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Manufactured Housing
Lending in
Communities
Marty Lavin, Tim Williams,
Jeff Mouat
The Industry Pullbacks
High volume periods, then peaks followed
by a crash
During crash better lending and better
types of loans
more loans with real estate
more loans on private property
many fewer loans in communities result
much higher credit with better execution
Funding Sources
1960’s and 1970’s – till ’73
Virtually every bank involved (52% of all new
housing starts)
Then crash, and GECC and S & L’s till late
1980’s
Then crash, and ABS markets start in 1987
Crash and no new source in sight for money
Who will be next? (125,000 annual shipments
now)
Will GSE’s Become a Source?
Tremendous liquidity and clout
Know how to really study problem
Very adverse to losses, already lost their
naivete, and won’t reenter without
changes
(Conseco bonds handled that)
ABS and the Markets
Tremendous losses
Now know the facts and learning more
Less risk adverse than GSE’s, but will
want similar protections, still perceive
many problems
Probably will partner with GSE’s, which
would provide substantial increased
liquidity
Both have lost their MH naivete
How does this Affect Community
Lending?
Home depreciation greatest in communities
Highest percentage of total repos are in
communities and greatest severity
Lenders and community owners have not
always been friends in downturns or defaults
Today lenders highly wary of in-community loans
I estimate 100,000 – 125,000 homes of incommunity chattel loans not being done at
present
Depreciation in Communities
is the Enemy
High gross – low volume sales model industry
standard
Comunities as a housing option in given markets
Leasehold rents pricing policies in communities
Know the rules for pricing your rents
what is your competition? Apts and other
housing, other community rents
mortgage payment needs, or replacement costs
may be inadequate measures for community
owners
vacancies mean something
Measures Industry Lenders Push
and Need to Stem Depreciation
CAS – Community Attribute System
Invoice database, IBTS
MHI database
Shorter repayment term.
Reduced gross profit at sale
Better installation performance
Better and longer home warranties *
Greater resident lease protection
MSRP
Forming much better resale network
TIPS
LBP
MARI
Community Owners/Lenders Agreement
21st Mortgage
Programs and
Comments –
Tim Williams
Origen Financial
Programs and
Comments –
Jeff Mouat
Q&A
Company History
9/1995 - 21st begin with 4 employees
9/1998 - Tighter underwriting EVA
6/2000 - Buyout AHS/CMH 50%
investor
12/2001 - Buy Assoc. portfolio
9/2003 - BRK buys Clayton
12/2003 - Clayton buys 21st mortgage
Manufactured Home Lenders of the 90’s
Why did they quit?
Access
Associates
BankAmerica
Belgravia
Bombardier
Burgin
Chase
CIT
•
•
•
•
•
•
•
•
Conseco
Deutsche
Dynex
Greenpoint
MCI
IndyMac
Southtrust
United Companies
What didn’t they
understand?
Differentiation among score
ranges
Importance of Equity
Repossession loss curve
Significance of home location
95% LTV Repossession
History
Orig Yr
LOANS
REPOS
YR 1
YR 2
YR 3
YR 4
YR 5
YR 6
YR 7
YR 8
1996
594
203
2
33
37
52
17
17
26
19
1997
1312
391
15
78
81
63
50
55
49
0
1998
2083
605
30
155
85
100
134
101
0
0
1999
603
110
9
16
35
31
19
0
0
0
2000
808
124
7
37
44
36
0
0
0
0
2001
1376
165
8
76
81
0
0
0
0
0
2002
1113
62
15
47
0
0
0
0
0
0
2003
1086
11
11
0
0
0
0
0
0
0
8975
1671
97
442
363
282
220
173
75
19
8975
7889
6776
5400
4592
3989
1906
594
1.08%
5.60%
5.36%
5.22%
4.79%
4.34%
3.93%
3.20%
Total
33.5%
95% LTV Repo Frequency by
Scores Range
CBSCR
YR 1
YR 2
YR 3
YR 4
YR 5
YR 6
YR 7
YR 8
835
1.56%
7.91%
6.59%
8.24%
6.80%
5.85%
5.38%
3.45%
45.76%
<600
1091
2.11%
9.59%
7.00%
7.16%
5.60%
4.30%
4.61%
1.96%
42.33%
600-650
2546
1.02%
6.46%
6.65%
5.57%
4.92%
5.31%
4.17%
3.08%
37.18%
651-700
2371
0.93%
4.45%
4.43%
4.02%
4.55%
3.36%
3.59%
4.03%
29.37%
>700
2134
0.61%
2.28%
2.71%
2.22%
2.30%
2.14%
1.12%
3.03%
16.41%
Total
8977
1.08%
5.60%
5.36%
5.22%
4.79%
4.34%
3.93%
3.20%
33.50%
0
LOANS
Total
95% LTV Repo frequency of
Loans Outstanding
CBSCR
YR 1
YR 2
YR 3
YR 4
YR 5
YR 6
YR 7
Total
0
1.59%
8.55%
7.75%
10.34%
9.83%
8.60%
9.15%
55.80%
<600
2.15%
10.44%
8.08%
8.98%
7.98%
6.16%
7.39%
51.17%
600-650
1.03%
6.95%
7.13%
6.81%
6.46%
7.33%
6.15%
41.86%
651-700
0.94%
4.79%
4.37%
4.84%
5.73%
4.60%
4.99%
30.25%
>700
0.61%
2.44%
2.52%
2.60%
2.78%
2.75%
1.45%
15.15%
95% LTV by Score Range,
Ignore prepayment
12.00%
10.00%
0
8.00%
<600
6.00%
600-650
651-700
4.00%
>700
2.00%
0.00%
1
2
3
4
5
6
7
95% LTV by Score Range After
Prepayment
12.00%
10.00%
0
8.00%
<600
6.00%
600-650
651-700
4.00%
>700
2.00%
0.00%
1
2
3
4
5
6
7
90% LTV Repo Frequency of
Loans Outstanding
CBSCR
LOANS
YR 1
YR 2
YR 3
YR 4
YR 5
YR 6
YR 7
Total
0
516
0.59%
5.26%
4.85%
4.97%
3.69%
8.48%
2.85%
30.69%
<600
801
1.14%
6.13%
5.43%
6.15%
5.83%
7.33%
4.95%
36.94%
600-650
1854
0.87%
4.13%
3.80%
6.14%
4.87%
3.44%
4.46%
27.70%
651-700
1878
0.48%
2.09%
3.17%
3.45%
3.37%
5.24%
2.63%
20.42%
>700
1956
0.20%
1.88%
1.01%
1.11%
2.40%
2.49%
1.11%
10.20%
Repossession Rate by Credit
Score and Down Payment
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
0
<600
600-650
651-700
>700
95% LTV
55.80%
51.17%
41.86%
30.25%
15.15%
90% LTV
30.69%
36.94%
27.70%
20.42%
10.20%
Private property loans score 600650
8.00%
5% annual rate
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
Year
1
2
3
4
5
6
7
Communities loans score 600 –
650
14.00%
12.00%
8% Avg. annual rate
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
Year
1
2
3
4
5
6
7
Reason for poor performance
Community incentives reduce equity
Premature decline in housing Value
Value determined by total housing cost
– Home payment + site rent
– Relative to alternatives
Alternatives = Apartments, site built and
other communities
Value deterioration
Assume site rent at inception
= $300
$35,000 home 5% down
= $385
Total housing payment
= $685
Alternative site built @ 6%
=
$114,000
Assume $100 site rent increase
Home value goes down From $35000 to $25,885
Alternative site built increase to $131,000
Customer Alternatives
Can’t sell?
Pay higher rent on home with $10,000 less
value
– Pride of ownership declines
– Real depreciation becomes evident
– Customers are trapped
– Only exit is Repossession
Lender Solution
Limit exposure to only high equity
customers and best credit customers
Customize plans for certain communities
Differentiation among communities
2004 MHI Lender of the Year
Origen Financial LLC
Completed $64MM IPO in May ’04
Completed $150MM 144A equity raise and converted to
a Mortgage REIT in October ’03; followed by an
additional $10MM private placement in Feb ’04
Maintained servicing portfolio of approx. $1.3B, while
originating almost $410MM since January
Selected as 1 of 9 lenders from Fannie Mae MH Initiative
Received the MHI 2004 Lender of Year Award
What We Originate
Home Only (93.64%)
Land Home (6.36%)
Comparable Appraisal (16.63%)
Buy For Program (6.04%)
Secondary Homes (2.78%)
Portfolio Changes
Portfolio Characteristics:
2004
1999
LTI
1.27
1.51
Average Term
230
331
Term < 20 Years
94%
16%
New Homes
62%
89%
Land Lease
63%
25%
Community Approval Program
Collateral Review Specialists approve where the
community in which Origen borrowers place their
homes
Pass/Fail Community Approval Program: allows
homes to be financed via the advance method in the
approved communities
Comparable appraisals will not be allowed in
pass/fail communities unless that community has
also been specifically approved for the Comparable
Appraisal Program
Community Approval Program
Criteria for Pass/Fail Community Approval Program:
Allows homes to be financed via the advance method in
approved communities:
 Must have a completed Community Fact Sheet
 Must submit a copy of lease agreement
 Must submit a copy of community’s business license
 Must have paved street and public access
 Must have full-time management
 All utilities must be publicly provided
 Satisfactory Dun & Bradstreet report on community
 Must have a minimum of 25 spaces
 Community must have at least a 15-year lease (property)
How a Community Impacts a Home’s Value
Everyone has heard the old saying that the 3 most important factors in real estate are location, location, location. This may
oversimplify the truth slightly, but the point is well taken that a home’s value can be strongly influenced by the quality of the housing
surrounding it and by the quality and desirability of the neighborhood.
When most prospective buyers start looking for a home they will target certain neighborhoods. They choose these neighborhoods
for a variety of reasons including housing costs, schools, shopping, employment, parks, safety, and a wide variety of other factors.
There is typically a direct correlation between the desirability of the community and the cost of the homes in that community.
This same concept holds true in manufactured housing. Certain communities can command higher lot rents and higher sales prices
due to a strong demand by homeowners and buyers. This demand is due to features such as the location of the community,
attractiveness of homes, landscaping, recreational facilities, pools, clubhouses, playgrounds, daycare, school systems, etc.
“Location can have a 24% impact on the value of a manufactured home. The value can drop 14% in an undesirable
location, or rise 10% in a superior location.” *
Here is an example of a typical double-wide manufactured home:
Lenders who finance new and existing manufactured homes should make sure that their maximum advance process takes location
into consideration.
* 1998 Datacomp Analysis of Sales Price vs. Community Rating
Comparable Appraisal Community
Program
It is necessary to finance the “location” not the
“amenities”
The program uses comparable appraisals to determine property
values
A vacancy rate less than or equal to 5%
Positive resale activity
Must sign MHI Community Agreement
Must have on site management
Differentiation Amongst Communities
Community Attribute System
Attributes have a 1 to 5 weight
Separated Into Three Major Categories
Management/ Infrastructure/ Economic
Attributes
Community Features/ Amenity Attributes
Home Activity/ Resale Market Attributes
Management/ Infrastructure/ Economic
Attributes
Lot Lease History
Vacancy Rate
Rent Control
Local Attributes (schools, shopping, location, etc…)
County Unemployment
Comparable Apartments
Community Features/ Amenity Attributes
Community Appearance
Age of Homes
Types of homes
Community Amenities
Home Activity/ Resale Market Attributes
Average Selling Price (new and used)
Frequency of Repossessions
Days on Market
Resale Market
Top 10 - Total Score
94
Appearance
92
Ind. Homesites
90
Location of Comm
88
Resale Values
Ind. Homes
86
Cnty
Unemployment
Avg. Selling Price
84
82
Orderly Resale
Mkt.
Area Growth Rate
80
78
Type of Streets
76
Freq. of Repos
Total Score
Top 10 - Feasibility
5
Appearance
4.95
Layout
4.9
Type of Streets
4.85
Amenities
4.8
Ind. Homesites
4.75
Ind. Homes
4.7
Municipal Util.
4.65
Type of Parking
4.6
# of Sites
4.55
Total Score
Distribution of
type
Top 10 – Attributes Impact
4.1
Resale Value
Freq. of Repos
4
Occupancy History
3.9
Avg. Selling Price
3.8
Orderly Resale Mkt.
Appearance
3.7
# of Non-Owned
3.6
Factors Control Rent
Ind. Homesites
3.5
3yr-5yr Rent History
3.4
Days on Market
3.3
Compar. Apt. Rents
Total Score
Avg. Rental History
MHI Community Agreement
Agreement between Community Owner and Lender that
explains who is responsible for what in the event of a
repossession
MHI Agreement Highlights
Lender doesn’t pay back lot rent
Lender is allowed 12 months to resale home in
community without paying rent if the community has a
vacancy greater than 5%
Lender must bring home up to community standards
within 60 days
If home is to be sold wholesale, Lender shall negotiate
exclusively with Community Operator for the sale of the
Home for 30 days
Thank You!