Manufactured-home owners often pay higher interest rates for their loans than borrowers whose homes were built onsite, according to a report released Wednesday by the Consumer Financial Protection Bureau. The report also found that manufactured-home owners are more likely to be older, live in a rural area, or have lower net worth.
The market for manufacturing housing boomed with expensive loans in the 1990s when credit standards and underwriting practices became more lax. The market then collapsed in the early 2000s as consumers struggled to pay back their loans. More than a decade after the collapse, production and sales remain at historically low levels. Manufactured homes are commonly referred to as "mobile homes" or "trailers."
Because manufactured-housing lending may be considered by some lenders to be a specialty niche, many mortgage lenders do not originate them. The national lending market for these types of loans is concentrated among five lenders.
One of the main differences between a manufactured home and a home built onsite is that manufactured homes may be titled as either real estate property or personal property. A home built onsite is almost always titled as real estate property.
For a manufactured home to be titled as real estate property, the home generally must be set on a permanent foundation on land that is owned by the homes owner. If a manufactured home is titled as personal property, it generally must be financed through a personal property loan, also known as a chattel loan.
The CFPB's report details several findings the Bureau made on the financing of manufactured housing loans, including:
Majority of manufactured housing loans considered higher priced: In 2012, about 68% of all manufactured-housing purchase loans were considered "higher-priced mortgage loans," compared with only 3% of site-built home loans. Mortgages are considered higher-priced under certain consumer protection laws if they have an annual percentage rate higher than a benchmark rate that is based on average interest rates, fees, and other terms on mortgages offered to highly qualified borrowers. Many of these higher-priced mortgage loans financing manufactured housing were chattel loans.
Two out of three manufactured-home owners eligible for mortgages finance with more expensive personal property loans instead: Manufactured-home owners that own the land their home sits on are eligible to take out mortgages to finance the purchase of their manufactured home. Of those homeowners, the CFPB estimates about two-thirds financed their homes with chattel loans, which are more likely than mortgages to have high interest rates.
Personal property loan borrowers have fewer consumer protections than mortgage borrowers: While chattel loans have lower origination costs and quick closing timelines, they also have significantly fewer consumer protections than mortgage loans. For example, only mortgage borrowers are protected by provisions of the Real Estate Settlement Procedures Act that give borrowers the right to certain disclosures when applying for and closing on a loan.