Clayton Endorses President’s Call For HUD Manufactured Home Regulatory Relief

The dominant player in manufactured housing, Berkshire Hathaway’s Clayton Homes, is supporting the Department of Housing and Urban Development’s review of manufactured home construction and safety standards, according to National Mortgage News.

President Trump has directed HUD to review manufactured home regulations and ease unnecessary standards to boost manufactured housing growth.

HUD announced the review in January and invited comments from the industry, compiled by a group of manufactured home professionals empaneled by the Manufactured Housing Institute (MHI).

How dominant is Clayton? All told, the manufactured home builder accounted for 49% of the market in 2017, producing and selling 45,874 manufactured homes last year. This is according to a letter to Berkshire Hathaway shareholders from Chairman Warren Buffett. For more information, check out our previous post, The Aphorism, “A Rising Tide Lifts All Boats” May Define Clayton Homes’ Value To The Manufactured Housing Industry”.

Current Regulations Overly Restrictive & At Odds With Longstanding, Accepted Building Practices

John Weldy, Clayton Homes’ Director of Engineering, said in his company’s letter that the current construction standards are overly restrictive.

“Our company is concerned that HUD’S Office of Manufactured Housing Program has developed in a manner that has increased the costs of operating in the industry without providing a commensurate benefit to consumers,” Weldy wrote. “Some of HUD’s expansion of regulatory programs has stepped into state functions, reinterpreted regulations in ways that are at odds with long standing and accepted building practices, and implemented regulations and guidelines that necessarily limit customer choice and increase costs.”

Manufactured homes account for 10% of single family dwellings in America, with 22 million people living in manufactured homes.

Manufactured homes are the only form of unsubsidized single family housing in the nation, and are the only form of housing subject to a mandated national building code.

HUD Secretary Ben Carson Tells Senate Banking Committee Some Manufactured Home Regulations Are “Ridiculous”

“I believe one of the biggest things we can do for rural housing is to eliminate the huge regulatory burdens that we have on manufactured housing,”  HUD Secretary Ben Carson said at a Senate Banking Committee meeting last month. “This is an area that has been underutilized and will provide tremendous advantages for us in the future.”

Carson told the senators that some of the regulations on manufactured homes are “ridiculous”.

“So we are inspecting all of those regulations and getting rid of them,” he said.

Housing advocates are concerned HUD may go too far and undermine the quality of manufactured housing. “The key to advancing affordable homeownership in the United States is making high quality housing stock available to purchase-ready customers,” according to a comment letter by 24 housing advocacy groups, including Prosperity Now.

In Addition to Restrictions on Construction, Financing Has Also Been A Stumbling Block For Manufactured Housing Industry

The Federal Housing Administration (FHA) endorsed 32,500 manufactured housing loans classified as real estate in fiscal year 2017, but only 814 manufactured home loans classified as personal property or chattel loans.

“People aren’t counting on FHA, which is a shame,” said Doug Ryan, director of affordable homeownership at Prosperity Now.

In addition to Clayton’s dominance of manufactured home retail sales and production, the company’s two mortgage subsidiaries also control a major portion of the financing available for manufactured home buyers. In its 2017 annual securities report, Berkshire Hathaway noted that Clayton has its own proprietary underwriting guidelines for manufactured homes.

“Currently, approximately 70% of the loan originations are home-only (chattel) loans and the remaining 30% have land as additional collateral. The average down payment is approximately 15%, which may be from cash, trade or land equity,” according to Berkshire’s annual securities filing.

“Manufactured housing is a good source of affordable housing in rural areas,” said Ron Haynie, Senior Vice President of Mortgage Finance Policy at the Independent Community Bankers of America.

Clayton Welcomes the Trump Administration’s Interest in HUD’s Regulation Reforms In A Sensible Way

“These new manufactured homes are very nicely done,” said Haynie. “You won’t know it is a manufactured home if it is sitting on a foundation. They are energy efficient and have as many amenities as a stick-built home.”

Weldy, of Clayton Homes, said in his comment letter that the company welcomes the Trump administration’s “interest in reforming HUD’s regulation of manufactured housing in a sensible way.”

“We encourage HUD to update the standards as advised by the Manufactured Housing Consensus Committee in order to promote improved consumer safety, use of latest technologies and materials and to be more consistent with State-adopted residential building codes,” he said.

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