Industry groups said legislative action is needed to maintain access to credit for manufactured home buyers. Advocacy groups said government-backed mortgage companies need to buy manufactured home loans to lower lending costs.
Mobile homes they are not
Manufactured homes are built in the controlled environment of a manufacturing plant and then are transported on a permanent chassis, according to the U.S. Department of Housing and Urban Development (HUD).
Factory-built homes were once called mobile homes, until federal construction and safety standards were put in place in 1976. All factory-produced homes built since 1976 to HUD specifications are called manufactured homes.
Many new manufactured homes are nearly indistinguishable from site-built homes, but on average they cost about half as much per square foot, excluding the cost of land, experts said.
The units are built in factories where thousands of homes of the same design are created, according to the Manufactured Housing Institute, a national trade group representing members of the factory-build industry. Standardization cuts down on costs related to materials and problems that occur during home construction, such as bad weather.
Manufactured homes were very popular up until the late 1990s. Sales in Ohio fell from a high of 8,017 in 1998 to a low of 596 in 2009, according to data from the institute.
The market collapsed because more and more lenders provided credit to people who could not afford to repay the loans, said Doug Ryan, director of affordable homeownership with the Corporation for Enterprise Development, a Washington, D.C.,-based nonprofit.
Loan quality was sacrificed for loan quantity. Many borrowers defaulted, and lenders lost money because the value of the homes they repossessed were less than the loans. As a result, there was an abundance of used units on the market.
The loose lending practices and costly aftermath foreshadowed what would happen in the larger housing market just several years later, Ryan said.
But after years of declines, sales of new manufactured homes in Ohio bounced back 9 percent in 2010, before then dipping again in 2011.
Last year, new sales surged 28 percent in the state, the largest increase since at least 1991.
Last year, about 14,300 housing units were taxed as manufactured homes in Butler, Champaign, Clark, Greene, Miami, Montgomery and Warren counties, according to data from the Ohio Department of Taxation. About 4 percent of housing units in Ohio in 2011 were manufactured homes, Census data show.
The increase in sales in Ohio, which mirrors the national trend, partly reflects rising prices of traditional homes and rental properties, Ryan said.
People have been “priced out” of other housing options, and a growing number of low-income residents view manufactured homes as a good investment that can help them climb out of poverty, he said.
The economy also is improving, and more people are employed and can finally afford new housing, said Williams, with the Ohio Manufactured Homes Association.
“The big thing is jobs,” he said. “A lot of sales are occurring in the Utica Shale region.”
But financing remains a significant issue that has negatively impacted sales.
The typical buyer of a manufactured home must use a personal property, or chattel loan, which is the same type of consumer loan people use to purchase automobiles.
In comparison to traditional mortgages, chattel loans usually have interest rates that are 2 to 9 percent higher and the repayment period is usually between 15 to 20 years, instead of 30 years, experts said.
Government-sponsored enterprises, including Fannie Mae and Freddie Mac, also do not buy manufactured home mortgages unless they are secured by land in addition to the units, experts said.
Banks and mortgage lenders often avoid manufactured home loans for this reason, which restricts financing options for consumers.
Industry advocates said Fannie Mae and Freddie Mac have a duty to serve the underserved manufactured housing market, and targeting these loans would strengthen the secondary market and lower the cost of lending, which would lure more lenders into the market.
“If GSE’s backed the loans, many more lenders would offer the loans and this would be a game-changer for lower- and moderate-income citizens as well as retirees and young families to realize quality and affordable homeownership,” Williams said.
Industry trade groups are also calling on Congress to take action to amend the Dodd‐Frank Wall Street Reform and Consumer Protection Act, which could classify many manufactured home loans as “high-cost mortgages,” thereby placing additional restrictions on the loans.
In April, U.S. Rep. Stephen Fincher, R-Tenn., introduced a bipartisan bill that would amend Dodd-Frank to change the criteria that determines whether home loans are classified as “high cost” to “protect” the availability of financing for manufactured housing.
A spokeswoman for U.S. Sen. Sherrod Brown, D-Ohio, said Brown is considering reintroducing legislation in the Senate that would take similar action, and exempt manufactured home retailers from the requirements of Dodd-Frank, which are set to take effect in 2014.
“The legislation that has been proposed will try to go back and correct some of that stuff,” said Dan Rolfes, founder and CEO of Holiday Homes, which sells manufactured homes in Ohio. “If it doesn’t get fixed, the industry will go back into a dive.”