public comment on the draft plans through June 10.
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.