MHI Secures Major Legislative Victory

With this week’s passage of new Senate banking deregulation legislation S. 2155, the “Economic Growth, Regulatory Relief and Consumer Protection Act,” manufactured home retailers have taken a major step toward regaining the ability to engage with home buyers on available financing options.

Section 107 of S. 2155, titled “Protecting Access to Manufactured Homes,” amends Dodd-Frank Act provisions to allow sellers to refer customers to lenders, including affiliated ones, as long as they receive no compensation for the referral and disclose the ties.

“By passing this provision, it is going to help bring more lenders back,” says Leslie Gooch, chief lobbyist for the Manufactured Housing Institute.

DODD-FRANK HAS SUPPRESSED LENDER COMPETITION AND SALES FOR ALMOST A DECADE RESULTING IN HIGHER COSTS FOR MANUFACTURED HOME FINANCING

Some lawmakers and the manufactured housing industry say the bill would help increase sales by allowing retailers to match customers, who sometimes have blemished credit histories, with lenders willing to provide loans.

There are “others” that say the bill would further suppress competition and increase the already high costs of manufactured housing loans as retailers “steer” more of their customers to affiliated lenders, according to a recent Wall Street Journal narrative.

The manufactured home industry does not share that assumption. In fact, the onerous Dodd-Frank regulations have suppressed competition for almost a decade, with only a scant few lenders serving independent retailers and their customers. This has resulted in higher costs for manufactured home financing. More lenders competing for a share of manufactured home financing would lower costs for the home purchaser.

Not long ago, a long-time independent retailer was asked about “steering” homebuyers to high cost lenders. His reply: “how and why would I do that? If I was going to ‘steer,’ it would be to someone with the lowest rate and terms to help my customer. Right now there are so few lenders and they all have pretty much the same rates.”

Typically, a shopper considering the purchase of new manufactured home wants and needs the guidance of a retailer to navigate through their home purchasing experience. This of course includes financing, a confusing aspect of the transaction, and yet perhaps the most important one. They want to know qualification requirements, down payment, interest rate, monthly payment, and loan maturity — information that a retailer is still prohibited from providing.

As incredible as it may sound to those outside the industry, manufactured home dealers for the last nine years have been barred from having a conversation about any aspect or requirement concerning financing with a manufactured home purchaser. Incredulous, but true.

RETAILERS CANNOT CURRENTLY HAVE DISCUSSIONS WITH CUSTOMERS ABOUT FINANCING OPTIONS

Not engaging a customer with that critical (and heretofore illegal) information often means the customer will not commit to the purchase without those details. The seller is authorized to give them a list of lenders to call, but can’t have any further discussions about financing options. More often than not, the customer goes away with the conclusion that purchasing a manufactured home is just too complicated.

This non-engagement requirement is one of the heavy-handed, post-crisis regulations promulgated by the Dodd-Frank Act, enforced by the Consumer Financial Protection Bureau (CFPB). The requirement’s intent is to expand homeowner protections against alleged predatory lending and foreclosure, discouraging lenders from approving loans to borrowers perceived as risky. This and other “big brother” oversights have precipitated a dramatic reduction of manufactured home financing opportunities among low- to middle-income Americans, contributing to the lowest percentage of homeownership in several decades.

LEGISLATION WILL BE A GIANT BOOST FOR CLAYTON AND INDEPENDENT COMPETITORS

Undoubtedly this legislation will be a giant boost to Clayton Homes, Inc., a unit of Warren Buffett’s Berkshire Hathaway, Inc. and the dominant player in the manufactured housing sector. The Wall Street Journal reports that Clayton spent $280,000 on lobbying last year to free the industry from post-crisis rules that barred manufactured home sellers from engaging with buyers on financing options, according to OpenSecrets.org. The Manufactured Housing Institute (MHI), representing the entire industry, in which Clayton plays a leading role, separately spent $889,000, a record for the group, on similar lobbying.

Clayton Homes said the changes in the bill would help both the industry and consumers. “Clayton supports consumer protections that promote competition, lower the cost of compliance, and improves transparency for customers when they make lending decisions,” the company said. The bill “will help customers choose the best lender for their needs — even when that is not a Clayton-affiliated lender,” they added.

There is no question that Clayton will be the major beneficiary of the relaxation of manufactured home financing regulations. There is also little doubt that independent retailers and manufacturers will be benefiting proportionately, and competing on an even playing field to provide access to manufactured home financing for hard working, low- to middle-income American citizens desiring quality, affordable home ownership — the definition of today’s modern manufactured housing.

The Manufactured Housing Institute and Clayton Manufactured Homes are to be commended for their lobbying efforts and perseverance in getting this legislation through a difficult U.S. Congress. (It should be noted that within the last few days, Senators from both parties have offered 146 amendments to Senate Bill 2155 for deliberation.)

For more information, check out our previous post, “Senate Poised To Ease Dodd-Frank Regulations On Community Banks, Paving Way For Manufactured Home Financing”