Modern manufactured homes are a feature of today’s real estate market, a rare opportunity to own a home that is less expensive and of better quality. Thanks to the power of the structural processes of manufactured homes, those manufactured homes are faster and less expensive to build. than home-built homes, saving buyers between $50,000 and $100,000 per unit.
Yet, despite those advantages, the manufactured home market is struggling, not because of a lack of willing buyers, but rather because there are no functioning federal systems and few lenders. Tens of thousands of buyers ready to get credit looking to purchase a manufactured home.
Still, assistance may be on the way. New changes made by the Federal Housing Administration (FHA) and Ginnie Mae, which insure and guarantee loans, could help open up an untapped market for lenders looking to expand their businesses and access credit for manufactured home buyers.
Unlike built homes, which are titled as real estate, more than 40% of manufactured homes are titled as non-public property (in the same way that a car is titled). When a manufactured home is considered a non-public asset, a loan cannot be used. Therefore, the most productive option is to obtain a private home loan, known in the industry as a “home only” loan or “furniture loan. “
The demand for committed financing for housing is at its highest; In 2019, there were more than 200,000 home-only loan programs. However, in 2021, only 36% of completed home loan programs were approved; This 64% rejection rate has remained relatively unchanged over the past four years. The credit criteria for homebuyers are much higher than those for buyers looking for a loan, which partly explains the higher rejection rates. For example, studies show that a home loan applicant who only has a subprime credit score (720 or higher) is less likely to be approved for financing than a loan applicant with a subprime credit score (580 to 619). And when manufactured home buyers can’t secure a loan, they’ll have to raise the money on their own, finance the hotel from the dealer or forgo the acquisition altogether.
However, strict credit criteria are just one of the many reasons why home-only loan applications are not met. Much of this disorder in the market is also attributable to a lack of lenders. Just five lenders issued more than 75% of all mortgages. loans only between 2018 and 2022, 4 of which specialize only in mortgage loans. Recognizing the risks of such an uncompetitive market and consumers’ struggles to obtain affordable financing, FHA and Ginnie Mae jointly announced a series of overdue updates last month designed to inspire more lenders to participate in Title I and Title I mortgages. Loan securitization systems are the only federal systems that help lenders make mortgages only.
To date, Title I systems have been vastly underutilized, largely due to superseded needs and guidelines. However, the recently announced updates are expected to help lower those barriers to lender engagement, paving the way for new entrants in a market that desperately wants more financial corporations and is uniquely positioned to help solve the unprecedented affordable housing crisis in the country.
The mortgage-only market presents several main opportunities. For lenders, the market offers the prospect of a new and developing line of business. FHA has the opportunity to extend its wealth of manufactured housing expertise to a critical market. Sponsored businesses (GSEs) can play a vital role and better fulfill their congressionally mandated duty to serve by starting to acquire mortgage loans just to spur lender participation and the funding source. And for the broader housing market, federal systems can develop the availability and affordability of manufactured homes and consumer access to safe, affordable financing for the most affordable homeownership pathway in the country.
Aware of those opportunities, as well as the troubling shortage of real estate lenders only, leaders in the manufactured housing sector, adding for-profit and not-for-profit lenders; federal officials from government agencies; and other industry representatives met in Washington, D. C. , in February to discuss adjustments made through FHA and Ginnie Mae and next steps to maximize the housing-only market. Participants in the closed-door meeting, organized through the Lincoln Institute of Land Policy and The Pew Charitable Trusts, agreed that the most effective way to address the current shortage of residential-only lenders is to identify functional FHA and GSE lending systems that can attract more loan originators.
While FHA and GSE systems that can standardize the retail market are critical to the expansion of this market, so is lender involvement. The more lenders are willing and cater only to homebuyers, the more likely the dedicated housing market is to thrive. Nurture a virtuous cycle of customer demand that can expand new lending opportunities and generate access to afford homeownership.
Jim Gray is a senior fellow at the Lincoln Institute for Land Policy. Rachel Siegel is a senior at The Pew Charitable Trusts’ Housing Policy Initiative.
The grants are part of HUD’s SHOP program and the framing and rehabilitation of 445 homes in 3 states and Washington, D. C.
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