WASHINGTON — The Federal Housing Finance Agency is setting the stage for significant reforms in the manufactured housing market.
The agency released a plan Tuesday that would provide incentives for owners of manufactured housing communities to reform their practices if they want to tap financing by Fannie Mae and Freddie Mac.
The proposal would also provide incentives for the states to reform their titling laws so that so-called "chattel loans" — manufactured housing not secured by real estate — could be converted to real estate loans.
"That is a big deal," said Doug Ryan, director of affordable housing initiatives at the Corporation of Enterprise Development.
The proposal would require the government-sponsored enterprises to facilitate financing for small manufactured housing communities with fewer than 150 pads or home sites. They could earn "duty to serve" credit from the FHFA if they make blanket loans that are secured by the land and pad site for those communities.
To secure this financing, manufactured housing park owners must give their tenants a minimum lease of one-year and the rights to post for-sale signs and sell their homes on its current pad.
Many park owners currently require a seller to move their home outside the park.
"Believe it or not, those things are restricted by owners across the country," said Ryan.
The FHFA proposal would also require the landlord to give tenants advance notice if they plan to sell the park. Such notice would give tenants the chance to form a cooperative or association to purchase the community.
"That is something we have been advocating for years," said Ryan. "Only 19 states have some sort of rule like that. This frames the issue in a positive way."
The FHFA plan would also open the door to create a secondary market for manufactured housing loans that are secured by real estate.
A Consumer Finance Protection Bureau white paper estimates that 65% of manufactured housing borrowers put their homes on land they own, but finance their homes as personal or chattel loans.
"A growing number of manufactured housing buyers are opting to place their homes on land they are purchasing or already own. These real estate loans "perform better and have lower default rates than chattel loans," a FHFA official said in briefing reporters Tuesday.
Industry representatives were quick to praise the plan, saying it would help financing in manufactured housing.
"There is a lot of manufactured housing in rural areas as well as coastal areas and retirement communities," said Ron Haynie, senior vice president at the Independent Community Bankers of America. "I am really happy to see FHFA come out with this. It is very important our members."
The agency is also willing to experiment with financing manufactured housing loans that are not secured by real estate. The FHFA does not allow Fannie and Freddie to get credit for buying chattel loans in its proposal, but the agency is willing to let the two GSEs conduct a pilot program.
"FHFA specifically requests comment on what improvement could be made in originating and servicing that could make chattel loans safer for purchase by the enterprises," the proposal said.
David Stevens, president and chief executive of the Mortgage Bankers Association, supported the idea of the a pilot program to see how the loans perform.
"Manufactured housing is an important entry point for many low income homebuyers," he said. "Conducting a pilot program in order to gauge the effectiveness of purchasing these types of loans is the smartest, most efficient way to understand their performance."
Overall, the plan would also give the GSEs credit for activities related to preserving the affordability of housing for renters and homebuyers as well as activities to help existing small multifamily rental properties, energy efficiency improvements on rental properties, and shared equity homeownership programs.
For the rural market, the agency proposed giving credit for serving the following rural regions: Middle Appalachia, the Lower Mississippi Delta, members of Native American tribes in a Native American area and migrant and seasonal agricultural workers.