WASHINGTON, DC–The Federal Housing Finance Agency finished up some long overdue rulemaking earlier this month that included a pleasant surprise for the manufactured housing industry: it opened the door for GSEs to start purchasing chattel loans in 2017. Given that 70% of all manufactured housing activity is financed by chattel lending, this is a major development for the industry.

Rural, Affordable and Manufactured Housing

This story starts, as most stories about government regulations do, several years ago with the Housing and Economic Recovery Act of 2008 (HERA), which required Fannie Mae and Freddie Mac to provide a secondary market for mortgages in three specific underserved markets. Anyone familiar with the GSEs could tell you what these markets are: rural housing, affordable housing and manufactured housing. The FHFA has been emphasizing these areas for years through various initiatives, particularly in its annual Scorecard for the GSEs.

What it hasn't done is actually formalize this mission by publishing so-called Duty to Serve rules. Duty to Serve basically outlines how the GSEs will provide a secondary market — meaning, what type of loans they will buy and either securitize for re-selling or keep on their books.

Earlier this month, though, the FHFA pulled the trigger and published the final the Duty to Serve requirements for these three markets, following a multi-year, and likely frustrating, path for the industry. (The FHFA issued an Advance Notice of Proposed Rulemaking in 2009, a Notice of Proposed Rulemaking in 2010 and a proposed Duty to Serve rule in December 2015 but never seemed to complete the rulemaking process until now.)

A Year of Steady Lobbying

For the manufactured housing industry the final rules were a relief. Last December in an earlier version of the proposed rule, chattel loans, which are typically used to finance a manufactured home as opposed to a conventional mortgage in which the loan is secured by a lien on real property were not included as an eligible GSE activity.

At that point the industry went into overdrive, according to a blog post by William Matchneer of Bradley Arant Boult Cummings LLP that was published in JD Supra.

With the Manufactured Housing Institute taking the lead, compelling comment letters were submitted to FHFA, and numerous face-to-face meetings were held, not only with FHFA but with the GSEs as well. Working groups were also established with the GSEs to further these discussions.

It worked.

The FHFA's final proposed rule “provides eligibility for Duty to Serve credit for enterprise activity supporting manufactured homes titled as real property, manufactured homes titled as personal property (also known as chattel), and blanket loans for certain categories of manufactured housing communities.”

A Pilot Project

As the Washington DC-based Manufactured Housing Institute noted when the rule was published, the GSEs have not purchased chattel loans for almost a decade.

Still, there is more work to be done before the GSEs can actually begin purchasing chattel loans. The rule refers to “a potential manufactured housing chattel pilot program” and it calls for a public input process on what each GSE should consider or include in this pilot.

A pilot project, to state the obvious, is not the same as a strong mandate to lend, which the association duly noted. “While MHI would have preferred a broad and immediate Duty to Serve chattel requirement, we recognize that the GSEs need time to work through risk and operational issues,” Lesli Gooch, MHI Senior Vice President for Government Affairs and Chief Lobbyist, said in a prepared statement. “The rule's approach accomplishes the goal of encouraging the GSEs into the chattel lending market and allows for the development of a full and robust secondary market for chattel loans in the near future,” Gooch added.

Matchneer, as well, is hopeful this will happen. He concludes in his post:

It now seems very likely that the GSEs will be developing a secondary market for chattel loans, a market that has not existed for the past 10 years. This will make these loans both less expensive and more available, and will allow more consumers of lesser means to actually own their own homes.

Instant Insights /

GSEs to Start Purchasing Chattel Loans Under Final FHFA Rule

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