Issue link: https://read.dmtmag.com/i/146145
MHARR VIEWPOINT Industry and Consumers Should Advance Legislative Expansion of Chattel Financing BY DANNY GHORBANI This article is an analysis paper concerning the impact and interaction between administrative policies relating to the two Government Sponsored Enterprises (GSEs) and pending GSE reform bills (and related concepts) in Congress. It also serves as the opening salvo for the proper inclusion of manufactured home loans – and especially manufactured housing personal property (i.e., chattel) loans – in such legislation. This is a timely issue, in that bipartisan legislation (S. 1217) to overhaul the home financing system – and the two Government Sponsored Enterprises (GSEs) -- has already been introduced by Senators Mark Warner (D-VA) and Bob Corker (R-TN). In the House,at the writing of this paper, there have been multiple hearings on this subject and, although a GSE reform bill has not yet been introduced, a bill is possible later this year. Regardless of the number of potentially differing bills that are ultimately introduced in both houses, any Senate bill(s) will have to pass through the Senate Banking Committee, while the gate-keeper in the House will be the Financial Services Committee. The Warner-Corker bill – a product of extensive, long-running and still ongoing debate in Congress and within the private sector -- would wind down Fannie Mae and Freddie Mac from their current form, maintain a federal guarantee for qualified home loans, and create a new private sector "first-loss" position (risk sharing), to reduce default risks to the government and taxpayers, and incentivize market discipline. It is expected that the private sector guarantee sources would track the same avenues that the Federal Housing Finance Agency (FHFA) is currently pursuing in a risk sharing pilot program – i.e., private mortgage insurance, subordinated securitization structures, and credit-linked notes. So, why is GSE reform important to the manufactured home industry, manufactured home buyers and to home affordability for American families? It is important because the secondary AUGUST 2013 12 THE JOURNAL market support system plays a critically-important role in ensuring the availability of affordable fixedrate purchase loans for all homes – and the new system that emerges must do a better job than the old one in ensuring the high-volume availability of consumer financing for the nation's most affordable housing -manufactured homes. Therefore, it is essential to get GSE reform right, or the industry and consumers of affordable housing will suffer, as the Federal Housing Administration's (FHA) presence in the manufactured home financing market remains inadequate. Of course, a critical area for both consumers and the industry is manufactured home chattel loans. It has been disappointing in recent years to see the GSEs ignore this crucial sector of the market (serving over three-quarters of all manufactured homebuyers), notwithstanding their statutory Duty to Serve (DTS) manufactured housing, which Congress mandated in 2008, including proper "consideration" of personal property loans. It is even more disappointing to see this trend – i.e., ignoring manufactured home chattel loans -- continue as the GSE reform debate begins. Indeed, language in the bipartisan Senate bill may not even permit a federal guarantee of manufactured home personal property loans, as the definition of eligible loans refers only to "a residential real estate loan secured by a property with 1 to 4 single family units." Therefore, it is critical, to begin with, that the industry develop appropriate legislative concepts and specific amendment language to include manufactured home loans – and especially chattel loans – in any final GSE reform bill. MHARR has already started to formulate such concepts and language in order to move this issue forward. Next, the industry – and particularly its post-production sector -- as well as consumers of affordable housing, should make it clear to both houses of Congress that GSE reform has to include chattel loans which serve the vast majority of manufactured housing consumers and provide the most affordable access for the largest number of consumers to the industry's most affordable homes. Industry members know that good quality personal property loans can be a good credit risk. Moreover, under the proposed new home financing system, the private sector has to assume some risk through the private guarantee function. So why exclude personal property loans, which will be priced and underwritten to attract private capital and thereby protect taxpayers, while providing affordable long-term financing? The industry and consumers must begin to address this issue head-on, and soon. The private guarantee role, moreover, leads to a second area in which the industry and consumers need to be active – i.e., engaging with potential private sector guarantee sources for both real estate and personal property loans. The simple fact is that even GSE reform legislation which allows the securitization of manufactured housing personal property loans will not, in itself, guarantee that such loans will be available in the marketplace – unless and until the industry establishes an early beachhead. Therefore, the industry and consumers should be active in ensuring that FHFA is actively pursuing the financing of manufactured housing loans in its risk sharing pilot program. It may take some time for congressional legislation to be adopted, so in the meantime, this pilot is the main focus with respect to the future of GSE reform. It is critically important that early results confirm that a thriving, affordable market can exist for manufactured homes under a risk sharing system. At the same time, the industry and consumers must be actively engaged with Congress to ensure continued and, indeed, expanded support for manu-