Stacey Epperson and Rob Chrane: Manufactured Housing, Down Payment Assistance Expanding Affordable Housing Opportunities

Rob Chrane is founder and CEO of Down Payment Resource, which maintains a current accounting of all U.S. homebuyer assistance programs, including (at last count) 856 programs offering assistance for purchasers of manufactured housing. DPR provides software for lenders to operationalize DPA and connect homebuyers with the assistance they need.

Stacey Epperson is founder and chief executive of Next Step Network, a nonprofit dedicated to building relationships between the factory-built housing industry, housing developers, affordable housing advocates, lenders and other key stakeholders to deliver factory-built homes as a viable, sustainable homeownership solution.

Manufactured housing may not have attracted your interest or investment in the past but with America’s worsening affordability crisis and recent regulatory updates at the federal level, this may be the time to rethink your strategy.

Some 22 million Americans, most of whom earn less than $40,000 a year, already live in manufactured homes, making this type of housing the largest source of unsubsidized affordable stock in the country. Building of new manufactured housing accounts for about 9% of all new single-family housing starts.

If you’re not already considering manufactured housing as one way to expand your inventory box, you could be missing out on a windfall of future business, especially in serving LMI and minority buyers.

What is Manufactured Housing?

According to the Housing Act of 1980, factory-built homes constructed on or after June 15, 1976, are manufactured homes (not mobile homes). HUD regulates the construction of these homes under the Manufactured Home Construction and Safety Standards.

Manufactured homes are built in a factory and unlike mobile homes, are not intended to be moved once set up at their permanent location on blocks, metal piers or a permanent foundation. When the modules leave the factory, they are up to 90% complete, with the finishing touches happening at the building site. The modules are attached to a permanent foundation and each other and the finished home is inspected to ensure it meets local building codes.

In addition to meeting HUD Code, manufactured housing must meet local building standards for the communities where they will be located. This requires the companies that construct manufactured homes to have their designs approved by a HUD-approved Design Approval Primary Inspection Agency, ensuring the design is safe for consumers and complies with the law.

Widening the Inventory Box

Despite the relative affordability of manufactured housing, financing can be a big hurdle for would-be homebuyers.

Research from Next Step Network finds that while about 7% of completed applications for site-built homes are denied, the rejection rate for manufactured home loans is nearly eight times that, at 54%. Even mortgages for manufactured homes classified as real property — meaning, in most states, that they’re placed on a permanent foundation on owned land and titled as real estate — are denied 40% of the time.

That presents a huge opportunity for lenders willing to expand their inventory box and underwrite manufactured home loans with conventional (GSE) loans, FHA loans, VA loans, USDA loans and Title I and Title II manufactured home loans.

What’s more, buyers of manufactured homes can often qualify for down payment assistance (DPA) to lower the loan amount for a more favorable debt-to-income ratio or provide cash to meet necessary cash-to-close requirements.

How DPA Can Make The Difference

Depending on the local housing market, the availability of DPA to purchase manufactured housing opens up homeownership to many low- and moderate-income buyers. In California, for example, nearly half (47%) of manufactured housing is affordable to very low-income households, compared to just 18% of the state’s housing stock overall. In effect, manufactured housing opens up homeownership opportunities to many low- and moderate-income buyers.

While programs offering DPA for manufactured home purchases vary, the City of Tucson/Pima County HOME Down Payment Assistance Program offers buyers of manufactured homes a minimum DPA of $1,000 and a maximum of up to 20% of the purchase price. Buyers must have incomes at or below 80% of the HUD Area Median Income (AMI). Home prices are also capped at $302,100 for existing homes and $358,835 for newly constructed homes.

Meanwhile, the number of DPA programs that support manufactured housing purchases is growing. Down Payment Resource’s Q1 2024 Homeownership Program Index report found 856 programs are now available for manufactured housing, up from 703 last year, a 22% YoY increase.

Political Momentum

Manufactured housing has emerged as not only as a bipartisan housing solution but has become a central component of the Biden-Harris Administration’s strategy to increase housing supply and lower housing costs. The Administration’s actions, announced on February 29, 2024, reinforce “an ongoing commitment to furthering manufactured homes as an affordable option for Americans to obtain safe and stable housing through HUD programs administered by its Federal Housing Administration, Office of Community Planning and Development, and Ginnie Mae.”

To support the financing of individual manufactured homes titled as personal property, HUD updated its FHA Title I Manufactured Home Loan Program using new methodologies for calculating the loan limits so that they are commensurate with current market pricing for manufactured homes, making it viable for buyers of manufactured housing and lenders. HUD expects the new loan limits will incentivize more lenders to participate in the program and expand usage of the program by borrowers to finance a manufactured home.

Title I financing can be used to purchase or refinance a manufactured home titled as personal property, a lot where a manufactured home will be installed, or both the manufactured home and the lot on which it will be installed.

Ginnie Mae also announced plans to reinvigorate its Title I Loan Securitization program, a critical source of capital for lenders to attain greater liquidity to support manufactured housing supply. In conjunction with FHA’s manufactured housing actions, Ginnie Mae has announced revisions to its financial eligibility requirements for Title I Issuers to reduce barriers to entry and increase lender participation in its securitization program for Title I loans.

Pushing for Change at Every Level

While the actions at the federal level are heartening, there’s still a lot to do, at both the federal and local levels, before manufactured homes can play a bigger role in easing America’s housing crisis. Exclusive zoning rules and other land use restrictions remain a major barrier to the greater use of manufactured housing for entry-level homeownership.

The Lincoln Institute of Land Policy and others are pushing for the GSEs to play a bigger role in the manufactured housing market, for both real estate and chattel loans. The GSEs currently purchase 62 percent of residential mortgages in the United States, but back less than a quarter of manufactured home mortgages. Worth an estimated $20.2 billion, those loans represented less than 1 percent of the GSEs’ $2.63 trillion in overall mortgage financing in 2021, according to the Lincoln Institute.

While current interest rates and inflation have caused many Americans to rethink their home-buying decisions, we think action by the GSEs, a continued push at the federal level and having additional DPA and other assistance programs available would help lenders serve more LMI buyers and enable them to achieve the American Dream of homeownership.

(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)