Lending becoming easier for manufactured homes

Photo by Michael Kelly Workers prepare a manufactured home for moving in the lot at Clayton Homes on Ohio 7 near Belpre in Washington County. New mortgage guidelines issued by Freddie Mac, the mortgage company, are expected to make it easier for manufactured and modular home purchasers to get financing.

MARIETTA — A national shortage of affordable housing prompted Freddie Mac, a government-sponsored company that purchases mortgages from banks, to issue in late 2018 a new set of financing guidelines that are expected to make it easier for people seeking low-cost housing to purchase manufactured, modular, factory-built housing.

Whether the new program, called CHOICEHomes, addresses the demand for housing in Washington County remains to be seen as lenders and manufacturers become familiar with it.

Manufactured housing, until now, has been a challenge for lenders who rely on some federal housing programs to guarantee or repurchase mortgages.

Dennis Smith is affordable lending manager for Freddie Mac’s national office but previously worked in Athens County. He said the changes are connected to the government-sponsored enterprise’s duty to serve mandate, which obligates the mortgage giant to offer programs tailored to home buyers in areas that suffer from affordable housing stock options, which includes Appalachia.

“The manufacturers came to us and told us, ‘We have a product that can fill that gap.’ However, the product didn’t have a financing vehicle,” he said. “We’ve embraced a loan product for those HUD-qualifying homes.”

Smith said Freddie Mac loan products since the end of November can now be issued for manufactured homes using site-built comparables, a move that should allow greater flexibility in lending for many people. The program was launched as a pilot during the summer of 2018.

“It’s a fantastic opportunity for an affordable, quality-built asset,” he said. “Twenty-two million Americans live in manufactured homes. Especially in rural America, getting a construction crew and building materials on a site can be cost-prohibitive. There’s really a void in the price point around $70,000 for site-built homes, and manufactured homes have advantages — no weather delays, you don’t have to worry about materials disappearing and the labor force is already there, at the factory.”

Advances in the quality of manufactured housing also has played a role in the agency’s decision to provide better financing support, he said.

“It looks more and more like a site-built home, with higher roof pitch, meeting energy efficiency requirements such as insulation and windows, high end fit and finish,” he said.

A significant portion of residential housing in Washington County is manufactured rather than site-built, according to data from the Washington County auditor: the county has 4,500 to 5,000 manufactured homes registered, out of the 28,250 housing units estimated in the American Community Survey 5-year data for 2017, or between 15 and 18 percent.

Freddie Mac estimated the average cost of a new, qualifying manufactured home to be about $78,000 nationally, a figure which would not include property or set-up costs. The median housing unit value in Washington County, according to the ACS for 2017, was $119,000.

The recent changes in Freddie Mac policy might take some time to play out in Washington County. At this point, much of the lending done by local banks is funded in-house rather than being resold to Freddie Mac or Fannie Mae, the other big government-sponsored mortgage buyer.

Jodi Stines, senior mortgage consultant for Peoples Bank in Marietta, said the bank doesn’t work with Freddie Mac and does not often finance manufactured housing, although when it does comparable site-built housing is often used because suitable manufactured housing comps are difficult to find.

“A lot of times, you can’t get three or four comparable sales within the last 12 months, you can imagine how difficult that might be,” she said. “If it’s a double-wide on a permanent foundation, it’s really not more difficult than a site-built house.”

Ron Tomasch at Polaris Home Funding offers mortgage servicing, assisting home buyers with meeting requirements and then ordinarily selling the completed mortgages to another party. He said manufactured housing normally is more complicated to finance than site-built housing when federal lending requirements are taken into account.

“We do manufactured homes all the time, it’s probably a third of our business,” he said. “We normally do them through Fannie Mae, not Freddie Mac.”

For financing a double-wide already on a site, he said, a foundation inspection is required, and the original FHA number needs to be in place or certain types of verification available if it is missing.

“For example, if you move a double-wide from an existing location, it’s no longer financible, the rule is that it has to be installed on that site by the dealer. If it’s built before 1976, it’s not eligible. It can’t be in a flood zone. There are just a lot of rules,” he said.

Another difficulty in purchased new manufactured housing is the gap between the time it’s on the dealer’s lot and when it is set up on the property, he said. The dealer wants to be paid before the house leaves the lot, but financing isn’t available until the house is set up on the destination property, he said.

The savings can be worth the effort, however. Tomasch said a new factory-built home, with property and set up costs, can be bought in this area for the same price or less than a similar-sized existing home that might be 100 years old.

But there is a lower limit to financing any real estate through federally-regulated programs, he noted. Freddie Mac, Fannie Mae and the FHA all place limits on the transactional costs related to purchase, and because some of those costs are the same no matter what the cost of the property is, the return for companies doing the financing becomes unattractive the lower the price gets.

“Whether it’s $40,000 or $140,000 a lot of the fixed costs, like appraisal fees and attorney fees, are the same,” he said.