Issue link: https://read.dmtmag.com/i/594075
NOVEMBER 2015 12 THE JOURNAL Industry and Consumers' Second Chance on Securitization of Chattel Loans MHARR VIEWPOINT BY MARK WEISS It's now been seven years since MHARR helped originate the "duty to serve underserved markets" (DTS) provision of the Housing and Economic Recovery Act of 2008 (HERA). Enacted by Congress as a targeted mandatory remedy for the historical failure of the Govern- ment Sponsored Enterprises (GSEs) (i.e., Fan- nie Mae and Freddie Mac) to properly serve the manufactured housing market, DTS has lan- guished at the Federal Housing Finance Agency (FHFA) without a final implementation rule. And while the industry, to its credit, was able to halt an unprecedented production decline over the same period and even mount a modest recov- ery without DTS, the production gains that have been achieved -- averaging nearly 6.5% since 2011 -- pale in comparison to what could have been accomplished had DTS been in place as planned and authorized by Congress (including the high-volume GSE securitization of manufac- tured home chattel loans) all along. Now, though, with MHARR continuing to aggressively pursue the full implementation of DTS -- and with FHFA under the leadership of former con- gressman Melvin Watt, a consistent supporter of manufactured housing – hints last year that DTS would be "reconsidered" by FHFA, have been re- placed by a firm commitment to issue a "new" DTS implementation rule, possibly before the end of 2015. As with so many industry issues, how- ever, the key question going forward is whether the industry will allow special interests to under- mine this second chance to implement DTS for all types of manufactured home consumer loans. Given the sheer length of the fight to fully im- plement DTS, some historical background is nec- essary to set the proper context for activity occurring now, as that battle comes to a head. DTS is, in part, a congressional finding that Fannie Mae and Freddie Mac have failed (and continue to fail) to fulfill their statutory market- support mission with respect to the predominantly moderate and lower-income homebuyers who rely on affordable manufactured housing. At the same time, DTS is a specific statutory remedy, directing the GSEs to materially expand their par- ticipation in the manufactured home consumer loan market – and thus rectify their prior failure to properly serve that market -- by developing "loan products and flexible underwriting guidelines to facilitate a secondary market for mortgages on manufactured homes for very low, low, and moderate-in- come families." Most impor- tantly, though, as part of this broad directive, Congress was careful to ensure that it author- ized both manufactured home real estate and chattel loans for inclusion in DTS, stating that FHFA, "in determining whether an Enterprise has com- plied with" DTS, "may con- sider loans secured by both real and personal property." Notwithstanding this specific congressional au- thorization, FHFA, at the urging of Fannie Mae, Freddie Mac and their allies, completely excluded manufactured home chattel loans -- representing more than two-thirds of the manufactured hous- ing consumer financing market – from its initial June 2010 proposed DTS implementation rule. In written comments submitted to FHFA, MHARR blasted that proposed rule as "grossly in- adequate" and unacceptable, pointing out that: "the DTS rule proposed by FHFA … will not pro- duce the new programs and significant policy changes that are needed for [Fannie Mae and Freddie Mac] to properly serve consumers of af- fordable manufactured housing. The proposed rule … ignores the dismal track record of [Fannie Mae and Freddie Mac] in serving very low, low and moderate-income purchasers of manufac- tured homes … leaving in place – if not tacitly validating – historical prejudices that have lef t … manufactured housing purchasers without ade- quate access to private sources of financing capi- tal to purchase homes that they can afford." MHARR, consequently, called on FHFA to "re- consider and modify major aspects of the proposed … rule … including, most particularly, its exclu- sion of [chattel] transactions … and adopt a final rule that fully implements DTS as Congress in- tended." Rather than amend this crucially-flawed pro- posed rule to be consistent with the letter and intent of the law, however, FHFA, under former Acting Director Edward DeMarco, chose to put DTS in administrative limbo under an FHFA rule arising from the insolvency and conservatorship of the GSEs -- entitled "Prior Approval for Enterprise Products" -- which effectively barred the GSEs from offering any "new product" or engaging in any "new activity." While others in the in dustry largely abandoned DTS, shifting their focus to the Dodd-Frank law and its provisions impacting "high-cost" manu- factured housing loans -- with the industry's largest lenders citing the lack of GSE securitization for those loans as necessitating their higher cost - - MHARR continued to focus on the root of the problem, i.e., that same underlying lack of se- curitization and a secondary market for all manu- factured home consumer loans, as an Association priority by: (1) maintaining pressure both at FHFA and in Congress for the full administrative adoption of DTS; and (2) developing, submit- ting and securing the inclusion of mandatory lan- guage for federal securitization of all types of manufactured home consumer loans in Congress' benchmark bi-partisan GSE reform bill, the Housing Finance Reform and Taxpayer Protec- tion Act of 2014 (S. 1217). For this continuing dedication to the full im- plementation of DTS while the GSEs remained in operation, while simultaneously seeking to ensure