Manufactured Home

A home built entirely in a factory, transported to a site, and installed there. Manufactured homes are distinguished from 'modular,' 'panelized'' and 'pre-cut' homes. Manufactured houses usually are built without knowing where they will be sited, and are subject to a federal building code administered by HUD. The other types of factory-built housing are not assembled until the site is identified, and they must comply with the local, state, or regional building codes that apply to that site. Because of efficiencies in factory production, manufactured houses cost significantly less per square foot than housing constructed on-site. Manufactured housing is an important source of affordable housing, especially in the South and in rural areas. There are major differences within the manufactured housing market, so much so that it makes sense to think of two different markets. A major difference is that one segment is shut out of the mainstream mortgage market and the other segment isn't. The Deprived Market: Many purchasers of manufactured housing must find loans in a parallel market, which is much like the unsecured personal loan market. Lenders in this parallel market assume that loss rates on manufactured house loans will be high, as they are on personal loans, and they price them accordingly. They view manufactured houses as poor collateral that provides them with little protection. One reason for this view is that manufactured houses can be moved. Before the HUD building code went into effect in 1976, manufactured houses were called 'mobile homes/' and this term is still widely used. Even though few ever leave their first site, they remain tarnished by the image of mobility. Lender concern that the collateral can disappear is well grounded when the house sits on rented land, which is the case for about half of all manufactured houses. Most leases are short, and if the landowner decides that it is more profitable to use the land in some other way, the manufactured house owner must move it or leave it. Since the cost of moving is very high, and in many cases the property is worth little more than the debt, owners sometimes just walk away. The lender's collateral ends up in the trash heap. In the deprived market, few owners of manufactured houses have built equity the way owners of site-built houses do. A major part of the appreciation in the value of site-built houses is due to rising land values. If you don't own the land, you don't realize this benefit. Furthermore, many purchasers of manufactured houses began with no or negative equity, putting nothing down, and including settlement costs (and sometimes furniture and insurance) in the loan. Manufactured houses in the deprived sector also seem to have more defects than site-built homes. Because they are geared to low-income purchasers, the materials used have often been inferior. Sometimes mishaps occur in moving houses from factory to site, and sometimes the installation is defective. Getting defects in a manufactured house fixed can be a hassle because responsibility is divided and finger pointing is common. The factory owner says the mover did it, the mover says the installer did it, and the installer says it happened at the factory. The Healthy Market: In this part of the market, buyers of manufactured houses have them installed permanently on their own land, and qualify for mainstream mortgage financing. It is even possible to

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qualify under a lease, provided the lease is long enough and provides adequate legal protections to the house owner and lender. The quality of houses in this segment is good. Quality has been improving generally since Congress passed the Manufactured Housing Improvement Act (MHIA) in 2000. The Act provided an improved system for keeping the HUD building code up to date, and required states to improve the quality of installation and to set up dispute resolution programs. In California, some developers have used manufactured housing in lieu of on-site construction, marketing and financing them in the same way. This avoids many of the problems referred to above that have tarnished the industry.