Mobile Home Loan Refinancing is Different - Article

America's Next Top Manufactured Home Lender

After a chain of events in the manufactured home finance community, we are all left asking who the next big lender will be. The government last week banned Taylor, Bean & Whitaker from securing any more federally insured loans. HUD said Taylor failed to submit a required financial report, which raised fraud concerns. The company was also barred from issuing mortgage-backed securities for the Government National Mortgage Association, or Ginnie Mae. Taylor was the No. 1 source of financing for manufactured housing, they funded nearly 13 percent ($1.45 billion) of all manufactured home loans insured by the FHA in 2007.

Mobile homes have long been the first step toward homeownership for low-income Americans, and mortgage brokers are struggling to find new sources of funding from a pool of lenders that has shrunk dramatically during the past several years. Mobile homes, which are factory-built in parts and then put together at a land site, are significantly less expensive than traditional homes. According to the Commerce Department, the average price for a manufactured home in 2008 was $65K, much lower than the average price of $292K for a site-built home.

A tightening of lending standards is expected, however very unwelcome. The tight standards that banks now hold themselves to can be compared to a farmer who depletes all the resources from his soil as fast as possible. The farmer then blames the grocery store for his loss in livelihood. The banks have been taking advantage of the loose legislation for half a decade, while capitalizing by approving irresponsible financing, then securitizing it and selling it off. Now the hens have come home to roost, and the banks are acting irresponsibly in the opposite direction, on the side of over caution. Lenders are finding phantom reasons to decline even the lowest risk financing.

Wells Fargo, Countrywide and JP Morgan are the next largest mobile home lenders, but they aren't as active as they used to be in the manufactured home loan market. The small number of lenders will lead to reduced competition, likely resulting in a high demand and therefore, higher interest rates. In this scenario, the lenders have the upper hand and will probably only issue a limited number of loan programs available to finance or refinance a mobile home.

Strangely, Berkshire Hathaway revealed recently that in this current housing/banking crisis, their manufactured home customers are foreclosing less and making their payments more. Berkshire subsidiary Clayton Homes' loan delinquency rates have also been stable: the delinquency rate was 3.26% in 2004; it was at 3.5% in 2008; and now it's 3.82% here in 2009. However, the delinquency rate in the traditional housing market is higher, around 6.4%. Annual credit losses are running steady at a reasonable 1.5% of the loan portfolio. It is worth mentioning, however, that Clayton does not securitize their loans. This means the loans remain on their books, so they are much more conservative in their loan approval process.

This seems paradoxical, but it should at the very least make manufactured home loans a consideration among the lenders that are looking to emerge into a lucrative new niche market. Which leaves everyone in the manufactured home community asking the question: Who will be America's Next Top Manufactured Home Lender? It is possible Warren Buffet will step up to the plate, but his big investments of late have seemed incongruous and illogical. He may move to a low-stakes table, while the mobile home finance market is overtaken by a competitor.