July 30, 2021

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Mortgage News

Chattel manufactured homes found to refi far less often than mortgages

According to a recent study by the Consumer Financial Protection Bureau, many furniture-made home owners are unlikely to benefit from record lows in the market over the past year.

Borrowers with loans secured by private property rather than real estate represented 46% of commercial residential borrowers in 2019, and of that group only 5% used the loans to refinance. The CFPB has not yet analyzed the Home Mortgage Disclosure Act 2020 data on an aggregated basis. individual lender reports from the last year suspect the percentage is similar. According to an analysis of HMDA data by ComplianceTech, interest rate and term-linked refinances accounted for nearly 4% of home loans, and the refi portion from cash-out approached 1% last year. In the case of prefabricated house construction as a whole, around 21% received interest-based and timely refinancing and 6% received a disbursement loan in the past year.

Small amounts of credit tied to the particularly low price of some prefabricated homes are likely to be responsible for part of the discrepancy, but in general the data confirms anecdotal evidence that prefabricated home furniture financing is less affordable than home-secured mortgages. The price points for houses made of furniture can be in the five-digit range, as opposed to the low six-digit for larger or higher-quality houses in this market that are secured by land.

“Compared to mortgages, mobile loans have higher interest rates, shorter loan terms, lower loan amounts, less [consumer] Protective mechanisms and are rarely refinanced, ”wrote CFPB researchers in the report, which analyzed new data points added to HMDA reports in recent years. Interest on mobile loans can be closer to 8%, while interest rates on home-secured loans are typically around half that.

Criticizing the report’s focus on financing terms, the Manufactured Housing Institute suggested that they be viewed in the broader context of the sector’s low prices. the Manufactured Housing Institute said in a statement it emailed Tuesday.

The results of the CFPB report are important to mortgage lenders as some have been scrutinizing prefabricated homes lately as a means against housing shortages which are particularly intense at lower prices.

“Manufactured homes are becoming a viable option for middle-income families due to the lack of affordable housing stock,” wrote Laura Brandao, president of mortgage lender American Financial Resources, in an email. “Every day, more than half of our pipeline loans for prefabricated houses are processed.” (Manufactured housing is a specialty of AFRs, so its volume is particularly high.)

Mortgage-related, government-sponsored companies Fannie Mae and Freddie Mac had once started lending under a guideline to do more for the needs of underserved markets, but ultimately put their efforts on hold.

Prefabricated homes generally help address the lending disparities that some groups are more exposed to than others, but furniture lending can help some populations with mostly low-income groups more. Overall, Whites, Hispanic, Native American, and Alaskan borrowers are overrepresented in the overall industrial real estate market, and Black and Asian Americans are underrepresented compared to traditional home ownership, according to the CFPB report. However, the CFPB report shows that black homeowners are over-represented by nearly 10% in the mobility-financed market, compared with nearly 4% in prefabricated mortgage loans and 7% in site-built originations.

The mortgage market generally prefers to encourage lending to prefabricated homes for real estate rather than furniture due to the diversity of collateral. While chattel loan terms are shorter than mortgages, they are still relatively long at around 20 years and are backed by a depreciable asset, as opposed to real estate, which can appreciate.

“For some people, furniture is the only affordable price, but I think if we could get some of these people to pay a lower price for a home security, they could benefit more from the price increase,” said David Battany, Executive Vice President, Capital Markets, at Guild Mortgage.

In the paper, researchers declined to strike the right balance between the lower price of unsecured furniture homes and cheaper financing in the mortgage market, citing the need to dig deeper into the credit performance information not available in the HMDA data and hybrid solutions like shared apartments. In ROCs, a non-profit organization distributes equal ownership shares in the land to the tenants.

“That could be a step in the right direction. In a perfect world, you could have different levels. You could start with a situation where you don’t own the land but then move up, have an interest in the land, and later find yourself in a situation where you own the land entirely, ”Battany said.