Issue link: https://read.dmtmag.com/i/303813
MAY 2014 12 THE JOURNAL A Crucial Breakthrough on Consumer Financing MHARR VIEWPOINT BY DANNY GHORBANI For far too long, manufactured homebuyers have been treated as second-class citizens (or worse) by those responsible under federal law for making affordable homeownership possible – most especially the Government Sponsored En- terprises (GSEs), Fannie Mae and Freddie Mac. But there has now been a crucial break- through in a watershed effort to change all that, by attacking the problem at its roots. Discrimination by the GSEs against manu- factured homebuyers is reflected in the fact that manufactured housing loans have historically accounted for less than one percent of the busi- ness of the mortgage giants, while manufactured homes comprise a much larger portion of the nation's housing stock. This longstanding dis- crimination has severely limited GSE securiti- zation of manufactured home real estate loans, while securitization on an ongoing basis is not available at all for the chattel loans that finance a massive 76 percent of all manufactured home placements. The lack of securitization for the overwhelm- ing majority of manufactured home consumer loans drives up costs for industry lenders and ul- timately consumers. While manufactured homes and manufactured home loans – even with these higher lending costs -- still represent an outstanding value for homebuyers as com- pared with other types of housing, discrimina- tory securitization policies result in needless additional costs for hard-pressed consumers and the exclusion of millions of potential homebuy- ers from the American Dream of home owner- ship. And the worst effects of this discrimination, naturally, fall on the lower and moderate-income Americans whose need for affordable housing and homeownership is the greatest. Not surprisingly, therefore, Congress, in the Housing and Economic Recovery Act of 2008 (HERA), declared that manufactured housing had been "underserved" by the GSEs and di- rected Fannie and Freddie, via the "Duty to Serve Underserved Markets" directive (DTS), to develop "loan products and flexible underwriting guide- lines to facilitate a secondary market" for manufactured housing loans, including chattel loans. DTS, how- ever, got caught up in politi- cal cross-currents between the former leadership of the GSEs' federal regulator, the Federal Housing Finance Agency (FHFA), the Obama Administration and Congress and, as a result, has been in regulatory limbo at FHFA for nearly five years. So the discrimination that has bedeviled the industry and its homebuyers for decades, remains – at least for now -- em- bedded in federal policy. But, a key step has now been taken in the effort to change that status quo. In mid-2013, with: • both houses of Congress poised to address GSE reform on a priority basis; • bills pending in both houses to wind-down the current GSEs and establish new structures, entities and programs in their place; • bi-partisan support for the Senate bill that would retain a significant federal role in the housing finance marketplace; and • the Obama Administration publicly sup- porting the Senate GSE reform model -- MHARR saw an opportunity for an effort to take on and eliminate, at its source, the institu- tional discrimination against the industry and its consumers that has reduced production to just a fraction of its true potential. Surveying the substance and politics of the competing GSE reform bills (H.R. 2767, the "PATH Act" in the House and S. 1217, the "Corker-Warner" bill in the Senate), MHARR took a number of calcu- lated risks in deciding to advance an amendment to the bi-partisan Senate bill that would mandate equal treatment for man- ufactured homebuyers and manufactured home loans of all types, including: (1) the risk of pursuing changes, with limited resources, in a major bill impacting numerous high-profile stakeholders; (2) the risk of focusing solely on the Senate GSE reform bill; (3) the risk of advancing such an amendment in a highly-charged, competi- tive environment through a low-profile cam- paign of education and persuasion on the merits; and (4) the risk that the renewed profitability of the GSEs would undermine or stall congres- sional reform efforts. These calculated risks, however, have paid off, as MHARR's proposed language has now been incorporated, in full, in the latest (March 16, 2014) version of the bi-partisan Senate bill -- still numbered S. 1217, but now sponsored by the Chairman and Ranking Member of the Senate Banking Committee – Senators Tim Johnson (D-SD) and Mike Crapo (R-ID). The MHARR amendment language changes the original Corker-Warner version of S. 1217 in two significant ways. First, the Corker-