Are manufactured home borrowers getting a fair shake?

With all of the hulabaloo about first time buyers and an $8000 credit to help them find a pathway to the American dream (all of this insured by the way by FHA), one would think that one of the safest harbors for lending dollars would be manufactured housing—certainly the last bastion of low-cost housing. Manufactured homes have traditionally held a place in the American landscape by offering low-income Americans a leg-up to home ownership as well as an independent community refuge for retiring Americans. Now these folks are knocking on the door of their dream home but they can’t walk through the threshhold because there is virtually no one lending dollars to these poor folks?

When Taylor, Bean & Whitaker was banned from making any more federally insured loans, the No. 1 source of financing for manufactured housing, dried up. TBW funded nearly 13 percent ($1.45 billion) of all manufactured home loans insured by the FHA in 2007. Everyone anticipated a tightening of lending standards as a reaction but no one was really prepared for a lending embargo. The remaining oxygen tank, GMAC cut off their lending air supply of wholesale lending to manufactured homes on November ____2009 and now the industry and borrowers are left gasping for air. The result is that the little guy, the one least responsible for the lending crisis, being penalized the most. While the banks have exploited loose regulation for close to a decade, they are now over-correcting and putting a target on the back of the ones that are least capable of fighting back. The low-income first time home buyer and the grandma/grandpa retiree have little political clout and economic leverage to incite much of a protest, especially when they are already outcast “trailer dwellers” in the minds of many. The irony is that when manufactured home loans are originated properly, they are among the lowest risk loans.

So who is still in the game? Bank of America and Wells Fargo are still small stakeholders, but they only have their toe in the water. It is not their specialty and manufactured homes have a checklist of extras requirements that create tedium for the loan officer. And since the loans are much lower value, the loan officer puts a lower value on service. Manufactured homes are chump change for most loan offers and with the extra effort they cause, they are often viewed as a nuisance loan. And with the smaller number of lenders, this leads to reduced competition, which leads to higher interest rates. Once again a target on the back of the least able to defend themselves.

One should look at the evidence and ask the question: With the duty to serve requirements, with the backing of FHA, with the low default rate and the sponsorship of first-time home buyers, why isn’t someone yet emerging as the Steve Jobs or Bill Gates of what should be a lucrative new niche market?

Berkshire Hathaway (Mr. Warren Buffet) recently revealed that amidst the current housing crising, their manufactured home customers are foreclosing less and making their payments more. And their subsidiary Clayton Homes’ loan delinquency rates have also been stable: the delinquency rate was 3.26% in 2004; it was at 3.5% in 2008; and now it’s 3.82% here in 2009. However, the delinquency rate in the traditional housing market is higher, around 6.4%. Annual credit losses are running steady at a reasonable 1.5% of the loan portfolio.

Someone needs to stand up for the little guy—afterall the manufactured home business is nothing but upwardly mobile.