Issue link: https://read.dmtmag.com/i/518853
JUNE 2015 2 THE JOURNAL Subpart I – A Platform for Abuse and Corporate Welfare for Contractors MHARR VIEWPOINT BY MARK WEISS Subpart I of the HUD Procedural and Enforce- ment Regulations is the single most significant driver of unnecessary regulatory compliance costs within the federal manufactured housing program. As currently structured, it is a morass of redun- dant and pointless paperwork, needless "investi- gations" and reports, and multiple layers of document "reviews" by both third-party inspectors and HUD's monitoring contractor, which in 2014 was paid 127% more for each home than it did when the industry was producing far more homes. With no expiration date or statute of limitations and, effectively, no severity threshold (at least for its initial stages), it represents a constant and on- going regulatory uncertainty that cannot be pre- dicted, accounted-for, or budgeted-for in any meaningful way, thus aggravating its cost impact on manufacturers and ultimately consumers, who pay more but derive little if anything in the way of benefits. At the same time, Subpart I's ambigu- ous and often open-ended mandates, even after the adoption of certain reforms in 2013, remain an invitation for abusive and inconsistent enforce- ment, including increasingly subjective, arbitrary and costly demands imposed on manufacturers by the revenue-driven program contractor in the ab- sence of proper oversight by -- and accountability to – HUD. Recently exposed data, however, demonstrates that Subpart I has outlived any con- ceivable usefulness to manufactured homebuyers and should either be eliminated or significantly curtailed. At its core, Subpart I is a throwback to the times when manufactured homes were viewed as a type of specialty vehicle rather than a permanent residence and dwelling. As with much of the original federal manufactured housing law, section 615 of the National Manufactured Housing Con- struction and Safety Standards Act of 1974 -- which provides the statutory basis for Subpart I - - was derived from the National Traffic and Motor Vehicle Safety Act of 1966. Consequently, the following, from the website of the National High- way Traffic Safety Administration, should sound familiar: "The National Traffic and Motor Vehicle Safety Act … gives the … National Highway Traffic Safety Administration (NHTSA) the authority to issue vehicle safety standards and to require manufacturers to reca ll vehicles that have safety-related defects or do not meet Federal safety standards. Manufactur- ers voluntarily initiate many of these recalls, while others are either influenced by NHTSA investigations or ordered by NHTSA …. If a safety defect is discovered, the manufacturer must notify NHTSA, as well as vehicle or equipment owners, dealers, and distributors. The manufacturer is then required to remedy the problem at no charge to the owner.'" The entire concept of a "recall," however, is foreign to the housing industry and inappropriate and unnecessary for structures that are designed – and used – for permanent occupancy. The National Commission on Manufactured Housing (Commission) – chartered by Congress in 1990 to examine all aspects of the federal pro- gram and recommend improvements – recognized the cost, futility and flawed concept of Subpart I. In its August 1994 Final Report, the Commission, comprised of representatives of all stakeholders in the federal program, recommended a significant curtailment of Subpart I that would have elimi- nated notification "of defects alone" regardless of the existence of any alleged "class," while requir- ing investigation and potential consumer notifica- tion and correction only for "serious defects," defined as "any nonconformance with [the] na- tional manufactured home construction and safety standards that results in a defect in the perform- ance, construction, or material of a manufactured home that constitutes a safety hazard or that af- fects the home to the extent that it becomes un- safe or otherwise unlivable." The Commission would thus have limited the scope and reach of Subpart I to "safety hazards," and to "serious" ones, at that. Just as importantly, in recom- mending a significantly scaled-back Subpart I, the National Commission took pains to note that "im- proper installation," at that time, was "a more fre- quent source of defects than manufacturing or design errors." Ultimately, while the Manufactured Housing Improvement Act of 2000 did not specifically modify section 615 or Subpart I, it did enact na- tionwide installation regulation and alternate dis- pute resolution (DR), and those key changes -- as anticipated by Congress and the National Com- mission -- have fundamentally altered the land- scape of consumer protection under the federal law and federal program, as confirmed by the most re- cent HUD data regarding dispute resolution refer- rals. Yet, HUD today persists in maintaining and even intensifying the Subpart I of the bygone "trailer" era, imposing new and more costly man- dates -- even to the point of altering a Manufac- tured Housing Consensus Committee (MHCC) Subpart I reform proposal, at the Final Rule stage, to require expensive, labor-intensive "monthly" Subpart I record reviews regardless of manufac- turer performance. Given the underlying purpose of the 2000 re- form law – to complete the transition of manufac- tured homes from the "trailers" of yesteryear to legitimate "housing" for all purposes, at all levels of government – Congress affirmatively mandated either state or federal regulation of the installation of every new manufactured home, thus defini- tively addressing the single largest cause of manu- factured home "defects" as determined by the National Commis sion during nearly two years of hearings. Similarly, by instituting a system of al- ternate dispute resolution – under either federal or state authority – for issues manifesting during the first year following the initial sale, the 2000 re- form law addressed a source of persistent consumer complaints regarding "finger-pointing" between manufacturers, retailers and installers, while pro- viding an additional positive incentive for those regulated parties to effectively resolve consumer complaints affecting new homes. And the results of these changes have been dra- matic. As was indicated in HUD's response to a September 2013 MHARR Freedom of Information Act (FOIA) Request and confirmed at the April 2015 HUD-IPIA-SAA meeting in Washington, D.C., the number of referrals to dispute resolu- tion in both the federal system for "default" states and repr esentative state systems – which provide a de facto "barometer" for the overall level of con- sumer complaints – have been minimal. Thus, between 2008 and 2014, of the 123,174 HUD Code manufactured homes placed in "default" states, only 24 -- or .019% -- were referred to federal dispute resolution. Similarly in two of the larger state- administered DR programs – Virginia and Texas – \ 23