Modern homes are a rare feature in today's housing market, offering rare opportunities for low-cost, high-quality homeownership. Thanks to the efficiencies built into the manufactured home construction process, these factory-built homes are faster and cheaper to construct than site-built homes, with buyers starting at $50,000 per home. You'll save $100,000.
But despite these advantages, the manufactured housing market is struggling. This isn't because there's a lack of willing buyers, but because federal programs aren't working and there are fewer lenders. As a result, safe and affordable financing is out of reach for tens of thousands of creditworthy homebuyers looking to purchase a home.
But help may be on the way.New changes from federal housing authority (FHA) and Ginnie MaeThe company, which insures and guarantees loans, could help tap an untapped market for lenders looking to expand and improve access to credit for homebuyers.
Unlike homes built on site, which are always titled as real property, over 40% of manufactured homes are titled as personal property (similar to car ownership). If a manufactured home is owned as personal property, a mortgage is not available. Therefore, the next best option is to take out a personal property loan, known in the industry as a “residential only” or “personal property” loan.
Demand for housing-specific loans is strong. In 2019, the number of applications for housing loans exceeded 200,000. Despite this, only 36% of completed home loan applications in 2021 were approved. This 64% rejection rate has remained relatively unchanged over the past four years. The credit standards for home-only applicants are much higher than for buyers seeking a mortgage, which helps explain the high rejection rate. For example, research shows that a residential mortgage applicant with a superprime credit score (720 or higher) is more likely to be approved for a loan than a mortgage applicant with a subprime credit score (580-619). It has been shown that the sex is low. And if buyers of used homes are unable to get a loan, they must choose to either scrape together the cash themselves, rely on financing from the seller, or abandon the purchase altogether. .
However, strict credit standards are just one of several reasons why there is unmet demand for dedicated residential loans. Much of this market dysfunction is also due to a lack of lenders. Only five lenders originated more than 75% of all residential loans from 2018 to 2022, and four of them specialize in residential loans. With the dangers of such an uncompetitive market in mind, as well as consumer challenges for safe and affordable financing, FHA and Ginnie Mae announced late last month that more lenders are joining Title I Manufacturing Mortgages and Title I We have jointly announced a series of updates aimed at getting you up to speed. The Loan Securitization Program is the only federal program that helps lenders make loans specifically for residential properties.
To date, Title I programs have been largely underutilized due to outdated program requirements and guidelines. However, recently announced updates will help reduce these barriers to lender participation, giving more lenders a much-needed unique opportunity to help address the nation's unprecedented affordable housing crisis. This should pave the way for new entry into the market.
There are some great opportunities in the residential-only lending market. For lenders, the market offers prospects for new growth business. FHA has an opportunity to expand its considerable manufactured housing expertise to strengthen this important market. Additionally, government-sponsored enterprises (GSEs) can play an important role by beginning to purchase residential mortgages to encourage lender participation and funding, allowing them to better meet their Congressional-mandated service obligations. It may be possible. And for the large housing market, federal programs increase the availability and affordability of manufactured homes and provide safe and affordable financing for the nation's most affordable path to homeownership. can increase consumer access.
Recognizing these opportunities and the concerning shortage of dedicated housing lenders, including nonprofit and for-profit lenders, leaders in the manufactured housing sector, and federal employees in various government agencies. and other industry representatives gathered in Washington, D.C., in February to discuss the changes FHA and Ginnie Mae are making and next steps to maximize growth in the residential mortgage market.Attendees of a hosted private meeting Lincoln Institute for Land Policy and pew charitable trustsWe agreed that the most effective way to address the current shortage of housing-only financial institutions is to establish functioning FHA and GSE lending programs that can attract additional loan originators.
FHA and GSE programs that can standardize the home-only market are essential to growing that market, but lender participation is equally important. The more loan originators are willing to serve dedicated home buyers, the more the dedicated home market will thrive, creating new financing opportunities and increasing consumer demand for access to affordable homeownership. A virtuous cycle is more likely to be promoted.
Jim Gray is a senior fellow at the Lincoln Institute for Land Policy. Rachel Siegel is senior director of the Housing Policy Initiative at Pew Charitable Trusts.