Lending Better For Mobile Homes

December 1, 2003
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GRAND RAPIDS — Though 19 million Americans live in manufactured homes, financing the purchase of one can be a bit unconventional.


Because most states don’t recognize the loans as mortgages unless the homeowner also owns the property, so the interest that many buyers pay isn’t tax deductible. Michigan isn’t an exception to that real estate rule.

In addition, a lot of big-name, mainstream lenders won’t make loans on manufactured homes. In fact, bankrate.com said seven of the nation’s 20 largest lenders didn’t provide any financing for manufactured homes, while others only did so if the buyer owned the land the home would occupy.

But the lending market for manufactured houses has begun to change.

Some banks have started to issue mortgages on these homes, as long as the buyer owns the land. The property is the key for these lenders, not the home, because the land can provide appreciating collateral for a mortgage. And if buyers can get a mortgage, then they can deduct the interest payments.

There are other signs that lending times are changing.

Citibank Mortgage recently entered the manufactured housing market when it bought Source One, a leading FHA/VA lender, and Chase Manhattan Mortgage now offers loans directly to buyers. In the past, Chase only worked with home sellers. Fannie Mae and Freddie Mac are also in the market.

“The old bias against manufactured housing is dying with the growth of multi-section homes,” said John Diffendal, director of research for J.C. Bradford & Co.

“The homes have become more residential-looking and that has helped.”

For seemingly forever, manufactured homes have been financed as personal property, like a car or boat. Typically, a buyer had to put 10 percent down and borrow the rest over 10 to 15 years. But in some cases today, a buyer may only need 5 percent down and may be able to finance the remainder for up to 30 years.

Despite some positive changes, Timothy DeWitt, executive director of the Michigan Manufactured Housing Association, added there still was room for improvement.

He told the Business Journal from his Okemos office recently that he would like to see more lenders get on board and become more active in the industry, which he said is providing affordable housing for many in the state.

But at the same time, DeWitt said he doesn’t expect that a big-name lender will come calling.

Instead he said he sees some middle-sized banks getting involved, as a few have recently contacted him for more information on manufactured housing.

“It would be nice to get a big guy, but I don’t think we’re going to get him,” he added. “So if we can get two or three medium-sized lenders, it could prove to be a nice benefit for us.”

Buyers of manufactured homes usually pay a higher interest rate than those who buy site-built housing, and the Manufactured Housing Institute said sellers still originate roughly 83 percent of all the loans.

The institute added that the latest trend was for a buyer to finance a home and land together as real property and to use a conventional mortgage from a traditional lender.

Rates are higher because buyers of manufactured homes usually have fewer assets and are on tighter budgets. Terms are shorter because manufactured homes aren’t as costly as site-built ones.

Lenders also get less collateral in a deal, because manufactured homes have a shorter life span than site-built houses and depreciate faster. And the administrative fees are often passed on to the lender, who, in turn, recoups those costs through the loan payments.

Bankrate.com reported the national average for a fixed-rate manufactured mortgage was 7.2 percent for 15 years. In comparison, an average 15-year mortgage for site-built homes was 4.85 percent.

Green Tree Financial Servicing Corp., which has an office in Grand Rapids, and Green Point Credit Corp., with one in Detroit, have about 30 percent of the manufactured lending market. The top 10 lenders control two-thirds of the market.

Manufactured housing is a $14 billion market nationwide. The state association reported that 6,713 homes were sold in Michigan last year and 7,805 were sold in 2001. About 80 percent of those homes sold in both years were multi-section ones with an average of 1,650 square feet.

In rural areas of the state, about 80 percent of manufactured homes are on private land. But in urban areas, eight of 10 are located in manufactured-home communities in which homebuyers rent the lot their residence occupies.

According to the U.S. Census Bureau, the average sales price for a manufactured home in Michigan was $50,400 in 2002, up from $36,800 in 1994. The bureau also said construction costs for manufactured homes run from 10 percent to 35 percent less than site-built houses. Twenty percent of all new homebuyers in the state bought a manufactured home over the past five years.

“The product is comparable to anything that is being built on site, or as we call ‘site-assembled’ homes,” DeWitt said.

“What we have to do as an industry is make sure that we represent the products through our retail outlets in a professional manner,” said DeWitt.

“We’re an alternative to a lot of people that can’t afford a $200,000 house. We feel there is a house for everybody’s lifestyle and pocketbook, and it’s just a matter of matching up the house that they can afford and the neighborhood that they want to live in.”    

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