This week the government stepped in to back up the debts at Fannie and Freddie.  There is a lot of uncertainty among the public about this decision.

I want to know how it will play in HUD-ville, as one observer calls the manufactured housing industry.

Initial reactions in the market suggest that the benefits of this action could spread all the way to manufactured housing.  On Monday, Champion was one of the top gainers in the entire market.  Today, Thor Industries is up over 5 percent and its only 2 in the afternoon.  What’s going on?

The last time that Fannie explained its relationship to manufactured housing was in its guidance in June 2007. At that point, Fannie pretty much said that they would only buy manufactured housing loans that met some high tests.  All loans had to be for real property.  The owner of the unit had to be the same as the owner of the land.  There were rules on installation standards.  The homes all needed real property title insurance.

I am not expecting the newly managed GSEs to pick manufactured housing as their new project for expanding the American dream of homeownership.  That said, I lament that the residents of these manufactured homes, who make up almost one in twelve households in America, will be on the hook for the costs of folly that they largely never took part in.

The GSEs have been a non-factor in manufactured housing.  It creates a self-reinforcing stigma.  People say manufactured homes do not appreciate in value.  Is the lack of a secondary market independent of that problem?  No doubt about it.

It is hard to concentrate at work today, what with the developing crisis in the financial markets. Fannie Mae and Freddie Mac, the nation’s largest purchases of home mortgage securities, are spiraling downwards. What will be done about it? Will the regulators abandon their free market posture? Will Freddie be taken over? How would it be done? The questions go on and on.

People should be worried. The experts are not lying about the interconnected nature of our economy. Yes, have a very healthy economy in many ways. We have the rule of law, we have an exceptionally talented workforce, we have universities and hospitals and many beneficial institutions. Nonetheless, our mortgage market acts as one of the pillars of all that activity. Fannie and Freddie are the corner beams that keep it all together.

One way to imagine what it would be like, without them, is to look at manufactured housing. Neither agency has been active in buying securities made from manufactured housing loans. Yes, there are some programs where Fannie and Freddie participate. Those tend to be through special relationships, or for limited types of ownership arrangements. For example, the GSEs will buy homes with land owned by the same person as the unit.

That doesn’t do much for the millions of American households that live in land-lease arrangements. These are known often as “trailer parks.” A few private firms do buy the asset backed securities made from loans on manufactured housing. US Bank is a big player in this market, as is Wells Fargo, and Berkshire Hathaway. It might be comforting that the institutions who choose to invest in manufactured housing abs also happen to institutions that are emerging as “survivors” in the current crisis. Its a market without GSE participation, but with some corporate demand.

That is not much different from what could be on the horizon for single family site built homes in the United States if Fannie and Freddie collapse. Now, that’s a dire scenario and it hasn’t happened yet. Nor do any of our leaders appeared to be inclined to let it happen.

Nonetheless, the impacts that such a de facto policy of non-participation by the GSEs in manufactured housing paint a compelling motive for action. Manufactured housing is often criticized as a “depreciating asset.” One of the chief reasons for that is the lack of liquidity for loans made on used mobile homes. Its a cash market, sort of like the market for condominiums in Argentina.

And that drives down prices. If you live in a $300,000, maybe after Freddie goes down, you live in a $200,000 house. Oh, and you have a $15,000 ($1.5 trillion/number of U.S. households) mortgage on your share of that GSE debt that the government just assumed on your behalf.

For all of the opportunity provided by the low cost of buying a manufactured homes, other systemic issues foil the sector.  The lack of a fully functioning secondary market has been one of those issues.

Fannie Mae announced this weekend that they will participate in a pilot program in New Hampshire to buy loans at Lilac Drive Cooperative.  Two local banks, St. Mary’s Bank and Merrimack County Savings Bank, are working to originate the loans.  They will be standard 30 year fixed rate loans.  Right now, it looks like some of the mortgages will bear interest rates at or near 6 percent.  That is a substantial difference from the 9 or 10 percent that homes in the cooperative were getting elsewhere.

Lilac Drive, located in Raymond, New Hampshire, is a cooperative park owned by its residents.  It was developed under the system set in place by the New Hampshire Community Loan Fund.  A double wide in Lilac Drive Cooperative is currently listed for $117,500.

For years, some personal property loans on manufactured housing have been sold on the secondary (more…)

Fannie Mae has decided to drop the declining markets policy. This is great news for prospective home buyers, or for people who might sell in the future.

The policy would have put the onus for shoring up Fannie’s balance sheet on neighborhoods in markets where home values are dropping. In such places, buyers would have been required to bring a higher down payment in order to get a mortgage that conformed to Fannie’s preferences. While such a rule would not (more…)

Gregory Squires and Charis Kubrin offer a fascinating essay in Shelterforce this month where she examines some of the new ways that communities are growing in and in response to the pull of poverty.  Their findings show the path dependent nature of economic segregation and the linkages to race.

Their essay is worth reading.  Here are a few startling facts to consider:

• In 1990, the typical black household earning above $60,000 lived in a neighborhood where the median income was $31,585.  A white household with the same income characteristic lived in a much more (more…)