Manufactured Housing: A New Role for Fannie and Freddie?
It has been
more than 10 years since I last looked at the market for
manufactured housing, my excuse being that nothing much had
happened that justified another look. But now something has
happened: Fannie Mae and Freddie Mac are planning to support
the market for chattel loans on manufactured housing. The
agencies are being pushed to do this by their regulator, the
Federal Housing Finance Agency (FHFA), in compliance with
their “Duty to Serve” requirement under the Safety and
This makes sense because,
according to the US Census, the average price of a
manufactured house today is about $70,000 compared to
$350,000 for a site–built home. So long as Fannie and
Freddie remain in conservatorship operating as wards of the
Federal Government, their principal mission remains that of
meeting the housing finance needs of low and moderate income
households. The big question for the agencies is how to
provide financing for manufactured housing without incurring
What Is a
A manufactured home is built
entirely in a factory, transported to a site, and installed
there. Usually they are built without knowing where they
will be sited, and are subject to a Federal building code
administered by HUD. Most often, manufactured homes are
financed with chattel loans rather than mortgage loans.
These other types of factory-built housing comply with the local, state or regional building codes that apply to that site, and are financed with mortgages, in the same way as houses constructed entirely on-site.
What Is a
The word has a long and diverse
history, but when applied to a manufactured house it means
that the collateral provided to the lender is the house
exclusive of the land on which it sits. While manufactured
houses are no longer referred to as “mobile homes,” and they
are seldom moved from the site to which they are fixed,
default rates and losses from defaults on chattel loans have
been closer to those on automobile loans than to those on
home mortgage loans.
Loans on Manufactured Houses Have Had High Loss Rates
A second cause of declining
collateral value is rising rents or reduced availability of
house sites. If the house sits on rented land, an expiration
of the lease puts the owner at the mercy of the landowner.
If the landowner decides that it is more profitable to use
the land in some other way, the manufactured house owner
must move it or leave it. Since the cost of moving is very
high, the lender's collateral may end up in the trash heap.
In addition, manufactured houses have had more defects than site-built homes, and many have not been anchored securely to their foundations, making them vulnerable to natural disasters. Hurricane Andrew in 1992 destroyed almost all of the manufactured houses in its path, compared to about one-third of houses built on-site.
The Better News
Despite these problems, manufactured housing has enormous potential for relieving the shortage of affordable housing. A square foot of house costs significantly less to produce in a factory than on a site. The challenge has always been to find ways to take advantage of factory-generated economies of production without the diseconomies associated with placing a home on a site that is owned by someone else.
Several community groups have
arisen to deal with these diseconomies. I recently spent
several hours on the web site of one of them (NMHOA) which
has a comprehensive policy agenda focused primarily on state
laws that affect owners of manufactured houses, as well as
the owners of rent parks containing manufactured houses.
These laws vary widely in the extent to which they allow or
encourage owners of manufactured homes to accumulate equity.
Which made me wonder how Fannie and Freddie would approach the problem? Their charge from FHFA is to provide “support for chattel financing,” but in the same document, FHFA points out that “the percentage of new manufactured homes titled as chattel increased from 67% in 2009 to 80% in 2015”. Why did it not task Fannie and Freddie with reversing this unfavorable trend? From a policy perspective, the first priority ought to be to encourage mortgage financing, because it encourages equity growth that chattel financing often subverts.