Demand for manufactured homes stays strong

Associated Press

HINESVILLE, Ga. – Cindy Elder wants to sell more manufactured homes, and the customers who walk onto her lot sure want to buy them. Yet she says she’s being forced to turn away nine of every 10.

“I’ve been doing this 12 years and I’ve never seen it like this. Honest to God,” Elder says from her office inside a double-wide prefab at Hinesville Home Center. “Everybody in the business is scared to death right now.”

Despite an economic recession, there’s still plenty of demand for manufactured housing. The problem is getting a customer approved for a loan.

Burned by too many defaults since the mid-1990s, lenders are tightening their credit standards or getting out of mobile-home financing altogether. GreenPoint Financial, the nation’s No. 2 prefab-housing lender, announced its exit Jan. 3.

Now many low-income Americans and young first-time buyers, for whom manufactured housing has been an affordable option, are unable to borrow because they’re considered too great a credit risk.

“Not everyone can own a home,” said James Clifton, vice president of finance for the Manufactured Housing Institute. “The great American Dream is available to more and more, but it’s not available to 100 percent of the population.”

Demand for manufactured homes soared in the 1990s, particularly in rural areas where land is cheaper and apartments and rental homes can be scarce.

Manufacturers cashed in by cranking up production, and new lenders entering the market began granting loans even to buyers considered high credit risks. Established lenders followed suit in order to compete.

“In many cases you were lending to people whose credit scores suggest they were never capable of making a payment in their lives,” Clifton said.

Many loans for mobile homes do not involve a land purchase, and carry higher interest rates because the homes are considered personal property rather than real estate. Those higher rates – ranging from about 9 to 14 percent – were attractive to lenders.

As long as repossessions stayed at an acceptable level of about 1.5 percent of outstanding loans, business was good. But as the economy soured the rate has soared to more than 4 percent. About 90,000 repossessions are expected this year.

With repossessed homes flooding the market, many retailers went bust, their numbers thinning from 7,000 in 2000 to 6,000 last year. Manufacturers slashed shipments of new homes by as much as 30 percent.

Making it harder to get a loan, which translates to fewer sales, may seem paradoxical as a strategy to revive business. But Colleen Bauman of Champion Enterprises, the industry’s No. 1 manufacturer, says it will work.

“That’s a good thing because we’re always selling to customers who can always pay for their homes,” said Bauman, Champion’s associate vice president for investor relations.

But it also places home ownership out of reach for some poorer Americans.

“I think it’s pretty clear that if you tighten credit, those who are more impacted are often low-income individuals,” said Nicholas Retsinas, director of the Joint Center for Housing Studies at Harvard University.

Even applicants with clean credit are getting turned away, as lenders insist borrowers have longer histories of meeting payment deadlines on bigger purchases or even a previous mortgage.

“If somebody has a couple of credit cards, and their balances are $1,500 each, they’re going to get a good credit score. But that doesn’t mean they’ve proven themselves to be a good payer,” said David Rand, senior vice president of marketing for Origen Financial, a national lender.

Stacy Cooper of Savannah spent three months getting rejected by dealers before she and her fiance could get a loan to buy a double-wide mobile home in November.

“I almost gave up,” said Cooper, 21. “All the dealers just said that my credit wasn’t good enough. I needed to get a co-signer. And then the co-signer wasn’t good enough.”

Cooper and fiance Jay Smith, a garbage collector, finally gave up trying to borrow enough to buy land with their home, settling for the home only. The dealer agreed to pay rent in a mobile-home park for a year.

The couple hopes, once they make good on their payments, they can refinance in a year and buy their own land.

“You’ve got to work for what you want,” said Smith, 27, standing in their new living room with burgundy shag carpet, fireplace and big-screen TV. “We’ve got (four) kids and wanted them to grow up in something of their own.”

Industry officials expect more mobile home sales to involve a land purchase, thus allowing the buyers to qualify for a real estate mortgage, which carries a lower interest rate and is more secure. Buyers making those purchases usually have a larger income and want bigger homes.

About one in four loans for double-wide and larger manufactured homes involved real estate mortgages, and that is likely to grow. At the same time, single-wide mobile homes, which once made up half of homes produced, now account for less than 25 percent.