Remember when manufactured housing used to equate to mobile homes?
Remember when loan officers avoided underwriting loans for manufactured housing for fear of low commissions, foreclosure risks, and the added complexities of underwriting those types of “unreliable” homes?
For some, these myths still flood our thoughts when a potential borrower approaches us about a loan for a manufactured home. If you hardly originate loans for manufactured housing, you don’t really have a reason to know what strides these types of houses have made over the past couple of decades.
In this article, I will challenge conventional stereotypes and encourage you to explore manufactured housing as an emerging lending opportunity, positioned ideally for those savvy enough to see with different eyes.
To start, let’s dispel a few myths and agree on a few truths:
Myth 1: Manufactured Homes Are Mobile Homes
Truth: A manufactured home is built in a factory and constructed to comply, at a minimum, with the Manufactured Home Construction and Safety Standards (HUD Code) enacted June 15, 1976. All factory-built homes constructed after June 15, 1976 must comply with the HUD Code or local building code. A manufactured home will be identified by HUD certification labels and a data plate. A mobile home, on the other hand, is a factory built home constructed prior to June 15, 1976.
Myth 2: Manufactured Homes Are Lower Quality Than Site-Built Homes
Truth: Manufactured homes vary significantly in quality, much like the wide variation in quality seen in site-built homes. In fact, some of the modern manufactured homes are constructed with a level of quality, features, and amenities that exceed those found in many new site-built homes.
Myth 3: Manufactured Homes Deteriorate Like a Car or Camper
Truth: All homes deteriorate and must be maintained. This reality applies to site-built homes and manufactured homes alike. However, the good news is that the pace of deterioration is slowed by normal maintenance and replacement. While it is often true that higher quality components have a longer life span, quality is not a function of the housing type.
Myth 4: Manufactured Homes Represent a Small Market
Truth: According to a report by the U.S. Census Bureau, 94,600 new manufactured homes were shipped in 2019, a 14% increase from just three years prior. The top five destinations in 2019 for new manufactured homes were TX, AL, FL, SC, and NC. The 2017 Manufactured Housing Facts report by the Manufactured Housing Institute indicates that 9% of new U.S. housing units in 2017 were manufactured homes. In addition, it is reported that 22 million people in the U.S. live in manufactured homes, represented as ~7% of the total housing units.
Manufactured Housing and Affordability Challenges
With all these myths busted, we can explore why manufactured housing represents a worthy opportunity in tackling some of the current housing availability and affordability challenges.
A Duty to Serve
Affordable housing has been of interest to our representatives in Washington for some time. In 2008, Congress passed the Housing and Economic Reform Act. This Act established a Duty-to-Serve obligation for the Government Sponsored Enterprises (“GSEs”), which includes a focus on rural markets, manufactured housing, and affordable housing preservation.
In December 2016, the Federal Housing Finance Agency (FHFA) issued regulations to implement the Duty-to-Serve requirements of the Act. Compliance with these regulations led to recent efforts by the GSEs to increase housing opportunity to these underserved markets.
Since manufactured housing is closely associated with rural locations and represents an affordable housing solution, the three Duty-to-Serve areas can be addressed by supporting manufactured house lending.
Manufactured Housing Construction Advantages
Manufactured housing leverages the advantages and efficiencies gained from producing in a controlled environment, which may include:
- Reduced construction cost (e.g. assembly line efficiencies, automation, centralized labor, centralized materials and equipment, etc.)
- Dependable construction timing (e.g. predictable scheduling, no weather delays, ease of inspection, etc.)
- Availability of continuous assembly (e.g. can work at night)
- Reduction of risks from weather (e.g. damage to construction materials from outside exposure, weather stoppages. Etc.)
Change Your Perspective on Manufactured Housing
To leverage opportunities for expanded housing availability and affordability via manufactured housing, the mortgage industry should remain focused on prudent and sustainable lending practices. At the same time, we must closely examine whether antiquated negative biases towards manufactured housing result in credit policy and practices that neglect this valuable component of our housing market.
To start, we may want to consider the following areas:
- Property Requirements – critically question underwriting guidelines that require manufactured homes to have multiple sections and question limits on land-to-value ratios that may unintentionally penalize affordable housing.
- Underwriter/risk training – examine whether your staff has sufficient awareness and training on manufactured housing. In some cases, denials and other barriers to loan consummation originate from a lack of understanding of manufactured housing.
- Outreach/Marketing – examine whether your outreach and marketing efforts have unintentionally limited exposure to manufactured home builders, retailers, installers, and borrowers.
Although manufactured housing presents some additional complexities not often present in site-built housing, those who adapt and pursue this market will enjoy the benefits of limited competition and the opportunity to play a valuable role in supporting affordable housing availability.