The Federal Housing Finance Agency has just issued a notice of proposed rule-making that will change how the GSEs approach the acquisition of manufactured housing. It is part of a larger response on the treatment of under-served markets, and the proposed rule would effect not just manufactured housing, but also affordable housing preservation and rural housing.

This rule-making is a long time coming, but I am going to contradict the gospel of progressive non-profits acting in this field and say that I think it the very proponents of manufactured housing have conspired to limit the gains that could have come from the FHFA’s interest.

The new rules put the GSEs on the hook to buy more manufactured housing mortgages, and to at least venture into providing capital for parks, too.

If you have followed the story of manufactured housing, you would know that this industry tanked in the early 90s when Greentree and Conseco withdrew from the secondary market for these loans. Good financing dried up. It is hard (more…)

In many ways, the recent history of mobile homes mirrors our current credit crisis and its impact upon home sales.

In 2000 and 2001, major suppliers of credit for manufactured homes froze up.  After acquiring Green Tree in in 1998 in order to move into consumer finance, Conseco went entered Chapter 11 in 2002. At the time, its shares were trading at $0.45. In Chapter 11, all shareholders were wiped out and most of Conseco’s debt was forgiven.

Conseco emerged from Chapter 11 soon afterwards, in 2003.  However, they changed their commitment to manufactured housing.  They sold Greentree in 2003.  They largely withdrew from the industry and instead moved to focusing on insurance.

In the 1990s, shipments of mobile homes surged. Many manufacturers develop their own finance operations.  They would provide loans to consumers, much in the way that automobile manufacturers have done for years.

The credit arms of these companies remained for the next decade, but lending standards changed.  More than half of all applications for loans on manufactured housing are rejected. It is a tough market.  This new and tougher credit policy is probably one of the reasons that shipments of mobile homes have dropped so dramatically.

This chart, attained from data produced by the Census Bureau’s 2007 American Housing Survey, tells the story pretty well: mobile home shipments were probably in a bubble in the last half of the 90s.  With the change in supply of credit, shipments soon dropped dramatically and continue to be dreary.

This is relevant for single family site built home purchasing.  It shows how long a credit freeze-up can last.  Mobile home lending has increased – there are several dominant mortgage firms, and there is even a secondary market.

Another key fact is that no public policy intervention was devised to overcome this problem.  It was simply allowed to happen.  The work in Treasury and the Federal Reserve is potentially the kind of salve that will stop this from being repeated on a much larger scale.  Never mind that their concern reflects  concern that seems to end with households below the middle class.

It’s like what one mobile resident, living out of unit with no electricity in an abandoned park, told me. He said, “the government, they’ve got nothing for us people struggling in poverty.  They are just worried about those voters in the middle class.”

Now, he didn’t vote.   He was largely exempt from public relief because he was a felon.  I think he wrote some bad checks.  Nevertheless, his analysis was very prescient.

All of this is why mobile home lending offers us some interesting perspective on what we could be facing without intervention.

Warren Buffett’s annual shareholder letter spends a good deal of time talking about manufactured housing.  Some of his thinking focuses on Clayton, the Tennessee manufactured housing company that he bought several years ago.  Buffett calls the company one that is built by solid, sensible underwriting.  Here is an excerpt:

Our borrowers simply looked at how full-bore mortgage payments would compare with their actual — not hoped-for — income and then decided whether they could live with that commitment. Simply put, they took out a mortgage with the intention of paying it off, whatever the course of home prices. The borrowers didn’t depend on refinancing, weren’t enticed by teaser rates and didn’t assume eternally rising house prices. Jimmy Stewart would have loved these folks.

This is a great insight.  The lower prices on manufactured housing make sense.  This is a country where incomes have been stagnant for many workers, relative to inflation.  The run-up in housing prices has not been supported by a corresponding increase in earnings for many households.  Exotic mortgage products only made it possible for this imbalance to prolong itself.  Refinancing got people out of trouble, but as we know see, that was a short-sighted strategy with consequences that impact beyond the immediate transactors (lender, borrower, investor, mortgage insurer, loan servicer) and into our broader economy.

In North Carolina, the average price of a singlewide sold in 2007 cost $39,000.  A doublewide was $79,000.  Nationally, the numbers are not much different: $37,200 for a singlewide and $74,100 for a doublewide.  (US Census survey)

Buffett goes on to describe how the meltdown in the manufactured housing market that took place from 1999 to 2001 is a foreshadowing of the current crisis across the entire real estate sector. Buffett points out that in both sequences leading up to the sector implosion, lenders adopted looser underwrited standards.  Both began to make overly optimistic assumptions about the repayment ability of borrowers.

Greentree, a large manufactured housing lender, went bankrupt in 2002.  Prior to that, it had acquired Conseco  Both put a lot of liquidity into the lending market.  Both utilized the presence of a secondary market to fuel their demand.  Greentree is now privately held, but it remains the largest servicer of manufactured housing debt.

Utah has passed a new bill that will give mobile home owners some recourse when they are forced to pick up and move because of the closure of their park.  The bill, entitled “Payment of Mobile Home Park Relocation Expenses,” passed on Feb. 26th.  It is waiting on the signature of Utah governor Jon Huntsman, Jr.  The bill was introduced by Senator Wayne Niederhauser (R-Sandy) and Greg Hughes, R-Draper.

“A developer is looking to purchase the land,” Hughes said to the Salt Lake Tribune. “This bill is an attempt to find a solution to a unique but difficult problem.”

The essence of the bill is that residents forced to leave their park homes are going to have access to a fund to accomodate their needs.  The funding will come from revenues created by tax-increment financing.  The source of financing will be on additional property tax revenues created by former mobile homes, in the same municipality, that have now been re-purposed into a higher use.

Obama and Biden have published a thoughtful list of policy plans for rural America.  Fitting the style of our leader, the list is detailed and full of things that reflect the input of a few good wonks.  For every item that hints at a continuity of the symbol-driven approach of our past administration (protect Sportsmen!) there are several that are too arcane to probably even make the editorial pages of your average newspaper.

Several..make that many: My favorite example is the support for payment in lieu of taxes (PILT) for counties where the presence of federal lands hurts their ability to generate enough tax revenues.  That would make a difference in large parts of the American West, for example, where the Bureau of Land Management is one of the largest landowners.  Coincidentally, it would probably also make a difference for the District of Columbia.

What I don’t understand, though, is why there is almost no mention of housing issues.  Sure, there’s an initiative, again very (more…)