Last few days to write a comment on Rule Change

The Federal Reserve is proposing a change that would have a large impact upon how lending takes place for most manufactured housing.

The new rules would put special restrictions on any “high cost” loans.  High cost loans are ones that bear an interest rate that, at the time of origination, are greater than 3 percentage points above comparably termed Treasury notes.  Today, a ten year manufactured housing mortgage would have to priced at least three percentage points above the interest rates here.  As of today, that would be any loan above 7.25 percent.

This is going to be most loans on manufactured housing.

People who have a concern about this should write to Jennifer Johnson at the Federal Reserve.  You have to get your comments to her before April 8th.  They should not be mailed, but instead emailed to regs.comments at federalreserve.gov.  Be sure to reference “RE: Docket R-1305″ in the subject line.

The rules would mainly affect the disclosures and procedures that occur in underwriting.  Lenders would be required to document that borrowers on high-cost loans have the ability to repay their loans.  Stated income loans will not be allow.  There are restrictions on how prepayment penalties are written.  They require the loan to include escrows for taxes and insurance.

A number of years ago, the manufactured housing industry vigorously fought against the creation of a federal standard.  They did not win, and that standard became the HUD Code.

This is an example where regulation might help industry.  This sounds, in today’s free market paradigm, like an implausible circumstance.  Yet, if you think about it, there are many examples of businesses that reduce risk only through external intervention.  Right now Chinese manufacturing is one example of a model that lacks self-regulation.  We have seen problems with food safety, drug integrity, and even toys.  In other instances, regulation adds value — think of organic food labeling and the difference in margins at a place like Whole Foods compared to Aldi.

Many believe that the HUD Code served to help the industry by making buyers feel better about the product.

This has the potential to provide that same impact.  Lending on manufactured housing is routinely high cost and often goes through many intermediaries.  People might feel better if there were more safeguards in place, no doubt.

The Greenseco model — chattel lending to low credit consumers without park income streams — is a hard way to make a profit.  Land-home packages, as one observer notes, are better but are not providing the volume that is needed to restore the industry.

That is why this new regulation might have the affect of kick-starting more confidence into lending.  Making the debt service on the loan fit with a borrowers ability to repay could go some ways toward combating the problem of lenders who pack in extras into a mortgage.  Slush lending, where loan values are as much as 125 percent of home invoice price, increase the chance of depreciation if not default.

Confidence might bring people back to dealers and get more sales on new homes. \

For more information on how to submit a comment, follow this link here.

~ by samsondoggie on April 3, 2008.