To understand just how troubled manufactured-housing lending has become, consider the reaction to GreenPoint Financial Corp.s announcement Thursday that it would exit the business.
The decision, which ended a nearly four-year effort by the New York thrift to become a force in the niche, means the writeoff of hundreds of millions of dollars it invested in the business and ensures that the company will report a loss for 2001.
And yet so beaten down is the segment that if Wall Streets reaction is any indication it appeared the news could hardly have been better. By days end GreenPoints stock was the best performer among thrifts, and analysts were taking a new, much more favorable view of the company.
GreenPoint, which entered the sector in April 1998 with its $603 million acquisition of BankAmerica Housing Services, had attempted in recent months to sell off the business after concluding that it would never turn a reasonable profit.
Despite how much effort weve put into it, the industry just isnt good enough to create risk-adjusted rates of return that justified being in it, said Thomas S. Johnson, GreenPoints chairman and chief executive officer, in an interview Thursday. Our pricing is better today than it was three years ago, but its not enough to justify the risk.
When it found no interested buyers, the thrift decided to shut the business down, resulting in charges of $663 million, a net loss in the fourth quarter of $565 million. It is projecting a loss for the year of $298 million.
But outside the company, the view was that the operation had become more trouble than it would ever have been worth.
Two ratings firms, Moodys Investors Service and Fitch Investors Service, reacted positively. Fitch noted that the charges are substantial, but said future earnings will be much improved. And Moodys reiterated GreenPoints argument that the move would eliminate risks, create a stronger balance sheet, and result in more predictable profitability.
J.P. Morgan Securities Inc. upgraded the stock from long-term buy to buy on Thursday, saying that the manufactured-housing business was the biggest overhang for the stock.
GreenPoint shares surged on the news, increasing 14.6% to close at $40.65. The stock was the leader of the American Banker thrift index Thursday and the best among all banks tracked by American Bankers indexes.
With GreenPoints departure, few major players are left in manufactured housing.
Conseco Inc., whose disastrous acquisition of Green Tree Financial a deal that took place around the same time as GreenPoints purchase of BankAmerica Housing is poised to get a bigger share of the sector. And Chase Manhattan Mortgage Corp. is still in the business, though manufactured housing is less than 1% of the companys residential production, a spokeswoman said.
The rest of the market is served by the captive finance companies of the manufacturing-housing business, industry observers said. Mr. Johnson called their presence one part of the problem.
Mr. Johnson likened manufactured housing to automobile lending another business that has seen an exodus of lenders in the last year where there are manufacturers, dealers, and lenders. But he said the auto business has checks and balances that are nonexistent in manufactured housing.
If an auto dealer sends bad borrowers, Mr. Johnson said, the manufacturer can take away the franchise. You dont have that discipline in this business, he said, noting that there are more than 5,000 manufactured-housing dealers, none of which are regulated, and that it takes very little capital to enter the business.
Thomas J. Abruzzo of Fitch said that though at one point there were few competitors and spreads to be made, the manufactured-housing business in recent years has been glutted with both lenders and producers. As a result, he said, irrational pricing crept in, which led to troubles for lenders. I dont anticipate the lender troubles are anywhere near being over, he said.
Mr. Abruzzo added that manufactured homes, like automobiles, are depreciating assets. But unlike car loans, which are generally for three to five years, many manufactured-housing lenders write 15- to 30-year loans. As a result, borrowers often walk away, Mr. Abruzzo said.
When you put it all together industry structure, conditions, and the most recent economic developments we just cant see light at the end of the tunnel, and we decided that it is not right to keep punishing our investors by staying in a business that is unsuccessful, Mr. Johnson said.
GreenPoint officials said the pressure for the move had been slowly building over the last year and that Sept. 11 worsened an already deteriorating economic picture for manufactured housing.
Given the risk of the assets, the quality of the collateral, and the pricing, manufactured housing lacks the inherent necessary profitability, Mr. Abruzzo said. It just doesnt make economic sense.
Though GreenPoint will continue to service the loans in its $13 billion servicing portfolio, it will eliminate 400 positions, or 36% of the staff, at GreenPoint Credit. As the loans are paid off, the company said, it will eventually wind down that entire operation. GreenPoint also said it would sell the roughly $850 million of manufactured-housing loans it currently holds. Some of those loans had been held for investments, while others were recently originated and not yet sold.
After getting out of the business, GreenPoint will be left as a nonconforming mortgage lender and a consumer banking operation. The company, a top-20 mortgage lender, originated $26.4 billion of mortgage loans in 2001 $8.5 billion in the fourth quarter alone and its mortgage pipeline at end of year hit a record $7.4 billion.
Mr. Johnson said the combination of consumer banking and mortgage lending gives a natural hedge against downturns in either business. When interest rates are high, he said, margins on the deposit business improve, and when rates are low, as they were last year, the mortgage business picks up.
GreenPoint would like to expand its consumer banking business, Mr. Johnson said, adding that we will continue to invest to make that happen. The company plans to open more branches, he said, but expects to stay in the New York area. 
