Fannie Mae and Freddie Mac Hope to Offer New Financing Options For Manufactured Homes

On Monday, Fannie Mae and Freddie Mac announced they may soon begin providing financing for buyers of manufactured homes, according to draft plans published by Bloomberg.

The move, which pleased many and upset others, “is part of an effort by the mortgage-finance giants to ease burdens on low-income borrowers, many of whom turn to factory-built housing as an inexpensive alternative to traditional residences.” Considered helpful by individuals seeking affordable homeownership, the programs face criticism from individuals “concerned about the riskiness of lending for mobile homes, which often sit on leased land and can depreciate quickly.”

Fannie and Freddie proposals faces challenges

According to Bloomberg, “The proposals were outlined by Fannie and Freddie as part of broader plans to address affordable housing challenges. The U.S. controlled companies need to get sign-off for the pilot programs from the regulator, the Federal Housing Finance Agency. The 2008 law that authorized the bailouts of Fannie and Freddie also required them to develop plans to serve three target areas: manufactured housing, rural housing and affordable housing preservation. The FHFA didn’t begin the extended process of implementing the requirement until 2015. The draft plans released Monday will be open to public comment and subject to review by the FHFA before taking effect in January 2018.”

Manufactured home industry advocacy

Mobile home builders and some affordable housing advocates have long called on Fannie and Freddie to support the industry, arguing that such residences are a primary way some low-income borrowers get into the real estate market. According to the U.S. Census, about 12.3 million Americans owned a manufactured home, while another 5.4 million rented one. Buyers of manufactured homes typically are ineligible for standard mortgages because they don’t own the land where the home sits. Instead, they have to get a personal property or “chattel” loan that carries a higher interest rate and lasts 10 to 20 years, rather than the 30 years of typical fixed-rate mortgage.

Fannie and Freddie already finance some loans for homes on land owned by the borrower and, through their multifamily business, to owners of entire mobile-home communities on which owners rent land.

After the crash of the mobile home industry in the late 1990s and early 2000s, many lenders were forced into bankruptcy.

Looking at the program from a long-term “sustainable lens”

Mike Dawson, a Freddie single-family vice president, said the lending and manufacturing process are much different than they were at the time of that collapse. “We want to look at it from a long-term sustainable lens.” Dawson said. “If we participate, we want to make sure that there are responsible lending guidelines associated with it.”

Some of the biggest lenders for mobile home (manufactured homes) purchases lately have been the manufacturers themselves. Among them are subsidiaries of Berkshire Hathaway’s Clayton Homes. Though they’ve come under criticism in the last couple years for allegedly discriminatory lending practices. The company disputes those claims. Jeffrey Hayward, Fannie’s head of multiple family said the company through its pilot program hopes to collect more data on how chattel loans perform to ensure that they don’t put taxpayers at risk.

“Rural and manufactured housing are inextricably linked,” Hayward said. “The most affordable housing you can find is often a manufactured home in a rural area.” Like Freddie Dawson, Hayward said the quality of manufactured homes has improved in the last couple decades, making them better collateral.

Fannie said it could begin by purchasing 350 to 425 chattel loans per year, which would amount to $20 million to $25 million.

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