National lenders who make loans on new manufactured homes appear to be a growing option for Mississippi borrowers with credit histories too risky for traditional banks in today’s stringent regulatory climate.
While credit-challenged borrowers are buying the dwellings at about half the square-foot cost of site built homes, financing them takes a much larger bite out of the household budget.
Until last January’s implementation of new mortgage standards set by the 2010 Dodd-Frank financial reform law, many of these borrowers could buy conventional homes with the help of local community bankers and other home lenders willing to do balloon mortgages and other non-traditional mortgage loans.
The local bankers can still make the loans, but expose themselves to later claims by borrowers that they lent the money without ensuring that the loan could be repaid.
“Qualified mortgages”, on the other hand, give lenders protection against such claims. The safe harbor comes with a list of conditions, however.
A waiver on QM rules the Dodd-Frank created Consumer Financial Protection Bureau gave community banks of below $2 billion in assets that do fewer than 500 residential mortgages has another year and a half left. After that, small banks in 34 Mississippi counties designated by the CFPB as rural and under-served can continue to do non-QM loans and receive safe harbor. However, that extended waiver is not permanent and can be removed later by the CFPB.
Bankers and their lawyers say the waiver is unlikely to keep lending for non-conforming mortgages at pre-Dodd-Frank levels because lenders will not want to risk having the waivers expire while the loans are still out, thus leaving them unprotected.
Federal regulators for now have also removed a requirement that borrowers on qualified mortgages make down payments of up to 20 percent, they have kept rules that specify a debt-to-income ratio no higher than 43 percent, a 3 percent cap on points and fees and an interest cap of 1.5 percent over the Average Prime Offer Rate.
At the start of this decade, a borrower with a limited credit score and less-than-stellar repayment history could walk into a bank and expect to receive a balloon mortgage that would give him three to seven years to establish a credit record and perhaps roll the balloon into a conventional fixed-rate mortgage. Alternatively, the balloon could be refinanced.
That expectation no longer exists, Mississippi bankers say.
“Unfortunately, some of the new regulations put banks at risk for continuing to serve customers as they have in the past,” said Mac Deaver, president of the Mississippi Bankers Association, in an email this month.
Magee’s PriorityOne Bank, a $550 million community bank with 11 locations from Rankin to Lamar counties, in the last seven months has cut total mortgage lending by 10 percent to 15 percent. That percentage range mirrors what the American Bankers Association says is occurring nationwide.
“Before, we could be flexible on some of our terms and requirements,” said CEO Robert J. Barnes, in a recent interview, explaining the practice has been to make the non-conforming loans and keep them on the bank’s books.
“We can’t qualify nearly as many people,” he added, and lamented that “many of these are still good borrowers” but do not entirely match the new ability-to-repay standards.
As they are edged out of the credit market, some Mississippi borrowers turn to manufactured homes, a name given to mobile homes built after safety codes went into effect in 1976.
For mortgages, they go to a handful of national lenders willing to lend for a manufactured home, said Jennifer Hall, director of the Mississippi Manufactured Home Association, who says figures show manufactured home sales are up 8 percent in Mississippi and the rest of the country this year.
Long a popular option in Mississippi, they accounted for one of every four new home starts in the state in the 2010 census, though Hall noted the state’s manufactured home retailers have dropped to about 75 from a high of 200 just 20 years ago. Most are independent retailers, which she believes has helped to keep the industry here strong.
National lenders such as Triad, Cascade and Clayton Homes subsidiaries 21st Mortgage Corp. and Vanderbilt Mortgage are making over 90 percent of the manufactured home mortgages in Mississippi, Hall said.
Clayton Homes, a division of Warren Buffett’s Berkshire Hathaway, is a builder of manufactured homes.
The lenders are making both qualified and non-qualified mortgage loans, according to Hall, who said the Federal Housing Administration, Department of Veterans Affairs and U.S. Department of Agriculture sponsor the bulk of the qualified manufactured home mortgages.
Loans on the manufactured home minus the land it sits on have become rare in Mississippi, according to Hall. She cited Renasant Bank and First National Bank of Pontotoc as the only two Mississippi banks continuing to make such loans, known in the industry as chattel loans.
Hall acknowledged the rates on the non-QM mortgages can be a few percentage points higher than qualified ones made for site built homes. “If my lenders are going to take a risk they have to charge a higher rate,” she said. “State banks don’t take those risks.”
However, they did not too long ago, PriorityOne’s Barnes said.
Dodd-Frank’s qualified mortgage rules “have almost single-handedly put the banks out of the mobile home industry,” he said. “I don’t know of any banks that are doing mobile home lending.
“I know it is impacting our state,” Barnes added.
Hall said the national lenders are lending at from 5 percent to 8 percent on 20-year to 25-year mortgages, a rate that covers fixed servicing and origination costs, in addition to the higher risk of default.
In 2012, according to the Consumer Financial Protection Bureau, lenders typically charged 6.79 percent on manufactured home loans.
Only one lender that Hall knows of – Vanderbilt Mortgage – will lend on previously owned manufactured homes or ones valued below $25,000. “That’s going to be more like 9 percent” or more, depending on the borrower’s credit, she said.
“Thank goodness they are out there and willing to take that risk,” she said of the national lenders. “You can’t believe the number of people looking for homes under $30,000.”
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