Veteran manufactured-home lenders have been seeing steady rises in repossessions this year, partly because of lower down payment requirements.
"We've seen a steady rise in repossession rates, and certain dealers have seen quite a big jump," said Kevin Duignan, an analyst with Fitch Investors Services, New York.
Green Tree Financial Corp., St. Paul, is expecting to repossess 12,000 homes this year, up from 8,000 last year, a company spokesman reports. And BankAmerica Corp. is expecting to repossess more than 10,000ck homes this year, a TK% increase, said a company spokeswoman.
The increase in repossessions comes as several banks are considering entering the manufactured-home loan market. NationsBank Corp., Charlotte, N.C., and Citicorp, New York, are among those on the starting line, said Joseph Owens, vice president of finance for the Manufactured Housing Institute, Washington.
At Green Tree, the company spokesman attributed the rise in repossessions to an increase in loan volume. The company made $3.66 billion in manufactured-home loans in the six months ending Sept. 30, from $3.07 billion during the same period in 1995.
Viewed in light of that jump, Green Tree's total rate of repossession has increased only slightly, the spokesman explained.
But Green Tree and BankAmerica both established 5% minimum down payment programs last year, which, according to competitors, are contributing to the increase in their repo rates. The 5% down payment loans are avoided by some lenders, who insist that the depreciation rate on manufactured homes makes such loans risky.
Like cars, manufactured homes depreciate in value as soon as they leave the sales lot, and continue to depreciate as they age. Most traditional homes, by contrast, appreciate in value.
Lenders who insist on larger down payments say that a 5% minimum down payment is not enough to cover a drop in a manufactured home's value if a loan defaults.
Green Tree's 5% down payment loans are performing in line with the company's expectations, the company spokesman said. The company has adequately collateralized itself, and has a good track record when recouping losses, an analyst said.
Reaching new customers while keeping repossession rates low is difficult, said Mr. Owens of the manufactured housing trade group.
"It's a two-edged sword," he said. "Our industry caters to a low-income customer, for whom up-front cash is a hard nut to crack. But, low down payment loans default much quicker."
Mr. Owens recommends the Federal Housing Authority's Title I program to lenders looking to expand their pools of manufactured-home borrowers. "Their minimum down payment is 5%, and (lenders) get insurance," he said.
The manufactured-home loan market has heated up substantially in the past few years. Industry veterans Green Tree Financial, Bank of America, Vanderbilt Homes, and Oakwood Homes, have been joined by Chase Manhattan Corp., Access Financial, and United Companies Lending Corp., among others.
