Fannie and "manufactured homes"

by Russ Roberts on September 28, 2008

in Government Intervention

In Ed Gramlich’s book on the subprime market, he mentions almost in passing that HUD even required Fannie and Freddie to support the purchases of mobile homes, what are formally called "manufactured homes." I found this remarkable story from 2004. Some excerpts:

"We are teaming up with lenders who serve this market to set the
right standards, force out the bad actors and give the manufactured
housing market the scrutiny and status it deserves," Chairman Frank
Raines said.

Sometimes known as HUD-code houses, manufactured homes are the only ones in the country built to a single, national standard.

Usually sold from used car-like lots along the side of highways
and byways in rural locations, the houses are assembled on individual
chassis in a factory, pulled to the building site and attached
permanently to the ground.

Manufactured homes are often ridiculed as "trailers," as they
were once known. But 25 million people live in them. More importantly,
they are starter homes for many rural families and the last homes for
many seniors.

The story says later:

In August, Fannie Mae said it would limit loan-to-value ratios to 90
percent and work only with those lenders that understood the special
requirements of dealing with factory-built houses, including titling
the units as real property as well as appraisals and servicing issues.

Now it has identified AgFirst Farm Credit Bank, Flagstar Bank,
GMAC Manufactured Housing, Huntington Mortgage Group, Origen Financial,
RBC Mortgage, 21st Mortgage, Vanderbilt Mortgage, and Washington Mutual
as lenders which have demonstrated the "high levels of expertise
necessary" to lend on manufactured homes.

But my favorite part:

At the press conference, which was attended by more Congressmen than
reporters, Rep. Mark Green, R-Wisc., who authored a letter signed by 20
of his colleagues urging Fannie Mae to look for ways to expand
ownership opportunities in rural markets, said the hinterlands are
often forgotten when the topic of affordable housing is mentioned.

"When we talk about housing policy inside the Beltway, we’re
locked into the mindset of big city public housing," he said. "But most
people have no connection to that."

Reps. Bob Ney, R-Ohio., Baron Hill, D-Ind., and Ken Lucas,
D-Ky., whose districts are almost entirely rural, also were on hand to
complement Fannie Mae’s return to 95 percent lending in the country’s

Rep. Lucas called it "a great day for millions of Americans,"
and Rep. Hill said the move "is not just about housing, it’s about
people’s lives." Manufactured homes "are a great fit for a lot of
people," Rep. Ney added.

Rep. Barney Frank, D-Mass., whose Boston area district is
decidedly non-rural but had nevertheless chided Fannie Mae for "turning
away" from manufactured housing, labeled the announcement "one of the
most important things to happen to make home ownership affordable to
people who might otherwise be shut out of the market."

"This is both more and better," the ranking minority member of
the House Financial Services Committee said in praising the initiative.

He also noted the apparent lack of interest on the part of the
press in what he called "an essential part of any program to increase
home ownership in America."

Had Fannie Mae Chairman Frank Raines been stopped for speeding
on the way to the press conference, the media "would have been all over
it," Rep. Frank said, referring to the deluge of stories in the popular
and financial press about accounting errors and oversight at the
company and its sister GSEs, Freddie Mac and the Federal Home Loan

"If you read those stories," the 12-term lawmaker said, "you’d never know these are housing companies."

Rep. Frank’s comments gave Raines an opening to repeat his
warning that any major change in the manner in which the GSEs are
regulated could hurt his company’s capacity to step forward when it is

"Anytime you have to go to a regulator to approve a new
product, you have to consider that our ability to mobilize this number
of lenders would be greatly impeded," the Fannie Mae chairman said.
"I’m not sure they’d even want to be our partners."

But Paul Nichols of Vanderbilt Mortgage, Ron Klein of Origen
Financial, Chris Gibson of GMAC and Richard Ray of 21st Mortgage left
little doubt they wouldn’t want to be part of the effort.

"Everyone in this country deserves a chance at home ownership," said Gibson.

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Martin Brock September 28, 2008 at 8:02 pm

So what's the problem with FNMA buying mortgages on manufactured homes? My sister lived in one for years while she got her veterinary practice off the ground. The issue is credit worthiness. Can the buyer afford the home? Are you suggesting that a less costly home is necessarily less affordable to its buyer? Do you have any evidence that mortgages written on manufactured homes are more likely to default?

T L Holaday September 28, 2008 at 9:57 pm

Russ, do you believe that there is US$700 billion in manufactured housing?

Do you have any data? Is it just too much trouble for you to get quantitative data?

Russ, do you think this might have something to do with the current situation?

But many on Wall Street did even worse, as Mr. Berman describes it. They continued to trade very complex securities concocted by their most creative bankers even though their risk management systems weren’t able to understand the details of what they owned.

A lot of deals were nonstandard in many ways, “so you really had to go through the entire prospectus and read every single line to pick up all the nuances,” Mr. Berman said. “And that slows down the process when mortgage yields looked very attractive.”

So some trading desks took the most arcane security, made of slices of mortgages, and entered it into the computer if it were a simple bond with a set interest rate and duration. This seemed only like a tiny bit of corner-cutting because the credit-rating agencies declared that some of these securities were triple-A. (20/20 hindsight: not!) But once the mortgage market started to deteriorate, the computers were not able to identify all the parts of the portfolio that might be hurt.

Russ Roberts September 28, 2008 at 10:08 pm

T L,

I appreciate your concern for magnitudes. It turns out to be quite difficult to get precise measures of just how active Fannie and Freddie were in the subprime market. I've spent many hours over the last week going over their annual reports and their 10-Ks. I'm working on it.

The point about manufactured homes is to illustrate the role Congress played. It was significant. They leaned on Fannie and Freddie to boost home ownership rates any time they could. The manufactured homes example is illustrative.

I hope I can provide some more important numbers of their wider contribution in the coming weeks.

Damian September 28, 2008 at 11:08 pm

Since poor people rarely have lobbyists, I am betting the manufactured house lobby was involved in promoting this rule change…

Hans Luftner September 29, 2008 at 2:55 am

Since poor people rarely have lobbyists,

Enacting legislation to "help the poor" is always effective PR. It always sounds good during re-election. No lobbyists are needed.

Anonymous August 6, 2009 at 1:51 pm

I have had two different government agencies try and work out a modification loan and they both said 21st mortgage will not work with them to do this.

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