[ad_1] The most affordable manufactured homes are financed with private loans with higher interest rates, shorter terms and fewer consumer protections than mortgage loans. The homes financed by these loans come without land, like a car, and the homeowner typically rents the land beneath their home. The home itself is a depreciating asset, which makes it difficult for manufactured homeowners to build equity or intergenerational wealth. The loans, called chattel, are rarely refinanced. That means the 17.5 million Americans who live in homes financed with chattel — about 42% of the manufactured housing market — don’t enjoy the consumer protections that long-established legislative bulwarks afford those with a traditional mortgage. But the government sponsored enterprises may now be on the cusp of entering the chattel market. The GSEs, which back mortgages on traditional site-built homes, currently do not provide financing for chattel. That’s despite being ordered by Congress, in the aftermath of the Great Recession, to specifically serve manufactured housing. The enterprises thus far have shunned the affordable end of the market. Instead, they have opted to finance manufactured homes that more closely resemble site-built homes, are titled as real property and cost much more. Both Fannie Mae and Freddie Mac also have backed commercial loans on mobile home communities. Freddie Mac has sought to educate borrowers on options to convert chattel financing to real property. “Instead of serving the market as it is, they’re essentially trying to change the market to something it isn’t by favoring real estate loans,” said Mark Weiss, CEO of the Manufactured Housing Association for Regulatory Reform, which represents manufactured housing lenders and builders. Freddie Mac aims to purchase 1,500 to 2,500 chattel loans by 2024, though it does not yet have a product for it. Fannie Mae is considering the matter with its regulator, the Federal Housing Finance Agency. Freddie Mac’s goal to finance chattel loans also received a prominent shout-out in the Biden administration’s national affordable housing plan. To observers, it’s a clear indication of momentum building for the GSE to finance chattel, for which affordable housing advocates continue to argue. Proponents of government-backed chattel loans say the sector is not as risky as it has been in the past. Manufactured homes are no more vulnerable than site-built homes in extreme weather events, industry groups claim. Manufactured housing lenders say the sector has reformed its past risky underwriting practices. A subprime crisis afflicted the sector long before it appeared in the wider mortgage market. Faulty loans on mobile homes led to the downfall of the nation’s largest manufactured home lender in 2002, ensnaring Fannie Mae on its way down, an episode both GSEs remember well. The GSEs have not yet explained how they would provide liquidity for loans made on a depreciating asset. Also up in the air is whether they would shape the market to fulfill their charter, or act as a passive secondary market participant. The chattel market is still highly concentrated, with the top five manufactured housing lenders accounting for nearly three quarters of chattel originations, the Consumer Financial Protection Bureau found. Despite potential risks, manufactured homes as a source of affordable housing backed by the government is tantalizing. Aside from renting, it’s often the only available option for many borrowers who can’t afford to buy the now median $375,000 home. The median chattel loan amount is $59,000, according to the CFPB, versus $237,000 for a site-built loan. But it’s not clear manufactured homes financed by chattel loans can be an engine for long-term wealth building, as conventional mortgage financing is. “The public policy purpose behind promoting homeownership is to create an avenue for long-term wealth building. There’s also a public policy interest in ensuring people have safe and affordable housing,” said Ed DeMarco, former acting director of the FHFA. “Chattel can be one form of providing safe and affordable housing. But it doesn’t mean that [type of] housing is going to be a path for wealth creation.” A little bit jumbled Fannie Mae has good reason to be cautious about manufactured housing. It’s been burned before. Years before subprime took hold in mortgage, risky underwriting wreaked havoc on manufactured housing. Now-defunct Green Tree Financial Corp. made loans hand-over-fist in the 1990s, with loose credit requirements on depreciating mobile homes. It was able to conceal the faulty loans for years through creative accounting, however, and sold itself to Conseco for $6 billion in 1998. But when home prices depreciated, it flamed out, and its parent Conseco filed for bankruptcy protection in 2002. At the time, 70% of Fannie Mae’s $9 billion manufactured housing portfolio were Green Tree loans bought by Conseco. Fannie Mae waived liens on the portfolio, in exchange for servicing fees and increased servicing oversight, and recorded a loss of $83 million on securities it held, Fannie Mae documents show. Fannie Mae did not respond to a request for comment. “A lot of subprime behaviors showed up in the chattel market first,” said Paul Bradley, president of ROC USA, a nonprofit that helps manufactured housing communities convert to resident ownership. “This was classic fog-the-mirror underwriting and lending, invoice-fixing.” A former Fannie Mae official who observed the debacle firsthand said mortgage finance was not built to address a depreciating asset, and Fannie Mae did not understand counterparty risk well enough at the time. “We were really good at getting things really wrong when we got them wrong,” the former official said. Fannie Mae “stepped in right before bankruptcy and wound up taking it on the chin,” said Weiss, of the Manufactured Housing Association for Regulatory Reform. “The underlying lender had significant problems and was not handling things in the proper manner,” Weiss said. “But that’s not the market today — it’s just a completely different situation.” Although the underwriting has changed, according to Weiss and other lenders, Fannie Mae still remembers the Conseco debacle. And both of the GSEs are demonstrably cautious when it comes to supporting chattel lending. “Our friends at Fannie and Freddie who have put
