CFPB Targets Price Disparity on Mobile Home Loans

Mortgage & Real Estate









WASHINGTON Loans for manufactured homes typically come with higher interest rates and fewer consumer protections than more conventional mortgages, the Consumer Financial Protection Bureau said Tuesday.

The CFPB”s first public study of the manufactured housing market said owners of mobile homes take out a “higher-priced mortgage” far more often than do borrowers with homes built onsite. Those owners also tend to be older, have a small net worth and live in rural areas particularly in the West and Southeast.

“These consumers may be more financially vulnerable and benefit from strong consumer protections,” said CFPB Director Richard Cordray, in a press release. “The Bureau is committed to ensuring that consumers have access to responsible credit in the manufactured housing market.”

The report followed repeated requests from lawmakers for the CFPB to look more closely at the manufactured housing market and came amid some concerns about how the bureau”s recent rules for the broader mortgage market affect manufactured home loan borrowers.

Even though manufactured housing represents a small fraction both of the overall housing market and the mortgage sphere, the CFPB said the sector still deserves attention.

“First, it is an important source of affordable housing, in particular for rural and low-income consumers,” the study said. “Second, manufactured housing may raise particular consumer protection concerns due to the nature of the retail and financing markets for manufactured housing. This is particularly true to the extent that buyers of manufactured homes are more likely to belong to groups, such as older or lower-income families, that might be considered financially vulnerable.”

The manufactured housing market has shrunk significantly in the last decade. Manufactured homes built offsite are often financed through personal property loans known as “chattel loans”, instead of traditional mortgages. But today only five lenders still offer chattel loans.

The study found that about 68% of manufactured home owners held a “higher-priced mortgage” in 2012, compared with 3% of borrowers whose homes were built onsite.

The industry has long argued that pricing for chattel loans takes into account the higher credit risk for manufactured homes than for traditional mortgages. But the CFPB noted that lending for manufactured housing also has fewer consumer protections.

“While chattel loans have lower origination costs and quick closing timelines, they also have significantly fewer consumer protections than mortgage loans,” the agency said. “For example, only mortgage borrowers are protected by provisions of the Real Estate Settlement Procedures Act that give borrowers the right to certain disclosures when applying for and closing on a loan.”

Meanwhile, lenders have expressed concern that the bureau”s mortgage underwriting rules that became effective in January could squeeze loans for affordable housing, such as manufactured home loans. The CFPB”s rules require lenders to evaluate a borrower”s “ability to repay”, and defines a new safe class of “Qualified Mortgages” assumed to be in compliance with the underwriting standard.

The CFPB acknowledged this concern in the study, saying the agency would “monitor the effect of its rules on” manufactured housing.

“The Bureau has recognized that certain provisions of the Dodd-Frank Act that the bureau implemented through rules that took effect in January 2014, may affect the market for smaller-size mortgages and, more specifically, the manufactured housing segment of the market, in ways that differ from the rules” effect on other market segments,” the study said. “Because the rules have been effective for only a few months, and because there are lags in the availability of data, it would be premature to reach conclusions on the market-wide effects of the rules.”

The study said between 2001 and 2010, 65% of mobile home owners who owned the land on which their home was built and therefore could have qualified for a mortgage ended up financing through a chattel loan instead, which exposed them to a higher interest rate.

Manufactured home owners tend to be at least 55 years old and have no children, the study said. They also typically have a lower net worth than other households. The greatest concentrations of manufactured housing are outside metropolitan areas, with the South Carolina having the most mobile homes followed by New Mexico.

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