Bleak outlook for manufactured housing as secondary market shuns sector

Firms that build, sell and finance manufactured homes blame regulations and a lack of secondary market support for plummeting demand within their space. When testifying in front of the House Financial Services Committee, Kevin Clayton, CEO of Maryville, Tenn.-based Clayton Homes and head of the Manufactured Housing Institute, painted a picture of an industry weathering through a five-year uphill battle. Clayton told lawmakers Tuesday that the industry lost business when subprime lending in the early part of the decade allowed more economically limited families to buy traditional site-built homes, pulling business away from makers of modular or manufactured homes. “Since 2005, the pace of new manufactured homes sold in the U.S. has declined by 65% (146,881 in 2005 versus 50,046 in 2010) and there has been a decline of nearly 80% since 2000 (when 250,419 new manufactured homes were produced,” Clayton said in prepared testimony. Clayton blames uncertainty over new financial services regulations for hindering growth within the segment. “Over 60% of manufactured homebuyers finance their purchase using a personal property loan where the dwelling alone is financed,” he said. “The ability for lenders to securitize manufactured home loans in the secondary market, particularly those secured by personal property, has been very limited.” Clayton said government-sponsored enterprises have shown little interest in buying up manufactured home loans to securitize them for a sell off to investors. To date, he says less than 1% of GSE business is tied to manufactured home loans. “This barrier has effectively shut off the development of a viable secondary market for manufactured home loans leading to higher financing costs,” Clayton advised. “The development of a viable secondary market would dramatically improve liquidity in the credit?constrained manufactured housing market and provide potential buyers with more ready access to loans to purchase affordable manufactured housing.” Clayton said the industry supports a push to create a housing finance system driven by private capital. But he said, “any secondary market — particularly if it is supported by a government backstop — should provide equal and open access to manufactured home loans secured by either real or personal property.” Clayton is a subsidiary of Warren Buffett’s Berkshire Hathaway. Last year, Clayton produced 23,243 homes for a 47% market share. In February, Buffett said mortgages written by Clayton were provided to stronger and savvier borrowers than those who made up the bulk of the housing bubble. At that time, he was predicting an improvement in housing to begin in early 2012. J. Scott Yates, president of Blairs, Va.-based Yates Homes also testified, reiterating the need for support in the secondary mortgage markets. “The true loser is the customer who wants to provide shelter for their family at an affordable price and who understands that manufactured housing is a viable option to do exactly that,” Yates said. The panel also heard from Carla Burr, an owner of a manufactured home, who cited a lack of affordable financing mechanisms as a problem for homeowners. “The loan choices are few and much more expensive,” she said. “The products that are available have higher interest rates, shorter amortization time frames and fewer protections than regular mortgages. These loans are generally unnecessarily risky for consumers, especially as most owners of manufactured homes can only get personal property loans, often called chattel loans, not mortgages. Chattel loans have higher costs and fewer protections.” Write to Kerri Panchuk.