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Can new manufactured homes, and loans, rebuild the housing market?

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Higher-quality, manufactured housing is catching on with consumers because it fills a need for homes that cost more than a traditional factory-built structure without land, but less than a site-built house.

“It fills the gap that is between $89,500 and $220,000, which site-built homebuilders aren’t filling,” said Lesli Gooch, executive vice president of government affairs at the Manufactured Housing Institute, a trade group for the sector.

While some manufactured housing companies prefer to keep their costs and prices low, others are increasingly competing in this niche. The most notable is Clayton Homes, a builder owned by billionaire Warren Buffett’s Berkshire Hathaway conglomerate.

The trend is significant for mortgage lenders because it bridges differences between manufactured and traditional housing in ways that could make the product more accessible to them.

“If you look at pictures of these homes, they look comparable to site-built housing,” said Gooch.

That should make these houses eligible for financing at the same interest rate as traditional single-family homes, she said.

“Just because it was built in the factory, that doesn’t necessarily mean it should be that different than the financing for a house that’s built on site,” said Gooch.

Historically, the GSEs have charged a premium that deducts from the price they pay for manufactured housing loans based on the view that the collateral is riskier than a single-family home. But that’s changing.

Fannie is testing a manufactured housing loan that omits that premium if the home has verified features that make it more comparable to site-built homes. Freddie also is readying new pilots in response to this trend.

“One thing we are looking at is how we can support that type of home,” said Dennis Smith, an affordable lending manager at Freddie Mac.

Fannie’s new program, MH Advantage, prices manufactured housing loans at the same rate as traditional residential mortgages as long as the homes have features like energy efficiencies, attached garages and a pitched roof.

“If the manufacturer produces a home that includes those amenities, then they are going to offer financing at a rate on par with site-built homes,” Gooch said. “That’s huge for us.”

Traditional mortgage companies are starting to see these higher-quality, factory-built homes as a market that could benefit them as well.

“It’s a way to get inventory in the market,” said Mike Fontaine, chief financial officer and chief operating officer at Plaza Home Mortgage, a company that is considering buying MH Advantage loans.

This form of housing is marginally displacing some other alternatives considered by entry-level homebuyers and downsizing retirees, but increasing affordable housing stock overall, according to Battany.

“It will allow companies to build more houses, more quickly,” he said.

There were more than 92,000 manufactured homes shipped in 2017, up from almost 50,000 when the market bottomed out in 2009.

For traditional mortgage lenders starting to become more active in the sector, this is the source of an incremental gain in volume rather than a notable one.

But every little bit helps in a market with fewer lending opportunities, and more competition for loan officers.

“With interest rates going up, and volumes going down, more and more people are looking for programs and products that will fill the gap,” said Jim Loving, director of national sales for Planet Home Lending’s correspondent channel.

Planet Home has increased its involvement in the manufactured housing sector due to growing demand from third-party originators, and is considering offering MH Advantage loans, according to Loving.

While manufactured housing loans currently represent a mere 1% to 2% of the company’s overall volume, it is growing.

“It is not going to replace all the volume that mortgage lenders have lost, but for companies that want to hire and retain loan officers, it’s another arrow their LOs can add to their quiver,” Loving said.

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