Under what is called the “duty to serve” requirements of the Housing and Economic Recovery Act (HERA) of 2008, FHFA, the agency that oversees both Fannie and Freddie, is pushing these agencies to purchase loans made for the purchase of mobile homes (Scary Proposal).
Interestingly, the proponents of this proposal reference it as lending for “manufactured housing”. The units may be manufactured and they may be considered housing, but they are not affixed to the ground on which they stand. To me, that’s a mobile home and collateral that can be picked up and moved at the owner’s discretion. Pretty risky business for any lender!
Normally, the mobile home owner pays rent to a mobile home park where the home is located. Usually, these are short term leases allowing the owner to periodically adjust land rents depending on market conditions.
In some cases, the mobile park owner sells the tract to a developer or home builder. When this happens, the mobile homes must move to find a new location. This could cause problems for lenders that valued the home for lending based on its location.
On the other hand, forcing land owners to match the rental term to the mortgage term could have the effect of raising land rentals, increasing the costs of potential homeownership for mobile home purchasers. We might see adjustable rate rental plans which could affect how mobile home buyers are qualified for their loans. Requiring the rental term to match the loan term could also motivate existing mobile park owners to sell their land now reducing the options for mobile home owners to locate their homes. Fewer options would also increase rentals. These are things that need to be considered carefully. Given the government’s track record on such things, I am not confident they will.
Fannie and Freddie have had their problems of late and they both seem to be recovering nicely. Congress can’t quite agree on what to do with them. So, I guess someone decided that since they are under government conservatorship they should be used as a tool to spur homeownership. Agreed, but at what cost and limits?
I think this is a bad idea. There is a reason why there is no secondary market for loans made on units not secured by land. They are too risky. To say nothing of the fact that for some reason, many of these mobile home parks are usually located somewhere in the path of tornadoes or hurricanes. Maybe just a coincidence or could it be because this is land traditional home builders avoid because of the potential for such weather conditions and the effects it has on housing. More risk.
Lending on mobile homes is risky business. This is risk which may not be so good for Fannie or Freddie at this juncture in their continued recovery and the housing recovery in general. Understandably, purchasers of these homes need access to reasonable financing. If it were a potentially profitable undertaking there would be plenty of lenders competing for the business, with a vibrant secondary market created by Wall Street. There isn’t. Why? Because the risk is too great for any projected rewards.
Let’s not repeat history by forcing the agencies to lend where they shouldn’t, under the guise of “responsibility.” Then, when they falter, Congress will blame them and the industry for doing the wrong thing. I shudder to think what new regulations would be born from any future failures. On second thought, it might not matter because without Fannie and Freddie the housing market and related lending options, could be in big trouble. They might not survive the next time around.
Hopefully, after a careful review it will be found that this is not something in which the agencies should get involved. Hopefully, this is one change for which we do not need to be prepared.