Issue link: https://read.dmtmag.com/i/708576
AUGUST 2016 12 THE JOURNAL Duty to Serve Whitewash Continues – Symptom of Much Larger Problem MHARR VIEWPOINT BY MARK WEISS More than six months after the publication of a second proposed rule by the Federal Housing Fi- nance Agency (FHFA) to "implement" (suppos- edly) the "duty to serve underserved markets" (DTS) provision of the Housing and Economic Recovery Act of 2008 (HERA) -- and two months-plus after a hastily-arranged FHFA meet- ing with industry and lender representatives to dis- cuss the December 18, 2015 FHFA proposed rule -- there are still more questions than answers con- cerning the exclusion of manufactured housing chattel loans from that proposal, the substance of closed-door meetings between FHFA and repre- sentatives of the Manufactured Housing Institute (MHI) prior to the publication of that rule, and the ultimate status of MH chattel loans under any final DTS rule. As chattel loans, though, ac- count for upwards of 80% of all new manufactured home placements according to U.S. Census Bu- reau statistics, getting answers to these questions and getting chattel loans included in any final DTS rule – as specifically authorized by Congress – is a crucial matter for the industry, for its future growth and prosperity, for expanding increasingly threatened free market competition in the manu- factured housing and MH finance markets and, ultimately, for American consumers of affordable housing. The long and, by now, tortured history of DTS does not need to be re-told, chapter and verse, yet again. But several key points, do bear some reiteration. Specifically, with HUD Code industry produc- tion in free-fall following the credit crisis and fi- nancial panic of 2007-2008, with the Federal Housing Administration's (FHA) Title I manu- factured housing program effectively in limbo, and with the Government Sponsored Enterprises (GSEs) providing little or no secondary market or securitization support for manufactured housing consumer loans, Congress included two targeted remedies in the HERA law to address the severe erosion in the availability of affordable housing for American home-buyers. First, Congress adopted the FHA Manufactured Housing Loan Modern- ization Act of 2008, which increased FHA Title I loan limits and revised underwriting criteria. Sec- ond, Congress enacted the DTS provision, which designated manufactured housing as a market that had been historically "underserved" by the GSEs, and directed the GSEs -- on a mandatory basis - - to remedy that failure. This included an amend- ment by the late-Rep. Julia Carson (D-IN), to expressly authorize the in- clusion of manufactured home chattel loans for DTS participation and credit. Quickly, though, both of these pro- visions were undermined. In the case of FHA reform, the Government Na- tional Mortgage Association (GNMA), in 2010, adopted its highly-restrictive "10-10" rule, re- quiring lenders to have a net worth of at least $10 million and maintain a reserve of 10% of all out- standing manufactured housing loans in order to qualify for the Title I program. As a result, all but the few industry-dominant lenders have been excluded from participation, and Title I loan orig- inations have remained at negligible levels. Meanwhile those same industry-dominant lenders have refused to provide the type of current-day loan performance information that GNMA has in- dicated could potentially lead to a relaxation of the 10-10 criteria. On the DTS side, aggressive opposition from the GSEs led to the blanket exclusion of manufac- tured home chattel loans from FHFA's first pro- posed DTS implementation rule in 2010. When new FHFA Director Melvin Watt – a long-time proponent of manufactured housing and key con- gressional supporter of the Manufactured Housing Improvement Act of 2000 – took over in 2014, though, and the Agency publicly committed to "revisiting" DTS, it finally appeared that DTS- chattel would become a reality. Indeed, it was widely anticipated within the industry and the manufactured housing trade press that manufac- tured home chattel loans would, in fact, be in- cluded in a "new" or substantially revised DTS implementation rule. But that was before previ- ously undisclosed 2015 meetings between FHFA officials, MHI and representatives of the indus- try-dominant lenders. In the wake of the continuing exclusion of manufactured home chattel loans from the second DTS rule, and the disclosure of the 2015 closed- door meetings (verbally admitted by FHFA offi- cials), MHARR called for "full disclosure and transparency concerning those meet- ings," including "the public release by FHFA of all materials, documents, records and/or transcripts relating to these meetings and any impact that those meetings may have had on the content of the … DTS proposed rule…." That call, recognizing the obvious self- interest of industry-dominant lenders in main- taining what has been called a "monopoly" on manufactured housing consumer lending, has since been echoed, reiterated and supported within the industry generally and in the industry trade press. Such calls for transparency, however, have been met with silence, even though MHI could (and should) have joined in urging FHFA to re- lease the relevant materials and information. That very silence, however, fosters the lingering impression that perhaps there is something to hide. In the meantime, representatives of the indus- try-dominant lenders – at the highly unusual April 28, 2016 invitation-only FHFA meeting – let their hand show by calling for strict lender partic- ipation requirements, like the GNMA 10-10 rule, in the unlikely event that chattel loans are ever ultimately included, on some basis, in a final DTS implementation rule. It would thus appear that the industry-dominant lenders are now "hedging their bets." Recognizing that public scrutiny ef- fectively prohibits open or even closed-door op- position to DTS-chattel, the dominant lenders realize that they can retain their dominant posi- tion by advocating the inclusion of highly-restric- tive "10-10"-like requirements within any DTS-chattel program. At the same time, while all of this has been