Have you been sticking your nose up at the manufactured home borrower? Like it or not, with the increasing popularity of the Reverse Mortgage loan product for the mature borrower, loan officers and processors are dealing with more and more manufactured homes in their portfolios. It makes sense when one realizes that seniors have chosen to congregate in the manufactured home park setting as a retirement oasis, offering the amenities of security, recreation and a sense of community. The concentration of an active senior population in a close-knit living atmosphere naturally lends itself well to word-of-mouth advertising for the Reverse Mortgage industry. And now with the recent passage of H.R. 3221 , the housing stimulus bill signed into law on by President Bush, you can count on the numbers of manufactured home loans increasing.Why? Thousands and thousands of manufactured homeowners have been disenfranchised from the FHA-insured loan process by a fluke in the statute and manner in which their community was legally constructed. If the description on land and title documents state a manufactured home is in a condominium manufactured home community, these borrowers have been ostracized from the Reverse Mortgage opportunity. By organizing the park development under the condominium aegis, regulators interpreted that a resident’s ownership was confined to airspace only when residents protested that they clearly owned their individual deeded plots. The narrow legal interpretation of a manufactured home situated in communities classified as condos ironically excluded some of the highest quality senior developments. These parks often boast of vibrant recreational facilities, in some cases golf courses and a strong management or homeowner’s association with an overseeing architectural committee. Because of the commanding oversight presence, the price of admission to such a development in turn creates a strong pride of ownership; expectation of upkeep and a more robust sales market keeps appraisal values localized and current.

Fortunately, in addition to all the other more-loudly trumpeted issues in the bill, less well known is the fact that the passage of H.R. 3221 has now eliminated the manufactured home condo discrimination. The inclusion of manufactured housing as a component of the bill was largely due to the grassroots efforts of manufactured home residents themselves who actively cajoled their legislators with letter-writing campaigns and petitions, pleas to AARP, or they even joined lobbying groups to show their support, virtually demanding that they be able to receive the benefits of a Reverse Mortgage. In many cases, these seniors are already Reverse Mortgage devotees since they had friends in neighboring manufactured home communities with acceptable designations for FHA insurance: Planned Unit Developments (PUDS) and Subdivisions. Knowing that this is a unique case where demand for the product precedes the opportunity for access, I don’t think I exaggerate when I say “Katy, bar the doors!”

The point is if you haven’t dipped your feet in the manufactured home Reverse Mortgage pool of loans, you should think about sticking your toes in sooner rather than later. The good news is you have some time to school yourself on the unique properties of manufactured home loans and to tighten the logistics within your processing department. According to Daniel Mooney (Underwriter ?HECM Coordinator? Processing & Underwriting Division? Santa Ana Homeownership Center,?Federal Housing Administration) “while the new statute allows for FHA to promulgate regulatory changes and policy revisions that will enable us to insure loans secured by manufactured homes located in condominiums, said new policies have not been enacted/promulgated. I would anticipate a period of several months (as in six to nine) before FHA is actually able to institute policies and procedures relevant to the issue at hand”. Knowing you have a window of time before all the gears are running, you can acclimate yourself to the water conditions. In my book, this is the best time to get your feet wet and set up some in house policies. One of the reasons many brokers and processors bemoan the manufactured home loan is that it comes with its own set of obstacles. Lack of proper information and a disorganized processing strategy often creates dissention between the borrower and the lender and the lender comes out the loser, looking unprofessional and unknowledgeable. If you follow a few ground rules and recognize that the community camaraderie can provide the service –oriented loan officer with a wealth of referral leads, it may be worth the extra time to troubleshoot some of the idiosyncrasies of the manufactured home.

When you go to research a piece of real estate, you can usually access it by address, assessor’s parcel number, legal description or all of the above. However, even if a manufactured home sits on a piece of realty and shares the features of the real property, it is still distinguished by its HUD label (an affixed HUD Seal (tag/label) located on the outside of the home. Many people ask, if the home is on real property and is being assessed as real property, then why would a HUD tag be of continuing importance? Even when a manufactured home is converted to real property, it doesn’t remove the fact that the home is still a manufactured home. The provenance of any HUD home and its factory design and engineering requirements are traceable through the individual HUD label. For appraisal and lending purposes, code should follow code so appraisers and engineers certifying a home for a manufactured home loan need to specifically identify the HUD numbers in their reports. Additionally, building departments utilize the HUD label as the format for the permit process because it allows the home to preempt the local building codes. If for any reason the labels are missing, appraisers will often reject the property and refuse to proceed until documentation is provided, building departments will refuse to issue certain and in some states a manufactured home may not be re-sold if missing a label and an engineer should not proceed with a HUD foundation without being able to prove that the home itself is in fact a HUD home.

Certain criteria are absolutes to follow for an FHA-insured loan on a manufactured home loan. These are:

1. The manufactured must be a HUD home, which means it must be manufactured after June 15, 1976. If there are metal plates at the rear of the home that begin with a three Alpha letters like CAL, ARZ, ORE, that’s usually a good sign. If the HUD label is missing, usually a label verification letter from the Institute for Building Technology and Safety (IBTS) www.ibts.com Which will give the provenance of the home will suffice.
2. The manufactured home must be classified and taxed as real estate. A long-term lease may also be acceptable in certain instances. States vary on how the real estate classification is accomplished so this is another important aspect to understand.
3. The axles and tongues must be removed from the chassis.
4. The manufactured home must have an adequate perimeter enclosure with appropriate ventilation.
5. Must have a floor area of not less than 400 square feet
6. Built and remains on a permanent chassis.
7. The finished grade elevation beneath the manufactured home shall be at or above the 100-year return frequency flood elevation.
8. The home must sit on a permanent foundation and must have a professional engineer certify that the foundation meets the PERMANENT FOUNDATION GUIDE TO MANUFACTURED HOMES (PFGMH) HUD-7584, dated September 1996.

If the loan officer or processor has never previously expedited a manufactured home transaction, this last requirement can upset the whole apple cart. By not anticipating this, the 11th hour underwriting condition will give a processor fits trying to find a qualified engineer that understands manufactured housing. Potentially there is an even worse scenario. Occasionally the engineer makes the determination that the foundation will not meet the HUD guidelines and a repair or retrofit will be required. If the loan officer or borrower is unprepared for this possibility, angst and ill will often occur between he/she and the borrower. “Why didn’t anyone tell me? They’re supposed to be the experts!” is a recurring outcry. For the manufactured home processing newbie, don’t be fooled by the appraisal report, which nine times out of ten stipulates that the home is on a permanent foundation. Unfortunately, the appraiser often makes a determination about “permanence” strictly on the basis that the tires and axles have been removed or some other vague set of standards, not on the basis of the foundation attachment.

The reason for the engineering certification requirement is to establish a national standard of uniformity amidst inconsistent state installation standards. While manufactured homes enjoy the benefit of the HUD standardized preemptive structural, plumbing, and electrical standards that need to be met before leaving the factory, installation standards vary from county to county, state to state. So the home can be designed for stringent seismic, wind and roof load expectations, but the home may be set up just like the old trailers of yester year, depending on area designation. Foundation systems are typically subject for review by the local code authorities and are often tailored to the site, soil, wind, flood, seismic and snow conditions of the individual county or state. Additionally, manufactured homes are unique in that they are the only type of residential dwelling that can be classified as either person (chattel) or real property. In some states, the type of foundation supporting the manufactured home determines the distinction between personal and real property. Since the individual jurisdictional requirements vary significantly, the Engineer Certification Letter helps to provide an oversight standard. This is generally an underwriting requirement for all FHA insured loans, which also include Reverse Mortgages.

If an existing home is already on a foundation, an engineer can provide a certification attesting to the fact that the home meets the guidelines. If it does not meet the HUD guidelines, there are a variety of proprietary or approved engineered foundation systems that can be retrofitted in combination with the existing structural components. As in any industry, one size does not fit all in the engineering landscape and engineers that specialize in the manufactured home industry and the HUD inspection specifications are a rare breed. Because there are a vast array of proprietary products that have been introduced into the national marketplace, an engineer’s knowledge about these patented systems is also an additional benefit since these have all been pre-engineered and stamped delineating all of the system specifications.

This also means if the foundation does not meet the FHA-insured criteria for a permanent foundation, the engineer does not need to re-invent the wheel with a repair recommendation—there are a plethora of products available for the retrofit contractor that may satisfy the engineer’s requirements. However, even though proprietary systems almost always carry engineering approvals, approvals vary state by state and some building departments may not approve their design concepts. Therefore finding the right combination of an engineer and contracting team that understands the FHA lending process, the building permit process and the available proprietary retrofit systems AND that can work within the timeline of your loan lock timeline can be a bit of a balancing act.

There’s no time like the present to take a plunge! The manufactured housing industry may just be the next great niche market.

About Janis Arendsen: Janis Arendsen is owner of On The Level, a contracting company specializing in the inspection, servicing and retrofitting of manufactured housing foundations and works in conjunction with Pacific Consulting Engineers that provides engineer’s certifications on foundations. Refer to www.onthelevelcontractors.com for more information.