Kathi Paradis

Assessment of single-family lending on manufactured homes

By Kathi Paradis

Executive summary of a report on our loans for manufactured homes located in ROCs or on their own land.

This spring we produced a report on our manufactured-home lending for ROC USA, a CDFI lending subsidiary that works with 321 resident-owned communities nationwide. This is an executive summary.

Problem: Affordable financing–particularly fixed-rate, single-family mortgages–is difficult to secure for manufactured housing. This is, in part, because the data used to make decisions regarding manufactured-home lending is outdated or limited due to lack of lenders in the sector.

Solution: Data regarding manufactured-home mortgages must be updated to better inform policy discussions around manufactured-home financing. With 20 years of experience with single-family lending for manufactured homes, the New Hampshire Community Loan Fund is in a unique position to provide updated data on manufactured-home lending.

Key findings: Over our 20-year lending history, we have found that traditional single-family mortgages for manufactured homes are a proven asset class. The Community Loan Fund has lent over $94 million to more than 1,600 borrowers through June of 2023. Our data demonstrate that manufactured-home loans perform well.

woodburyThe New Hampshire Community Loan Fund: Over 40 years ago, the New Hampshire Community Loan Fund began bringing people and institutions together to solve problems. One of those solutions was centered in the preservation and affordability of N.H.'s manufactured-home parks. The very first loan made by the Community Loan Fund helped the residents of the now-Meredith Center Cooperative save their homes from redevelopment by providing guidance and financing that helped them become the state’s first resident-owned manufactured-housing community (ROC). That began the Community Loan Fund’s history working to preserve and create affordable manufactured-homeownership opportunities in New Hampshire. To date, 150 manufactured-home parks have been converted to resident ownership, preserving nearly 9,000 affordable homes.

In 2001, 20 years after launching the ROC program, the Community Loan Fund identified a need for fair, fixed-rate mortgages for manufactured-home buyers and owners. Given our history of helping park residents cooperatively purchase their communities, developing a loan program for those residents to obtain affordable mortgages was a natural complement.

Single-family lending for manufactured homes: Our program to provide single-family loans for manufactured homes, known as Welcome Home Loans, and its underwriting guidelines were developed to reflect our borrower profile. We believe that living in a manufactured home doesn’t mean that a borrower isn’t creditworthy or deserving of homeownership. It means that as a lender, we need to be flexible. We review our guidelines periodically for changes in borrower needs or economic shifts.

Program structure: We do not use automated underwriting as most lenders do, as it doesn’t accurately reflect our borrowers’ financial characteristics. When a borrower lacks a credit score, we use alternate credit to show an on-time payment history. Welcome Home Loans are self-insured. We do not get private mortgage insurance on our borrowers and require only 5% of the purchase price as a downpayment. Borrowers are encouraged to seek seller credits to help with down payment and closing costs. The borrowers are required to show at least 2% of the purchase price for the down payment and two months of cash reserves of the housing expense for all purchase transactions. Additional features of the Welcome Home Loan program include:

Downpayment and technical assistance: Downpayment assistance is crucial to our mission of helping borrowers with low incomes own safe and affordable housing. Currently, we offer 0% downpayment assistance, which allows the borrowers to keep more of their funds in reserves and contributes to their financial success. In addition, by making our Employee Assistance Program available to our borrowers, those facing life challenges have resources to keep them successful homeowners.

Required home inspection: Homes that are more than 25 years old may require repairs that are beyond a borrower's financial resources. We adapted our lending process to require home inspections. By matching this with additional downpayment assistance, we have been able to help with costly repairs such as roofs, windows, flooring, and mechanical systems to ensure our borrowers are entering a safe and stable home.

FB_MH-carportThe stigma attached to manufactured housing has perpetuated the myth that manufactured-home loans have higher delinquency rates, lead to more foreclosures and losses, and are not a good credit risk. However, our data supports our belief that people with low incomes can be good borrowers. Since closing our first loan in January 2003 through June 2023, the Community Loan Fund has lent over $94 million to more than 1,600 borrowers. That number breaks down to $68,608,462 to 1,358 borrowers in ROCs and 288 loans totaling $25,910,2258 to borrowers with homes on their own land. Cumulative losses to the portfolio for manufactured home loans in ROCs is 3.31% based on dollar amount of loans and 6.11% of the number of loans originated since inception. Total losses to the portfolio of homes in ROCs and homes on land are 2.50%. Since the program started, for homes in ROCS, we have charged off 21 loans, processed 20 deeds in lieu of foreclosure, and foreclosed on 42 homes. Manufactured home residents face the same challenges as any property owner.

Ability to repay is impacted by death, divorce, illness, job loss, and economic disruptions. Low income doesn’t mean a borrower is pre-disposed to delinquency. We have foreclosed on borrowers with low debt-to-income ratios and significant reserves. The sum of a borrower’s character can be a greater measure than their capacity to pay a debt. Even during the COVID-19 pandemic, our borrowers demonstrated resiliency. Many people faced not only job furloughs but risks to their health as the virus made its way through the population. The Community Loan Fund and its sub-servicer worked diligently with borrowers to make resources such as deferments and modifications available to struggling borrowers. We offered statement messages, frequent mailings of resources, and consistent phone calls.

Conclusion: The data shows that manufactured-home buyers are excellent borrowers who just want a type of housing that fits their lifestyle and sets them on the path to wealth building. The assets (homes) appreciate like any other property. Our borrowers take pride in their homes. We have been told that a loan closing is one of the greatest moments in their lives or we have made impactful change by helping with the first-time homebuyer. Many perceive a manufactured home as a stepping stone to building wealth. Some are just happy to have a place where they can serve holiday dinner to friends and family.  

Kathy Paradis is the Community Loan Fund's Vice President of Residential Lending & Compliance.

 

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