Manufactured
              Housing

 New Hampshire

Past and Future:

Paul Bradley, manager of the New Hampshire Community Loan Fund's Manufactured Housing Park Program, talks about the history of mobile-home parks and the future of manufactured-housing financing in New Hampshire.

The Mobile Home Park
The mobile-home park really grew out of the travel-trailer park of the 1940s and '50s. Manufactured housing's roots are in the travel-trailer business. That's why, when you look at the manufactured-housing industry, much of it probably reminds you of the car business. The original founders of the travel-trailer industry grew out of the automobile industry.

Mobile homes are sold on dealers' lots and financed through consumer credit with the assumption that they depreciate. They are placed in parks on rented land 50 percent of the time.

My argument is that the rental park made a lot of sense as a travel-trailer park. When you pull your trailer into a park and want to camp for a week at the ocean, you don't care about having control over the land. You just want the septic systems to work. And if they don't work you're going to leave the place. You want it to be affordable or you're not going to pull your travel trailer in there to begin with.

But those travel-trailer parks morphed into permanent housing, with home owners living first in trailers, and then in mobile homes, and now in manufactured homes for 10, 20, or 30 years. They're also financing those homes for 10, 20, or 30 years. It's really become permanent housing, but the ownership structure — with an investor owning the land and home owners owning the home — is still the old-style, travel-trailer-park ownership structure.

But it doesn't make any sense anymore, because the homeowners who are there permanently don't have control over the land costs and the monthly rent and the repairs.

So we see a lot of parks where there is effluent on the surface and where the home owners don't have control over getting those things fixed because they rely on the park owner to do it. They don't have control over whether the park will remain a park. It can be closed down and they can be given 18-month notices to quit.

Peter and Martha Bartlett at home at the Freedom Hill Park in Loudon.

So there are a host of problems. Furthermore, the fundamental problem of owning a home on rented land is that every time the park is sold, the homeowners essentially are paying off the debt service of the new buyer. Then their rents go up to pay the new owners the higher debt service. It's actually an ownership structure that works against the home owner's best interest.

So all we've done in New Hampshire is said, Let's find a corporate vehicle for the home owners to take ownership of the land so they can retire the debt service and buy the park just once. Then they can make the repairs they think are prudent and necessary and have the park as they choose.

It's an ownership structure that makes more sense to the general public. We're pretty adept at understanding different ownership structures, but around the country we've accepted that the investor-owner is a necessary element of the mobile-home park. But tenants in this state are proving every day that it's an outdated mode of ownership that we're slowly replacing.

Improved Quality
The quality of manufactured housing has improved over time — there's no question about it. HUD and consumer demand for better products has had a significant role in that. But from a legal standpoint there's not much that differentiates the new homes from what came before.

Manufactured homes are significantly less expensive than other housing. We know that 75 percent of our co-op members are low to moderate income. But the growth of manufactured housing in the state has been artificially dampened by zoning that disfavors manufactured housing. This is based on the fact that it is affordable housing and generates lower real-estate-tax revenues. The perception of it is that it's also for the poor.

Town planners feel justified in zoning manufactured housing out on a whole host of arguments. In fact, there are some advocates who would like to see manufactured housing just go away. The reality is that between 25 and 30 percent of all new housing in this country is manufactured housing, though that's not the case in New Hampshire for regulatory reasons.

Mortgages for Manufactured Homes
Roughly 85 percent of all manufactured-home loans in New Hampshire are financed by finance companies. You've read about some of them in the headlines: Conseco Finance and Greenpoint Financial. There are a whole host of finance companies doing sub-prime lending to manufactured housing.

Now sub-prime, unfortunately, has come to refer not just to the borrowers' credit quality, but to the actual manufactured-housing stock. So you could have a person with A+ credit who cannot secure conventional residential financing for a manufactured home in a manufactured-housing park because of their housing-style choice.

Our consumers tell us that financing for manufactured housing is terribly expensive. One in five co-op members in this state is paying in excess of 14 percent for home-loan financing. The median interest rate paid by the 2,400 members of our co-ops (those who are borrowers) is 11.8 percent.

So we have gone a long way toward stabilizing manufactured-housing parks by helping residents buy their parks, stabilizing the rents, and stabilizing the infrastructure. But we continue to let sub-prime lenders with a sub-prime mentality finance homes in those parks at rates well in excess of their cost of doing business in this niche market.

So we are developing a home-financing product to provide an opportunity — a lower-cost opportunity — for home owners to finance their homes. Our goal is to engage the state's retail lenders to create an origination system and to basically develop a secondary-mortgage market that can deliver the rates and terms and underwriting criteria that we believe best meets the safety and security needs of the lenders, but also produces a good home-financing product for our home owners.

We'll be working with the banks on this. Our goal is to develop it by the end of 2002. We've just completed four months of industry and market research. We're beginning to talk to partners in the system, and we're designing the market mechanisms as we speak.

I really think this is a niche market. I think we have an understanding of this market and these consumers. I would say that the lenders we have spoken with thus far are very favorable. They see there's a unique opportunity to go in and do some manufactured-home lending. The problem with manufactured-home lending is that it grew up around non-residential real-estate practices.

It's not sufficient to go into this market and just be another lender; you have to go into it with the idea that you're going to reshape how some of these markets work, so you can protect the consumer and protect yourself as a lender.

I believe we have a unique opportunity to go in and redress some of the fundamental problems in these markets and lead the way to hopefully broader industry change and bring essentially residential real-estate lending practices that have worked so well across the country for site-built homes and modular homes and condominiums and other types of cooperatives to manufacturing-housing-park residents.

I think we can do so safely. We have several bankers participating thus far in conversations who see the uniqueness of the opportunity to deliver reasonably decent volume and good-quality loans.

Why haven't the local banks been doing it? One banker told me that for two years his bank tried to get referrals from local dealers for mortgages on new manufactured homes, but they couldn't get in.

The reason they couldn't get in is because the manufactured- home business is well known for dealer incentives. One finance company offered floor-plan financing if the dealers promised that 50 percent of the homes sold from the dealership would be financed by the company.

The company would put an originator right in the sales office, so things became very cozy between dealer and lender — to the disadvantage of the consumer. This is a real conundrum for us lenders because you usually think that when push comes to shove you're going to make sure that your customer gets well taken care of.

I have articles here with interviews with former manufactured-homes salesmen who talk of practices where the lender and the dealer basically conspire to add to the interest rate that the borrower was going to pay.

So there are some fundamental problems in the way this market has been set up. And the truth is that some dealers are going to hold on to this old merchandising, automobile-sales and financing model. But there are also some people who want to change and have a more residential-real-estate approach. That fight is going on within the manufactured-home industry.

So we're joining into that debate and as a lender saying residential real-estate practices are what will save this market.