Manufactured
              Housing

 New Hampshire

The Member

Tom Potter is vice president, commercial lending, at Bank of New Hampshire.

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I was involved with my first co-op back in '93 or '94. I was working for Concord Savings Bank, which has become Bank of New Hampshire through acquisition.

The first one I did was here in Concord. The people over at the New Hampshire Community Loan Fund had approached the bank. They said, "We're looking to do a cooperative loan. Would you be interested in doing it?"

It was a first for us. We had heard of co-ops, but had never been involved in them. At that time, I'm not sure how many were around or if banks had been involved with them. But through a lot of talking with the Loan Fund, we eventually decided to go ahead and do one of these.

Celebrating the mortgage closing of Freedom Hill, the fiftieth manufactured housing park co-op in New Hampshire. From left, bottom row: John Eller, Federal Home Loan Bank of Boston; Darlene Hemron, Bank of New Hampshire; Pauline Ikawa, Bank of New Hampshire. From left, second row: Mary McLaughlin, Bank of New Hampshire; Sheila Finch, chair, Freedom Hill Co-op; David Parish, Federal Home Loan Bank of Boston. From left, third row: Tom Potter and Mike Toomey, Bank of New Hampshire. From left, top row: Peter Rhoads, New Hampshire Community Loan Fund; Paul Duffy, Bank of New Hamphire.

I have to say we were a little skeptical. We were coming out of the recession up here. You might remember that in the early '90s, the whole area had been hit pretty hard. And we were looking at a borrower — a group of tenants — that essentially had no experience. There had been a lot of issues in New Hampshire with the mobile-home units themselves during the recession, a lot of repossessions and that sort of thing. But we don't actually lend on the mobile homes themselves; we just lend on the park. So after talking with the Loan Fund and having them educate us on how the co-ops work, we were comfortable enough to go ahead.

The Loan Fund would continue to be involved with the co-op to give the residents guidance and technical assistance after the closing. The Loan Fund also does a second-mortgageloan behind the bank on these deals.

The first co-ops were actually two separate parks that were adjacent to each other — two separate cooperatives that we did at the same time.

I've lost track, but I want to say that over the years there have probably been about a dozen of them that I've been involved in. We've bid on more, but we don't get every one we bid on. Other banks have also done some. We did the Freedom Hill Cooperative with the Federal Home Loan Bank of Boston.

We've had a great experience with them over the years. And without the Federal Home Loan Bank of Boston we probably wouldn't be doing them, because they really need a long-term, fixed rate to maintain the affordability. That way everybody knows what the rents are going to be.

Chances are the bank wouldn't be willing to offer a 20-year, fixed rate on a commercial loan. It's not something we would typically do. But under the Federal Home Loan Bank of Boston's Community Development advance program, we can borrow funds at a fixed rate and lock it in for up to 20 years.

Typically, we do a 20-year term and a 30-year amortization, so we're essentially match-funding it. We know what our rate is going to be, what we're borrowing it at. Then we put a spread over that, which we pass on to the cooperative.

If you had a variable rate, adjusted every year or every couple of years, it would lend a degree of uncertainty. If the rates went up, could the residents afford the additional park rent? There's not a lot of fall-back for them. They're not like commercial borrowers or manufacturers who can pass on a rate increase through product price or something else.

In most cases, the tenants don't know what to do if a park is going to be sold. They get a notification. The owner of the park is required by state law to notify the tenants if he's selling the park. At that point, the tenants have a 60-day right of first refusal in which they can match the offer of the private buyer. But in most cases the tenants don't know where to start.

They're saying, "Where would we come up with a million bucks? That's never going to happen." So that's where the Loan Fund comes in. They let people know up front about this law and walk them through the process. They'll help them put together purchase-and-sales agreements and get the cooperative organized. They help them form a nonprofit corporation and arrange the financing through the bank and the Loan Fund.

Sometimes it's a scramble. Some park owners are fine. They say, "Oh, that's fine if you need a little extra time." Others want the money quickly because they already have an offer.

The Financing
The tenants typically put up a nominal amount. It used to be that the tenants might come up with 5 percent of the purchase price, the Loan Fund would put up 15 to 20 percent as a second mortgage, and the bank would come in with 75 to 80 percent. These days, we pretty regularly will do 80 percent, the Loan Fund will do most of the 20 percent, and the tenants might each put in a few hundred bucks up front — something to give them a sense that they're contributing to it.

If a typical borrower buys a commercial building, we would need 20 percent cash up front. In this case, the Loan Fund really provides the equity piece. They're in a second-mortgage position behind us. We typically have a written agreement with the Fund. If the residents get into payment trouble, the Fund will forego its payments in favor of ours until the situation gets rectified. But we haven't ever had to do that with any of the parks.

My understanding is that there are still quite a few parks out there that aren't co-ops. I think the Loan Fund has a pretty good database of all the parks out there and keeps an eye on what's going on. If they see a park is going on the market, they will let the tenants know.

The state of New Hampshire also amended the 60-day law this year. Beginning January 1, the owner of a park also has to notify the New Hampshire Housing Finance Authority of the impending sale, and they in turn notify the Loan Fund.

Sometimes the Loan Fund wouldn't know that one of these parks was going on the market or was on the market. The tenants would get the notice, throw it in the trash, or set it aside. They didn't know what to do with it. The park would be sold and they'd lose the chance to have it go as a cooperative.

A Source of Affordable Housing
Manufactured housing really is affordable housing. New Hampshire — at least southern New Hampshire (from Concord south and maybe over to the seacoast area) — really has a housing crunch at this time. Rents have really increased dramatically since the early '90s, when there was a recession and large vacancies. Now it's gone the other way.

I think because of the recession there weren't a lot of new apartment units being built. Now they're filled up. It's that old supply/demand thing. The rents have gone up because the supply is not there.

The mobile-home parks are a supply of affordable housing. It would be a shame to lose them. For various reasons, the zoning in a lot of towns doesn't provide for new mobile-home parks. I haven't seen it happen, but I'm sure an investor could buy a park and not keep it as a mobile-home park.

As a co-op, you know what your rent is going to be. Obviously, if they have some large expenditure come up, they might have to raise the rent $5 per lot, or something like that.

But if an outside investor comes in, they can theoretically raise the rents to whatever the market will bear. If the tenants of a mobile-home park can't afford the rent, there's really no place to put those homes. They're not building new mobile-home parks. It's very expensive for one of them to buy a lot of land somewhere and put in wells and septic systems and go through the whole routine. For some people it just wouldn't be affordable. That's really the issue. They don't want to lose these parks to outside investors who may increase the rents to the point where they're not affordable anymore.

Good Accounts
To comply with the Community Reinvestment Act, the banks reinvest in the communities they serve, especially in the affordable-housing area. Investing in the parks helps us meet that goal, but at the same time the parks have been a good source of business, frankly.

We saw the first couple of parks we did with Concord Savings as a community-reinvestment transaction. We didn't expect to make a lot on it, but it did help us meet that goal. At the same time, we felt it was safe enough and we weren't going to lose any money on it.

But I think over the years I've found they're good accounts. We haven't had any problems with delinquencies or any credit issues with them. They usually maintain their deposit accounts with the bank (we usually require that), as we do with most commercial borrowers.

In one sense, financing for a park is just a commercial- loan/real-estate transaction. We do all kinds of real-estate-type loans. But I think what makes this unique is the partnership between the Loan Fund and the Federal Home Loan Bank of Boston, the cooperation to get these types of deals done. I really don't think this would happen without that, or at least not in the form it's currently taking.

It really takes all the parties to pull it together. The Loan Fund has really been the driving force behind them. They're the ones who go out and do all the legwork and get the cooperative organized. They get the ball rolling. Then we step in as the first-mortgage lender. And, of course, the Federal Home Loan Bank of Boston is critical because without that program it would be tough for us to offer the type of fixed-rate financing that is necessary to make it work.