[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
THE STATE OF MANUFACTURED HOUSING
=======================================================================
FIELD HEARING
BEFORE THE
SUBCOMMITTEE ON
INSURANCE, HOUSING AND
COMMUNITY OPPORTUNITY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
NOVEMBER 29, 2011
__________
Printed for the use of the Committee on Financial Services
Serial No. 112-86
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HOUSE COMMITTEE ON FINANCIAL SERVICES
SPENCER BACHUS, Alabama, Chairman
JEB HENSARLING, Texas, Vice BARNEY FRANK, Massachusetts,
Chairman Ranking Member
PETER T. KING, New York MAXINE WATERS, California
EDWARD R. ROYCE, California CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois BRAD SHERMAN, California
GARY G. MILLER, California GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina CAROLYN McCARTHY, New York
JOHN CAMPBELL, California JOE BACA, California
MICHELE BACHMANN, Minnesota STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan BRAD MILLER, North Carolina
KEVIN McCARTHY, California DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico AL GREEN, Texas
BILL POSEY, Florida EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK, GWEN MOORE, Wisconsin
Pennsylvania KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio JOHN C. CARNEY, Jr., Delaware
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee
Larry C. Lavender, Chief of Staff
Subcommittee on Insurance, Housing and Community Opportunity
JUDY BIGGERT, Illinois, Chairman
ROBERT HURT, Virginia, Vice LUIS V. GUTIERREZ, Illinois,
Chairman Ranking Member
GARY G. MILLER, California MAXINE WATERS, California
SHELLEY MOORE CAPITO, West Virginia NYDIA M. VELAZQUEZ, New York
SCOTT GARRETT, New Jersey EMANUEL CLEAVER, Missouri
PATRICK T. McHENRY, North Carolina WM. LACY CLAY, Missouri
LYNN A. WESTMORELAND, Georgia MELVIN L. WATT, North Carolina
SEAN P. DUFFY, Wisconsin BRAD SHERMAN, California
ROBERT J. DOLD, Illinois MICHAEL E. CAPUANO, Massachusetts
STEVE STIVERS, Ohio
C O N T E N T S
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Page
Hearing held on:
November 29, 2011............................................ 1
Appendix:
November 29, 2011............................................ 25
WITNESSES
Tuesday, November 29, 2011
Burr, Carla, manufactured housing resident....................... 15
Clayton, Kevin, Secretary, Executive Committee, Manufactured
Housing Institute (MHI)........................................ 6
Craddock, Tyler, Executive Director, Virginia Manufactured and
Modular Housing Association (VAMMHA)........................... 8
Czauski, Henry S., Acting Deputy Administrator for the Office of
Manufactured Housing Program, U.S. Department of Housing and
Urban Development.............................................. 4
Rush, Stanley, Account Executive, MHD Empire Service Corporation,
and Vice Chair, Virginia Manufactured and Modular Housing
Association (VAMMHA)........................................... 10
Rust, Adam, Research Director, Community Reinvestment Association
of North Carolina.............................................. 13
Weiss, Mark, Senior Vice President, Manufactured Housing
Association for Regulatory Reform (MHARR)...................... 17
Yates, Scott, President, Yates Homes, and Past Chair, Virginia
Manufactured and Modular Housing Association................... 11
APPENDIX
Prepared statements:
Donnelly, Hon Joe............................................ 26
Fincher, Hon. Stephen........................................ 27
Burr, Carla.................................................. 29
Clayton, Kevin............................................... 36
Craddock, Tyler.............................................. 45
Czauski, Henry S............................................. 50
Rush, Stanley................................................ 55
Rust, Adam................................................... 58
Yates, Scott................................................. 65
THE STATE OF MANUFACTURED HOUSING
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Tuesday, November 29, 2011
U.S. House of Representatives,
Subcommittee on Insurance, Housing
and Community Opportunity,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 9:08 a.m., at
the Danville Municipal Building, 4th Floor City Hall, Danville
City Council Chambers, 427 Patton Street, Danville, Virginia,
Hon. Robert Hurt [vice chairman of the subcommittee] presiding.
Members present: Representative Hurt.
Mr. Hurt. [presiding]. Good morning. I want to, first of
all, welcome everybody to today's hearing.
As you all know, I am Robert Hurt, and I am a Member of
Congress. I represent Danville and all of Southside Virginia in
Congress. My district runs from Greene County, north of
Charlottesville, all the way down to the North Carolina line,
just a few miles from here, and runs from Martinsville in Henry
County all the way over to South Hill and Lawrenceville over to
the east.
So it is a very large district, and manufactured housing is
very important to us here in Southside for two reasons. Number
one, of course, it provides affordable housing for thousands of
people all across my district, which is extremely important,
especially in this economy when we have 9 percent unemployment.
Number two, it is also important because it is a provider
of jobs. We have a vibrant manufactured housing sector here, as
is the case across the country, and we have many jobs that are
associated with this business here.
And so, as we look at ways in Washington that we can make
it easier for small businesses to succeed, as we look for ways
on our Financial Services Committee that we can help ameliorate
the effects of legislation that has been adopted in the past,
as well as the economic troubles that we currently face, this
hearing is an opportunity to focus on a very important part of
what I think will be an inevitable economic recovery.
Unfortunately, it is taking longer, I think, than anybody
would like. But I do believe that we will get there. And the
evidence that we will receive today will be very helpful in our
committee's deliberations.
As I said, I am a member of the Financial Services
Committee. I am also the vice chairman of the Insurance,
Housing and Community Opportunity Subcommittee. I am the only
member of the subcommittee who will be here today, but I can
tell you that everything that we hear today, we will record.
We have a staff member from the Financial Services
Committee here, Mr. Tallman Johnson, and we will take that
evidence and we will carry it back with us to Washington. It
will be made part of the record, and we will be able to use
that as we go forward and look for legislative responses and
regulatory responses that we believe will help the situation.
I also wanted to recognize two folks on my staff. Kelly
Simpson is my legislative director. And we also have Denise Van
Valkenburg, who is our director of constituent services.
Before I get started, I did want to recognize a few people
that I really appreciate being here. Delegate Danny Marshall.
There is Danny. Danny, of course, is our delegate in Richmond.
Thank you, Danny, for being here.
When I was in the House of Delegates, he and I were on the
Counties, Cities, and Towns Committee in the General Assembly,
a committee that dealt with a lot of these issues. Thank you
for being here, Danny.
I wanted to recognize Don Merricks' chief bottle washer.
Where is Gayle? There is Gayle Barts. Don couldn't be with us
today, but I did want to thank him for sending Gayle, his able
assistant.
We have a couple of folks from the city council. We have
Fred Shanks. Thank you, Fred, for being here. And Buddy Rawley
was here. I don't know if he is still here. There is Buddy.
Thank you, Buddy, for being here.
We have James Snead, who is a member of the Board of
Supervisors and also the Mayor of Ringgold. And we also have
Jimmy Gillie, who is our commissioner of revenue here in the
city. I don't know if he is still here. Jimmy, thank you for
being here. And we also have our city attorney, Clarke
Whitfield.
And I am told that we have a special guest as well, Mayor
Sherman Saunders. I just want you to know, Mr. Mayor, that I
told my staff that I do not want to sit in Mayor Saunders'
chair.
[laughter]
Mr. Hurt. So I am going to sit down here. But Mayor
Saunders, it is so nice of you to be with us, and thank you for
hosting us here. This is our Mayor, Sherman Saunders. Thank
you, Mr. Saunders. I appreciate you being here.
[applause]
Mr. Hurt. So, with those introductions, I would like to
bring this hearing of the Subcommittee on Insurance, Housing
and Community Opportunity to order, and I will begin by making
an opening statement, and then I will invite our witnesses to
make opening statements.
Good morning, and welcome to today's Financial Services
Committee field hearing on the state of the manufactured
housing industry.
I want to thank all of our witnesses for traveling here to
Danville this morning to examine the manner in which Federal
laws and regulations impact these manufacturers, and the
affordable housing they produce, as well as jobs they create
here in Virginia's Fifth District and across the country.
The term ``manufactured home'' refers to a home built in a
factory in accordance with the construction standards set forth
in the National Manufactured Housing Construction and Safety
Standards Act of 1974, which is administered by the Department
of Housing and Urban Development (HUD). HUD not only
establishes the construction standards for units of
manufactured housing, but it also coordinates inspections of
these manufacturers' facilities to ensure that the homes they
produce meet the quality and safety guidelines HUD maintains.
Manufactured housing plays a significant role in the
Nation's housing stock, supplying millions of units of
affordable housing to individuals and families across the
country. These homes are constructed in quality-controlled,
HUD-regulated settings that produce cost-effective homes,
expanding consumer access to affordable housing options.
The industry is also a source of employment for thousands
of Americans, hundreds of which reside and work here in
Virginia's Fifth District. From Rocky Mount to South Hill, from
Charlottesville to Danville, the Fifth District is home to a
number of manufacturers, retailers, suppliers, and related
services, which create numerous jobs in connection with
manufactured and modular housing.
The impact of the industry cannot be overstated at a time
when 9 percent of Americans are unemployed. Many communities in
my district have even higher rates of unemployment.
According to the data from the Census Bureau, the
manufactured housing industry experienced strong sales in the
mid- to late 1990s, exceeding 300,000 units sold annually.
Since then, these sales figures have steadily declined, with
approximately 50,000 units sold in 2010. Today's hearing will
explore the causes of these trends and the impact of the
relevant Federal laws and regulations on the manufactured
housing industry's ability to respond to changing economic
conditions.
Among the most critical factors in the purchase of a home
is access to financing. Consumers are finding it increasingly
difficult to obtain financing for manufactured homes, which, in
turn, reduces demand for the product, ultimately resulting in
fewer jobs for manufacturers and related businesses and fewer
choices available to the consumer.
The majority of manufactured home purchases are financed as
personal property, rather than real property mortgages. This
method of financing results in comparatively smaller loan
balances with shorter durations, but higher interest rates,
given that most personal property loans cannot be securitized
in the secondary market like a conventional mortgage.
Given the unique nature of this model of finance, we must
be mindful that laws governing traditional mortgage finance may
not be as effective in the manufactured housing market, case in
point, the unintended consequences created by the Dodd-Frank
Act. Dodd-Frank broadened the definition of high-cost loans
under the Home Ownership and Equity Protection Act (HOEPA) and
also imposed new requirements on loans considered to be high-
cost loans under HOEPA.
While these provisions were well-intentioned, we must
identify and mitigate the unintended consequences they
produced: decreased access to affordable choices for consumers;
and fewer jobs in the manufactured housing industry. This
hearing will examine these and other issues that are impacting
the manufactured housing industry and the consumers who utilize
its products.
Again, I want to express my appreciation for today's
witnesses, each of whom will speak to their expertise in a
particular facet of the manufactured housing industry. I look
forward to your testimony.
Without objection, your written statements will be made a
part of the record, and you will each be recognized for a 5-
minute summary of your testimony.
The first witness who will be testifying today is Mr. Henry
Czauski, Acting Deputy Administrator for the Manufactured
Housing Program at HUD.
Thank you, Mr. Czauski, for coming from Washington. It is
my understanding that you came by way of Blacksburg, but we are
glad to have you here. So you are recognized for 5 minutes.
STATEMENT OF HENRY S. CZAUSKI, ACTING DEPUTY ADMINISTRATOR FOR
THE OFFICE OF MANUFACTURED HOUSING PROGRAM, U.S. DEPARTMENT OF
HOUSING AND URBAN DEVELOPMENT
Mr. Czauski. I want to thank Chairman Hurt and the other
distinguished members of the subcommittee for the opportunity
to testify today.
My name is Henry Czauski, and I am the Acting Deputy
Administrator for the Office of Manufactured Housing Program
with the U.S. Department of Housing and Urban Development.
My remarks will touch on some of the key aspects of
manufactured housing legislation, the role HUD plays in
implementing that legislation, the benefits to the
stakeholders, and label fees.
In 1974, Congress enacted the National Manufactured Housing
Construction and Safety Standards Act, which was amended by the
Manufactured Housing Improvement Act of 2000. Congress found
that manufactured housing plays a vital role in meeting the
housing needs of the Nation and that manufactured homes provide
a significant resource for affordable homeownership and rental
housing accessible to all Americans.
HUD established a program to administer and carry out the
many purposes of this legislation, which was intended to:
protect the quality, durability, safety, and affordability of
manufactured homes; provide for establishment of uniform
nationwide Federal construction standards; encourage innovative
and cost-effective construction techniques; protect residents;
establish a balanced consensus process to develop standards;
and ensure uniform and effective enforcement of those
standards.
To carry out these purposes, Congress included stakeholders
in the process--manufacturers, retailers, consumers, State
regulators, administrative and monitoring contractors, and
others. A Manufactured Housing Consensus Committee was
established as a Federal advisory committee to provide
recommendations to HUD on adopting and revising Federal
standards and regulations. This committee is composed of 21
voting members, including 7 producers/retailers, 7 persons
representing consumer interests, and 7 persons representing
public officials and the general interest.
An administering organization authorized by Congress
assists the committee in its mission. This committee is an
active body and in the past year has met on four occasions, and
its subcommittees have held ongoing meetings throughout the
year.
The Federal standards have been the subject of ongoing
review and updating. Over the years, HUD promulgated numerous
standards, including standards that limited formaldehyde
emissions in manufactured homes, improved wind safety
requirements after Hurricane Andrew, enhanced smoke alarm
standards, and upgraded electrical safety requirements. These
standards are preemptive of State or political subdivision
standards to ensure nationwide uniformity and
comprehensiveness.
In order to assure compliance with these standards,
manufacturers contract for inspection services with primary
inspection agencies accepted by HUD. The Department conducts
nationwide monitoring and inspections to assure that the
standards are maintained.
Congress also authorized that States may assume
responsibility for enforcement of standards, upon approval of a
State plan approved by HUD. At the current time, 37 States have
established plans. HUD assumes responsibility for enforcement
of standards in the 13 States that do not have established
plans. During the past 2 years, 2 national and 4 regional
meetings with State regulators were held to provide guidance
and ensure uniformity of standard administration among the
States.
Once a manufactured home is determined to meet Federal
standards, a certification label is permanently affixed to each
home. This red label assures the consumer that the home was
constructed in accordance with the Federal standards.
Congress authorized the Secretary to establish and collect
a fee for this label to offset expenses incurred in carrying
out the legislation. The current label fee was set at $39 in
2002. In Fiscal Year 2000, prior to the fee increase, label fee
income of $11 million was collected.
As a result of reductions in the production of manufactured
homes, fee income in Fiscal Year 2008 fell to $5.7 million. In
Fiscal Year 2011, fee income fell to less than $3 million.
To supplement the reduced label fee income, Congress
provided a direct appropriation of $5.4 million in Fiscal Year
2009. The appropriation rose to $9 million in Fiscal Year 2011.
For Fiscal Year 2012, the appropriation was set at $2.5
million.
These label fees are used for conducting inspections and
monitoring, providing funding to the States that have approved
plans, administering the consensus committee, and
administration of the enforcement of installation standards,
and a dispute resolution program.
In closing, I would like to state that the Federal
standards serve to protect the quality, durability, safety, and
affordability of manufactured housing. I want to thank you for
the opportunity to provide testimony today, and I would be
pleased to answer any questions.
[The prepared statement of Mr. Czauski can be found on page
50 of the appendix.]
Mr. Hurt. Thank you, Mr. Czauski.
The next witness that we will recognize for 5 minutes is
Mr. Kevin Clayton, who is the president and CEO of Clayton
Homes. And he joins us from Maryville, Tennessee.
Thank you, Mr. Clayton, for being here. And we will
recognize you for 5 minutes.
STATEMENT OF KEVIN CLAYTON, SECRETARY, EXECUTIVE COMMITTEE,
MANUFACTURED HOUSING INSTITUTE (MHI)
Mr. Clayton. Thank you, Mr. Chairman, and members of the
subcommittee, for the opportunity to testify this morning.
My name is Kevin Clayton. I serve as the secretary of the
Manufactured Housing Institute, or I will refer to that as MHI
in my remarks.
I am also the president and CEO of Clayton Homes. The
current chairman of MHI, Joe Stegmayer, sends his regards. He
has a facility nearby in Rocky Mount. I know that you visited
that facility, and we appreciate your interest and support of
the industry.
My written testimony has been submitted for the record.
For over 60 years, manufactured housing has been critical
as a single-family housing alternative for hard-working, low-
to moderate-income families across this Nation. Most
manufactured homes are located in rural America, where there
are few apartments or other housing alternatives available.
The average cost of a new manufactured home is only $63,000
versus $270,000 for a site-built home. More importantly, the
median annual income of a manufactured homeowner is $32,000,
versus $60,000- plus for other homeowners.
An even greater indication of the Nation's reliance on
manufactured homes as an affordable housing alternative is that
72 percent of all new homes sold under $125,000 are
manufactured homes. Additionally, since 1989, manufactured
housing has served roughly 20-plus percent of all new home
sales.
The American dream is homeownership, and the unintended
effects of new regulation and lack of the secondary market by
the GSEs is a path to tragically wipe out the remains of this
important housing segment. The implementation of the Dodd-Frank
Act amendments to the Home Ownership and Equity Protection Act
stands to critically affect this industry. HOEPA, which defines
high-cost mortgages, is designed to protect consumers and
prevent predatory lending.
The law uses APR limits for the annual percentage rate and
fees charged on a loan to determine whether the loan is a high-
cost mortgage. Prior to the Dodd-Frank Act, HOEPA only applied
to non-purchase finance or refinance loans, but now will apply
to all manufactured housing loans as well.
With no secondary market, the cost of capital for
manufactured housing lenders starts at a much higher rate, and
the limits within the Dodd-Frank Act are based off of the
current artificially low mortgage rates. This makes it very
difficult, and impossible in many cases, for a lender in our
industry in the future to be able to charge enough interest
rate to offset the cost of originating and servicing the loans
and stay underneath those limits.
For example, a $200,000 site-built loan and a $50,000
manufactured home loan, they cost the same in dollars to
originate and service a loan. But as a percentage of each
loan's size, it is significantly different in interest rate
spread. This difference is effectively discriminating against
the smaller size manufactured home loans, putting them at a
much higher risk of being categorized as high-cost mortgages,
even though there is nothing predatory about manufactured
housing loans.
The impact of this provision is significant. Of the
400,000-plus loans that our company has made since 1972, more
than 50 percent of those would have not been done because they
would have been classified as a high-cost mortgage under the
Dodd-Frank amendments.
Due to the liabilities and stigma associated with high-cost
mortgages, lenders typically refuse to make these types of
loans. The other real impact of HOEPA will be felt by the 19
million Americans who live in manufactured homes, who could see
their ability to resell their homes effectively wiped out
because lenders would be unwilling to provide the financing
needed to help them sell their homes.
Our regulatory challenges are not limited to HOEPA and the
Dodd-Frank Act. The industry is already feeling the impact of
the SAFE Act, which requires States to establish standards for
licensing mortgage loan originators. Unfortunately, there has
been a lack of clarity and uniformity in applying the SAFE Act
to the manufactured housing market, specifically the
manufactured home retailers and their salespeople.
Similar to real estate brokers, manufactured home retailers
are in the business of assisting customers through the home-
buying process. However, unlike conventional real estate, there
are a limited number of banks that offer financing for
manufactured housing. Without the assistance of the retailer
and salespeople, the consumer would be--it is very difficult to
locate a manufactured housing lender.
Salespeople are fundamentally involved in the business of
selling homes, not originating mortgage loans. When they do not
receive an incentive or compensation from a lender, then they
should not be fearful to show a customer what financing options
are available or answer basic questions about the lending
process.
Additionally, as States have attempted to implement the
SAFE Act, the impact has been inconsistent. Because of delays
in the Federal rulemaking and the resulting differences and
approaches taken at State levels, manufactured home retailers
are often concerned with providing the most basic level of
technical assistance and service to customers.
While MHI fully supports the mission of the SAFE Act,
consideration should be made for the unique manufactured home-
buying process. Our industry is critical for housing and
providing jobs in America. Over the past decade, new
manufactured home construction has declined nearly 80 percent,
which has accounted for 160 plant closures, more than 7,500
retail center closures, and the loss of over 200,000 jobs.
More importantly, thousands of manufactured home customers
may be limited in their ability to purchase, sell, or refinance
homes. Without action in these key areas, the people who live
in manufactured homes and those whose livelihood is connected
to this industry face significant risk.
I thank you for the opportunity to testify and welcome your
questions later.
[The prepared statement of Mr. Clayton can be found on page
36 of the appendix.]
Mr. Hurt. Thank you, Mr. Clayton, for your testimony.
The next witness who will testify will be Tyler Craddock,
and he is the executive director for the Virginia Manufactured
and Modular Housing Association. He is in Richmond, and he is
from Southside.
Welcome, Tyler, and you are recognized for 5 minutes.
STATEMENT OF TYLER CRADDOCK, EXECUTIVE DIRECTOR, VIRGINIA
MANUFACTURED AND MODULAR HOUSING ASSOCIATION (VAMMHA)
Mr. Craddock. Thank you, Mr. Chairman. Thank you for the
opportunity to testify this morning on the state of the
manufactured housing industry, and thank you for hosting this
hearing.
My name is Tyler Craddock, and I am the executive director
of the Virginia Manufactured and Modular Housing Association.
Founded in 1965, VAMMHA is the voice of the factory-built
housing industry in Virginia. We represent producers and
retailers of manufactured and modular housing, community
owners, lenders, suppliers, and others involved in providing
Virginians with well-constructed, factory-built, affordable
housing choices.
While most of our work is at the State and local level, we
recognize that manufactured housing, by its very nature,
requires a great deal of attention to Federal legislative and
regulatory activity. For that reason, we are active members of
and work in close partnership with the Manufactured Housing
Institute, very ably represented here this morning by Kevin
Clayton, with Clayton Homes.
Manufactured housing is an important component of the
housing stock here in Virginia. According to the 2010 census,
it comprises about 5.6 percent of the overall housing stock in
the Commonwealth. But that does not tell the entire story.
In many rural localities, especially in Southside and
southwest Virginia, according to the 2000 census data--that is
the latest data we have available on a county-by-county basis--
the proportion of manufactured homes exceeds 15 to 20 percent
of the housing stock. That is no small wonder, given the
relative lack of construction labor in many rural communities
and the affordable nature of manufactured homes in Virginia.
In 2010, for example, the average cost of a new
manufactured home in Virginia minus land was $58,500. In spite
of manufactured housing's status as an affordable choice for
many Virginia families, the manufactured housing industry in
Virginia is limping along at present.
In 1990, over 5,400 homes were shipped into Virginia. That
number rose to over 7,000 homes in the mid- to late 1990s and
dropped over time to only 1,155 homes in 2010. Thus far in
2011, we are at approximately 30 percent off of our numbers
from 2010, having only 670 shipments as of the end of
September.
The decline in manufactured home shipments is mirrored in
the decline we have seen in the number of manufactured homes
actually produced here in Virginia. In 1990, 3,595 homes were
produced in the Commonwealth. In the years that followed, that
number went as high as 4,422 homes in 1998, but declined to
only 113 homes in 2009.
While many of the issues we face are State or local in
nature, and others testifying today can offer more in-depth
perspective on the Federal issues affecting our industry, I
would certainly be remiss if I did not highlight a couple of
issues that have arisen as I have visited with VAMMHA members
around the State. First and foremost, the lack of financing
from manufactured home purchasers is putting many of our
customers and our industry overall in a pinch.
Time and time again, retailers tell me that they have
customers who are ready and willing to purchase a new home, but
they cannot get financing for the purchase. In many cases,
these are families who, in years past, would have had no
trouble qualifying for a loan, but they cannot do so now.
In addition, for our customers who qualify, there remains
the real threat that their home will not appraise for a value
that will allow their home purchase to move forward. While
appraisals are tighter across-the-board for the entire housing
industry, a number of my members report that the problem lies
not so much with appraisals in general, but with specific
appraisers who do not understand our product and its unique
nature. As such, there may be an opportunity for the industry
and HUD to work in partnership to help ensure that appraisers
are well educated with respect to manufactured homes.
Another issue that continues to concern our membership is
the SAFE Act. While the final rule promulgated by HUD earlier
this summer provides some helpful guidance and flexibility for
our State regulators, it does not entirely clarify issues of
critical concern to the industry.
The industry is seeking additional statutory language to
clarify that licensed manufactured home salespersons not
engaged in loan origination activities are not mortgage loan
originators and, thus, subject to licensing. As it stands,
given the unique nature of the retail side of our industry,
manufactured home retailers, who are not in the business of
making loans, could be on the hook for thousands in licensing
fees at a time when they can least afford it.
In addition, the industry is seeking relief for those who
originate only a small number of manufactured home loans on an
annual basis and for those sellers financing the sale of their
own manufactured homes. At a time when financing options are
very limited for manufactured home buyers, regulatory burdens
imposed by the SAFE Act are further limiting the few financing
options available to low- and moderate-income manufactured home
buyers.
Mr. Chairman, thank you for the opportunity to testify, and
I certainly welcome any questions.
[The prepared statement of Mr. Craddock can be found on
page 45 of the appendix.]
Mr. Hurt. Thank you, Mr. Craddock.
We also have with us Stan Rush, who is an account
representative with MHD Empire Services Corporation here in
Danville. Mr. Rush, thank you very much for joining us today,
and we will recognize you for 5 minutes.
Thank you, sir.
STATEMENT OF STANLEY RUSH, ACCOUNT EXECUTIVE, MHD EMPIRE
SERVICE CORPORATION, AND VICE CHAIR, VIRGINIA MANUFACTURED AND
MODULAR HOUSING ASSOCIATION (VAMMHA)
Mr. Rush. Thank you, Chairman Hurt, and members of the
subcommittee for the opportunity to testify regarding the state
of manufactured housing personal property financing.
My name is Stanley Rush, and I am an account executive with
MHD Empire. I am also currently serving as vice chair of the
Virginia Manufactured and Modular Housing Association.
I have in worked many different areas of the manufactured
housing industry since 1981 with almost 20 years of
manufactured housing personal property financing experience.
The most serious obstacle that exists with personal property
financing is the SAFE Act and its inherent regulations.
Primarily, States do not know how to enforce the new
regulations. Most States, especially Virginia, already had
predatory lending laws that were passed years ago. The SAFE Act
has confused a situation that was working.
The SAFE Act creates confusion for the manufactured housing
salespeople who are assisting customers with the process of
obtaining financing for affordable homes they want to purchase.
There is great uncertainty about the SAFE Act and how it
applies with respect to the need for manufactured housing
salespeople to obtain a mortgage loan originator's license to
be able to assist with a credit application.
Manufactured housing salespeople are licensed and regulated
by the State. Any additional licensure is costly and
unnecessary, as the salespeople are not making any lending
decisions, merely helping with paperwork.
The SAFE Act is also preventing manufactured housing
community owners from doing their own financing, which is
necessary at this time because so many sources of money are no
longer available. While the recent guidance from HUD and
conversations between our industry and State regulators have
been helpful, they are based only on current interpretations
and, as such, are subject to change in the future.
Additionally, these positive first steps do not completely
address the industry's concerns. That is why we strongly
encourage you to support clarifying language to state that
manufactured housing salespersons not engaged in loan
origination do not need to be registered, and language that
provides some relief to folks making only a few loans and
sellers financing the sale of their own homes.
At one time, there were more than a dozen national lenders
doing manufactured housing personal property financing. Now, we
are down to four. One of the reasons personal property
financing has become so scarce is that banks are being told by
regulators that if it is the least bit out of the ordinary,
don't do it.
Manufactured housing personal property financing is out of
the ordinary, and thus, the banks stay away. The new financial
regulatory format is only making this situation worse.
Our industry is by no means perfect. None is. But we have
gotten caught up in a perfect storm of unintended consequences
that, on top of the prolonged poor economy, is keeping our
customers out of the most affordable housing available today.
Thank you again, Chairman Hurt, for the opportunity to
testify today, and I will be glad to answer any questions that
you may have.
[The prepared statement of Mr. Rush can be found on page 55
of the appendix.]
Mr. Hurt. Thank you for your testimony, Mr. Rush.
And now, it is my pleasure to introduce Scott Yates, who is
president of Yates Homes in Pittsylvania County. It is a
family-owned business that has operated since 1986, and thank
you very much for coming down to the big City of Danville--
[laughter]
Mr. Hurt. --to testify. You are recognized for 5 minutes.
STATEMENT OF SCOTT YATES, PRESIDENT, YATES HOMES, AND PAST
CHAIR, VIRGINIA MANUFACTURED AND MODULAR HOUSING ASSOCIATION
(VAMMHA)
Mr. Yates. Thank you, Congressman Hurt, for giving me the
opportunity to appear before you today.
My name is Scott Yates, and I am president of Yates Homes,
a family-owned business that has operated in Pittsylvania
County since 1986.
Over the course of my career, I have sold manufactured and
modular homes, and I own and operate a manufactured housing
community. I am also a member of the Virginia Manufactured and
Modular Housing Association, have served as its chairman, and I
am also a member of the executive committee, the board of
directors, and had the pleasure of being elected to MHI,
representing Virginia for a number of years.
From day one, I have sold manufactured homes because I knew
there was a need for affordable housing, but wanted to help
consumers realize the American dream of homeownership. For
quality of life and economic competitive reasons, every
community needs a steady, well-built supply of affordable
housing choices, and I decided early on that I wanted to play a
part in helping provide that in Southside Virginia.
Since 1986, I have seen our industry hit some of its
highest points, and likewise, I have been through some of its
toughest times, as is the case today. At the peak of the
industry, our business sold 180 houses a year and employed 19
people. As the economy went into a tailspin and the housing
market slowed to a crawl, I have had to adjust our company to
only 5 employees, including myself and my partner, and we are
only selling 30 homes a year.
This being the third downturn we have been through and the
longest of my career, I think we have outsmarted ourselves for
the sake of fixing the housing problem and forgotten
commonsense resolutions. With the constant pressure of
government regulation at all levels, and a lack of reliable
financing sources for customers, we have turned to modular
homes instead of manufactured homes.
The finance community has turned from manufactured homes
because of secondary markets not wanting to buy portfolios that
contain this type of housing. The true loser is the customer
who wants to provide shelter for their family at an affordable
price and who understands that manufactured housing is a viable
option to do exactly that.
Four years ago, we recognized that lending sources for
manufactured home buyers were drying up. As such, we deemed it
necessary to explore an alternative business model so that our
company could survive. We moved into modular homes because they
are built to the prevailing local codes, which is the Virginia
Uniform Statewide Building Code, the same standard that applies
to site-built homes.
They have fewer restrictions for customers seeking
financing and feature many of the same terms as the site-built
homes. With manufactured homes, the interest rates are
generally higher. In addition, we observed that the appraisals
were coming in well below the price for which the home had
sold.
Finally, it got to the point that selling manufactured
homes was a losing scenario from a financial point of view. We
were selling at a lower margin and being cut to the point that
we could not make a small profit to keep our company going.
In this scenario, however, the true loser is not me or our
company. The true loser is the American people. Not every
family can afford a home over $100,000. These are the families
today who are suffering the most in our economy. They are being
squeezed between job losses and the increasing cost of
providing necessities like food, clothing, and whatever type of
shelter for their families.
In time, this leads to more people depending on our
government to support them, thereby perpetuating the cycle of
entitlement and spending that has brought our Nation to the
brink of financial destruction. That is certainly not what this
country was founded on, and in my opinion, it is not the
direction our forefathers had in mind when they bravely affixed
their names to the Declaration of Independence.
In closing, I would like to share a story from my first
year in business. A couple came in with two children. The
loving father and mother wanted to provide a home for their
family. We had a $4,000 used manufactured home for sale. They
wanted to put it on the property that their family owned.
The father and mother had saved and worked hard to purchase
this home. When they wrote us a check for the $4,000, the
notation in the memo line contained two very simple, but
powerful words, ``a home.''
I never forgot that family, and those words that remind us
that whether a home has a $1 million price tag or a $4,000
price tag, it is a home that meets their housing needs and
provides a home for their family.
Chairman Hurt, thank you for the opportunity to testify
today, and I welcome any questions.
[The prepared statement of Mr. Yates can be found on page
65 of the appendix.]
Mr. Hurt. Thank you very much, Mr. Yates.
I would now like to recognize for 5 minutes Mr. Adam Rust,
who is the research director for the Community Reinvestment
Association of North Carolina, and he comes to us from Durham,
North Carolina.
Mr. Rust. That is right.
Mr. Hurt. So thank you for being with us, and you are
recognized for 5 minutes.
STATEMENT OF ADAM RUST, RESEARCH DIRECTOR, COMMUNITY
REINVESTMENT ASSOCIATION OF NORTH CAROLINA
Mr. Rust. Honorable Chairman Hurt, thank you for inviting
me to testify before your panel today.
My name is Adam Rust, and I am the research director for
the Community Reinvestment Association of North Carolina. Our
main focus is housing finance. I am the author of, ``This Is My
Home: The Challenges and Opportunities of Manufactured
Housing.'' And since 2010, I have served as a general member of
HUD's Manufactured Housing Consensus Committee.
In my opinion, today there is no better example of a
community that is obstructed from accessing good credit than
the local manufactured housing park. That is why I think it is
important that this hearing is happening today.
To your first question, what has caused the manufactured
housing industry to go from 300,000 units produced in 1999 to
only 50,000 units in 2010? I would offer that an equally valid
question is, what would help the manufactured housing industry
ship more homes in the near future?
I see two opportunities--better participation by the GSEs
and a better industry effort to take advantage of demographic
change in our population. The manufactured housing industry
finds it hard to ship more units because fewer people can get
the financing they need to buy the homes.
I agree with the sentiment expressed by Mr. Rush, Mr.
Clayton, Mr. Yates, and Representative Hurt. Your opinion of
personal property lending may determine your thoughts on the
most important issues for how credit is accessed, how we
interpret the way that the GSEs operationalize their duty to
serve in the case of manufactured housing.
The GSEs have expressed that they want to narrow their
commitment to only real property. I believe that we need to
find a middle ground. I believe that the GSEs can be a lever
that elevates the quality of manufactured housing lending for
personal property. I imagine that if a GSE did focus on buying
these loans, it would serve as a lever to elevate the quality
of lending.
I think there are important conditions to set with that,
including full disclosure under RESPA for closing costs, no
balloon payments, and loans that do not bind people unable to
get a refinance in the near future.
Secondly, the manufactured housing industry needs to do a
better job of serving people with disabilities. We know the
population is graying. The point of purchase is not when you
know if you will need a home with disability protections. As an
example, you never know if you are going to need a seatbelt,
but I believe that we are all glad that cars now come with
seatbelts.
We know the population is graying, and I think it is about
finding a middle ground. And to that, I want to say that I
voted against the sprinkler proposal. But hallway widths are an
important topic.
I have two letters that I have brought today from the
Paralyzed Veterans of America and the American Association of
People with Disabilities. Both of them specifically asked the
Manufactured Housing Consensus Committee to establish a minimum
hallway width of 36 inches in the HUD code.
The actions to consider with regard to financing include
that the GSEs should not just focus on real property, but also
on personal property loans, and that we change the rules
associated with the GSEs' MH Select program, which currently
require PMIs for some homes with higher LTVs. For better or
worse, there were less than 200 PMI contracts written for
manufactured homes in 2010, compared to more than 10,000 just
as recently as 2004. The products are not being offered.
We need to create credit enhancement facilities for second
position loans to help people acquire manufactured housing
parks. And last, we need to engage and encourage State housing
finance agencies to use their tax credit dollars to encourage
manufactured housing lending.
Straight to the third question, what role will the CFPB
play for the manufactured housing industry under Dodd-Frank, I
believe that Dodd-Frank will reward the good guys by
eliminating the competitive threat posed by a race to the
bottom among financing companies. CFPB's focus is on consumer
protection. It is not the SAFE Act. It is different.
And here is what is wrong with personal property lending.
We know that it is hard to shop around for a better loan when
the financing comes from a retailer that is selling the home.
It is even harder when there is no requirement for closing
costs. And then, ultimately, the homes come with features that
may change the ultimate resale value of the home, including
balloon payments or prepayment penalties.
One in five borrowers ends up unable to make their
payments. Some people are getting these loans that they
couldn't qualify for a mortgage. It is bad for consumers, and
it stands to reason that this will be bad for the future of the
industry.
In fact, the problems facing manufactured housing took
place and developed before the idea of the CFPB was even
imagined. The CFPB will not regulate manufacturers. It will
supervise, enforce, and write rules only for nonbank financial
institutions and only if they are considered larger
participants.
The CFPB is only about making sure that people get the best
financed product that they deserve, and I think that enhancing
the role of the GSEs is the first step to making that happen.
Ultimately, and to conclude, as transactions become more
transparent and as more finance products prove to be sound,
results will be seen and the quality of manufactured housing
communities and the experience that owners have and in the
perception of the industry--I believe that the only way that
the industry will go forward and return to health is to address
this issue of financing.
Thank you.
[The prepared statement of Mr. Rust can be found on page 58
of the appendix.]
Mr. Hurt. Thank you, Mr. Rust.
The next witness that we will hear from is Ms. Carla Burr.
She is a manufactured housing resident, and she is from
Chantilly, Virginia. And we will recognize you, Ms. Burr, for 5
minutes.
STATEMENT OF CARLA BURR, MANUFACTURED HOUSING RESIDENT
Ms. Burr. Thank you.
Good morning, Vice Chairman Hurt, and I thank you for the
opportunity to testify.
My name is Carla Burr, and I am a proud owner of a
manufactured home in Chantilly, Virginia. But I am not just
representing myself. I am representing 17 million families who
live in these homes across this country.
Owners of manufactured homes are frequently ignored by
Federal housing policy. So I am very grateful that we have this
attention paid to it today.
We believe if you want to understand why manufactured home
sales have dropped so dramatically, it is critical to ask the
homeowners and buyers and residents among these communities:
Would you recommend them to others? Would you recommend your
child buy one?
I would certainly recommend someone buy a manufactured
home. My only mistake was putting it in a park, where I have no
control. The issues regarding manufactured housing in a
community such as ours is so grave that people are walking in
and turning in their title to their home because they can't
sell it. It is too old. They can't get a replacement.
There are many people in our community who are suffering so
badly that they can't even buy food. It is a toss-up between
food and medical bills and lot rent.
In my particular community, the lot rent is going to
increase this next year to $919 a month. In most communities,
we are finding the lot rent is higher than the mortgage, and
this is unconscionable. In some communities, the lot rent is
almost equal to the mortgage.
We know one homeowner in my community, their lot rent is
like $100 less than their mortgage. A $2,000 a month payment
for a manufactured home in a community is just absurd.
What we are facing right now is a constant threat by the--
not manufactured housing, but by the landlord of this property.
We are really considering how we are going to try and get out
of this community. We would like to buy it. We would love to
buy the property.
In fact, if I had the chance to buy the land my house sits
on, I would do it in a heartbeat. But there are no provisions.
We don't have any rights as far as homeowners. There is no
right of first refusal for us.
The landlord could basically sell the property out from
under us, and we would never know until the sale happened. And
then, we would be frantically trying to find someone to buy our
home for less than what it is worth.
Right now, we have been successful as a community in
getting our property taxes lowered because the assessment
values were way out of line. We felt that they were using this
Wingate appraisal method to actually assess our homes, and we
found it to be absurdly unrealistic. My house I could probably
sell for less than half of what I paid for it, and I would be
lucky to get that.
Anyway, for the nearly 3 million homeowners like me on
leased land, we are in a financially precarious position. We
are not notified if the land owner decides to sell. Like I
said, we don't have right of first refusal.
There are practices of certain community owners that
further erode the value of my investment if I want to sell. For
example, landlords can refuse to sell to someone who wants to
buy my home. They can limit how I market my house. They can
steer potential buyers to other homes within the community,
toward their product, which is happening in my community.
In my community, it has gotten so bad that people are
turning in their title, which I have said. We feel like
prisoners in a feudal system.
The other practice is where management is not equitably
applying the rules across-the-board. They single out those of
us who are taking action to effect change. They try and
persuade other homeowners to not attend our meetings because we
are really seeking to get the whole community involved.
They single out those of us who are taking action, and they
use tactics to scare the homeowners. ``We are not going to
renew your lease.'' Whether they do it or not, we don't know.
This is an unacceptable position to be in, in any community.
And why is the manufactured housing community singled out?
Because of nonexistent protection under the law. Although
Virginia does have some vague laws about this type of
retaliation, and even our rental agreement says the landlord
cannot retaliate, they basically ignore those rules.
I truly believe that manufactured housing can be a part of
the solution to our need for affordable homes, and can create
jobs, save energy, and provide attractive homes for people who
want to buy them.
There is much that Congress can do to improve the
regulatory marketplace so buyers get the best possible loans,
and ensure that Federal agencies use their resources to help
homeowners buy a quality home that they can afford, and require
protections for owners living in communities. Everyone--the
people who build the homes, the people who sell the homes, the
people who finance the homes, and the people who buy these
homes--should work together to improve outcomes for buyers like
me.
I would love to provide an unqualified recommendation for
manufactured housing. However, until we fix the financing issue
to provide equal access benefits and ensure secure tenure,
manufactured home sales will remain slack.
Finally, as an owner of a manufactured home, I really look
forward to the day when we have equal rights under the law as a
homeowner. Whether it is stick-built or some other condominium,
we are also petitioning our local representatives in Virginia
to pursue some sort of rent control or restructuring so that
land owners cannot raise the lot rent without impunity. And
there needs to be some sort of ceiling.
We know rent control is gone for the most part in this
country, but for our purposes, there is no way we can stay. We
have determined there is no affordable housing in Fairfax
County. It doesn't exist. And an article in the Washington Post
even confirmed that.
So thank you for listening.
[The prepared statement of Ms. Burr can be found on page 29
of the appendix.]
Mr. Hurt. Thank you, Ms. Burr, very much for your
testimony.
Not on the program is a gentleman from the Manufactured
Housing Association for Regulatory Reform. His name is Mark
Weiss. He is behind you, Ms. Burr. If we could get that
microphone to him, I would like to ask unanimous consent to
recognize him to make a brief statement for the record.
He comes from Washington.
STATEMENT OF MARK WEISS, SENIOR VICE PRESIDENT, MANUFACTURED
HOUSING ASSOCIATION FOR REGULATORY REFORM (MHARR)
Mr. Weiss. Thank you, Mr. Chairman. I appreciate the
opportunity to speak here today.
Mr. Hurt. Yes, sir. Thank you.
Mr. Weiss. My name is Mark Weiss, and I am senior vice
president of the Manufactured Housing Association for
Regulatory Reform.
MHARR is a national trade association of mostly smaller
producers of HUD-regulated manufactured housing. MHARR first
requested an oversight hearing on the HUD Manufactured Housing
Program and was promised such a hearing by Chairman Bachus
earlier this year. MHARR specifically requested an oversight
hearing on HUD's failure to fully and properly implement key
reform provisions of the Manufactured Housing Improvement Act
of 2000.
We expressed our wish to present testimony showing the
devastating impact of that failure on the industry and
particularly the smaller independent manufacturers that MHARR
represents, as well as American consumers of affordable
housing, which would then provide the committee with a basis to
seek answers from HUD officials on those issues.
The smaller businesses represented by MHARR have major and
specific grievances based on HUD's failure to fully and
properly implement those key reforms of that law, reforms that
were designed to ensure that manufactured homes are treated as
housing rather than the trailers of yesteryear. Some of those
reforms have been distorted, others have been ignored, and yet
others have been effectively read out of the Act entirely by
process of interpretation.
We trust and hope that during the next session of the 112th
Congress, a hearing on those specific implementation issues
will be held where our small business members and their
witnesses can appear and testify before the committee. In the
interim, we would ask that my statement be included in the
record, as well as a series of fact sheets specifically
addressing those implementation issues that we have prepared
and will submit to the committee.
Mr. Hurt. Without objection, those documents will be
admitted to the record. And thank you for your statement, Mr.
Weiss.
Mr. Weiss. Thank you, Mr. Chairman.
Mr. Hurt. Now, we will commence with a period of
questioning for the witnesses, and I will ask a few questions.
First up, Ms. Burr, thank you for your testimony. One of
the things that I was wondering about as you testified was
whether or not there is a market for being able to sell your
home in the, I don't know if you call it the secondhand market
or used market?
Ms. Burr. Yes.
Mr. Hurt. Is there a market for that? And I would imagine
living in Fairfax County, like you do, that it would be very
difficult to find affordable housing in Fairfax County. We
would, just for the record, invite you to move to Pittsylvania
County.
[laughter]
Mr. Hurt. But with that said, is there a vibrant market at
this time for used manufactured housing?
Ms. Burr. Not from what we can see. The county has actually
made it so difficult. They have changed the zoning on some of
the land. You can't actually move it. If you buy a piece of
land in Fairfax County, it is probably zoned in such a way that
you can't put your home on it. So even if I could move it,
there is nowhere to move it.
And I have checked with communities like ours all the way
into Maryland and West Virginia. They don't have lots big
enough to put my house on. And if you want to buy a piece of
property, the zoning doesn't allow you to move it there. So we
are stuck.
Mr. Hurt. Okay. Thank you.
And Mr. Rust, I would like to ask you a question. If you
would try to use the microphone for the court reporter, if you
don't mind?
Thank you for your testimony, Mr. Rust. I was wondering if
you could just address--you talked a lot about the GSEs, and of
course, that is something that has taken up a lot of our focus
in Washington is dealing with Fannie Mae and Freddie Mac and
how do we--taxpayers provided a $160 billion bailout for those
two organizations. And I think that there is across-the-aisle
support for trying to wind those down.
The key, the key to the success for that, though, will be
bringing the private sector into the secondary mortgage market.
That is the only way it works if we don't want to make it worse
for housing and make it worse for the real estate market.
So I was wondering if you could speak to that. Obviously,
it would be nice to see that secondary mortgage market evolve
in the private sector, and I didn't know if you had any
comments as it relates to that?
Mr. Rust. It is true that there is hardly a market for
those kind of homes on the private investor side. One issue
that--
Mr. Hurt. How do we correct that without--
Mr. Rust. Okay. So I am worried about the loan level price
adjustments, which are a series of costs that are imposed on
the delivery of manufactured homes or any mortgage to the
secondary market. And specifically, I am concerned about the
additional costs that are passed on for borrowers even when
they haven't demonstrated a poor credit record.
There is an additional fee specifically designated for a
manufactured home so that is raising cost that is passed on
either in the interest rate or in the closing costs. And so,
that is one thing I would encourage you to look at because I
think it is a little bit under the radar, and it has been
taking place since about 2009 and continues to evolve. But it
is really hurting the secondary market and liquidity.
Mr. Hurt. Okay. Thank you.
Mr. Yates, I have a question for you. Thank you again for
your testimony, and I appreciate the 35 years of experience
that you bring to this.
When you think about the regulatory structure, and I don't
mean just as it relates specifically to manufactured housing
and modular housing, but the regulatory structure generally,
just as a small business, a family-owned business for 35 years,
I would imagine that those regulatory burdens, whether it be
taxes or whether it be environmental issues, can you talk a
little bit about that burden just generally as a small
business?
And do you have any advice for us in terms of how we make
it easier for you to succeed so that you are not--your
testimony is very compelling when you talk about how your
business has changed in the last 10 years.
Mr. Yates. The regulatory environment is a moving target.
It is constantly moving. I will give you one quick example.
Basically, bringing the consumer back into it because that is
what drives all of our businesses. It is not just myself; it is
the consumer.
In Pittsylvania County today, it costs $700, approximately
$725 just to get a well and septic permit. Now that is before
you do anything. That is just a permit on the property to say,
I can put a home here, whether it is a manufactured home, a
modular home, or a stick-built home.
But from the consumer, the regulation that is coming down,
the permit for this, the permit for that, and I understand the
State needs its funding, local government needs its funding.
But--
Mr. Hurt. It all adds up, doesn't it?
Mr. Yates. Absolutely. And it takes people who want to buy
from our business, it takes them off of the buying arena
because these fees keep adding up.
I can remember when my closing files used to be this big.
Now, they are this big.
Mr. Hurt. Right.
Mr. Yates. We had someone out of Richmond come in last week
and check our company. We are visible. So we are constantly
getting people in, making sure you have this license, you have
that license. I am not saying license is a bad thing. I think
it needs to be regulated.
But again, as I said in my statement, when we get past,
when we outsmart ourselves and we forget the commonsense
approach to, number one, the consumer, and number two, to
business, we are hurting from top to bottom all the way down.
Mr. Hurt. Sure. Thank you.
Mr. Rush, you talked a little bit about the appraisal
standards and the changes that were brought by Dodd-Frank. And
I was wondering if you could just talk a little bit about those
appraisal standards and how those changes have and will affect
the marketplace.
Mr. Rush. The problem that has come into, and I think it is
affecting the real estate market also is that the Federal
guidelines are one thing, and then each lender has their own
set of guidelines for how they are doing manufactured housing
and how they are doing site-built housing.
Right now, we have a situation where a modular home can be
built to the statewide building code and the frame can be left
under it. And if that is the case, then the Federal guidelines
from FHA are that the appraiser has to appraise it like a
manufactured house, a HUD code manufactured house, which means
they can only use comps that are HUD code houses. That limits
the comps, especially in the market today, where there are not
that many being sold, and there are almost none being resold
because of the appraisal process and the lack of financing.
So they are condensing us down into a little, small pinhole
that is not helping the industry, and it is drastically hurting
the industry as far as appraisals. We need to be able to comp a
mod to a mod if that is--or site-built because they are built
to the same code, whether it has a frame under it or it doesn't
have a frame under it. That is just one area where the
appraisals are being affected.
The other thing is that they are not supposed to be using
foreclosures for comps, and the appraisers are. And it is
hurting the prices because people are doing short sales.
Lenders are doing short sales. We don't have any bigger problem
with foreclosures than the site-built industry, but we all have
them right now with the way the economy has been going for such
a long period of time, with folks out of work.
So there are foreclosures out there in both the site-built
and the manufactured housing industry. These things are all, as
I said in my testimony, a perfect storm of negative things that
are affecting our industry.
Mr. Hurt. Good deal. Thank you, Mr. Rush.
Tyler, a question for you. From your viewpoint in Richmond,
can you just talk a little bit about how the Federal--dealing
with HUD and the Federal regulations, as well as the State
regulations and the local regulations that Mr. Yates was
talking about, can you talk about that dynamic? What are the
regulations that are the hardest to deal with? Who can learn
from whom maybe is another way to--
Mr. Craddock. Certainly. A couple of issues specifically.
One, of course, and we have mentioned it, is the SAFE Act. That
is one of the poster children because in Virginia we have the
State corporation commissions and the Bureau of Financial
Institutions, which regulates--which is enforcing the SAFE Act
in Virginia, for lack of a better term.
What that has created in this dynamic is--and we have seen
it in other States--that is why I am talking to my counterparts
in other States--is this dynamic where we have State regulators
who may be willing to work with us on some of the flexibility
that our industry needs, but they feel that their hands are
tied because of the guidance they are getting from HUD. And
certainly as a lobbyist, you are not going to lobby the State
government, saying you need to go against what HUD is telling
you, go against the Federal Government. Don't mind the
supremacy clause, etc.
One of the other areas where we see that dynamic play out,
though, and we didn't mention it as much here, is in the actual
administration of the HUD code itself. The thing about this,
you have, for lack of a better term, a Federal building code
that is a Federal code that is administered in Virginia by the
State. We have an SAA, a State administrative agency, which is
the Virginia Department of Housing and Community Development,
but then is enforced by local officials.
So you have this building code that really is being acted
upon at three different levels. And what that ends up at the
end of the day, I have had retailers tell me you end up in a
situation where local building official says ``X'' needs to--
putting a house on the site, ``X'' needs to be done.
The retailer says, no, that is not what is in the HUD code.
So you end up with this 2-day runaround trying to call Richmond
and get an answer because Richmond is trying to enforce
something on behalf of HUD. And so, it does create a confusing
dynamic at times.
Mr. Hurt. How do you fix that?
Mr. Craddock. That is the million dollar question. Because
when you are out there, when you are waiting on a certificate
of occupancy for a home, do you really want to butt heads with
the same inspector who is going to not only be inspecting this
home, but the next one that you hopefully have closing in 2
weeks and 2 or 3 weeks after that?
A lot of the key for us, we have found, rather than some
sort of punitive fix or slap on the wrist is just simply better
education and communication. In a lot of instances, as far as
administration of the HUD code on the local level and the
building official level is simply working--and our SAA has been
really good and diligent about this, but it is just moving that
process forward. It is a process that is ongoing so we have to
keep working at it.
Mr. Hurt. Okay. Thank you very much, Mr. Craddock.
Mr. Clayton, I would love it if you could--if you had
anything to add to his question that I asked about the Federal,
State, and local dynamic. And then I also wanted you to
comment, if you could, it is my understanding that HUD intends
to raise the label fee from $39 per label to $60 per label. And
I wanted to find out if you had any thoughts on how that would
affect the marketplace. So, if you could address both of those
issues?
Mr. Clayton. There is nothing specifically I would add to
that. I think HUD is faced with doing what we have all had to
do when our sales are running about 20 percent of where they
once were. We have all had to make drastic cutbacks. So I think
looking at what the real requirement budget need is versus only
shipping 50,000 homes this year needs to be looked at
carefully.
Mr. Hurt. Okay. Do you have anything to add in terms of the
Federal, local, and State--the regulatory dynamic?
Mr. Clayton. I thought that was addressed very well
already. What our industry desperately needs right now is
legislation that will move forward, that will modify HOEPA loan
limits. Otherwise, what little is left of the industry, half of
that will be wiped out.
Because when you take a home-only customer who is not
financing land in and you are operating and the limits are
basically 6.5 percent over an artificially low, where Treasury
is helping buy down mortgage rates. So it is based off of that,
that spread there. When our cost of funds are starting out--
because we have no secondary market, we have no GSE support or
Treasury support. There has been no government help whatsoever.
Our cost of funds starting out is double because we are
going through normal commercial paper debt instruments. We
start out at a double. And that just wasn't thought about and
recognized in the creation of the Dodd-Frank.
So it is very logical. Everybody that you mention this to,
they see the need to change it. We have great Republican
support. There needs to be some Democratic support urgently to
move that forward and stop it.
It is the last piece of the housing segment that needs to
be hurt right now. Our best-selling model right now is below
$50,000. That is where the economy is. That is all that most
people can afford right now. And that is an underserved market.
It is in rural America, where there are few apartments out
in rural America, and there are certainly not affordable
housing options.
Mr. Hurt. Thank you very much.
Mr. Clayton. Thank you.
Mr. Hurt. Mr. Czauski, I wonder if you could just address
the fee issue, raising the fee from $39 to $60 per label? And
then conclude with anything else you might want to add.
Mr. Czauski. There has been discussion about raising the
fee, as you are aware, to $60. And it is currently under review
within the Department. Going from a fee of $39 to $60 is
somewhat of an increase, especially at a time when the industry
has been depressed and the number of homes being built has gone
down.
The Manufactured Housing Program is unique, and I have been
with HUD for 32 years, 30 of which were in the Office of the
General Counsel. So I have worked with many programs. This is
the only one with a Federal advisory committee, consensus
committee. And any regulations that are implemented go through
that consensus committee.
That consensus committee is composed of manufacturers and
retailers, consumers, as well as State regulators. So all the
parties involved at this table and in this room are represented
on that consensus committee. And that committee makes a
recommendation to the Department, and that will also occur with
regard to the fee issue.
The Department is interested in getting feedback with
regard to the impact of any fees on the industry, on the
consumers, and how that will affect the industry. So I think it
is an opportunity for everybody to provide feedback, and it is
a second bite of the apple because even after those
recommendations are provided, and there is a regulation that
would increase the fee, there is the opportunity for public
comment.
And that is something the Department is interested in
hearing. It is very interested in making sure that the industry
is stable and yet protecting the consumers.
Mr. Hurt. I thank you for that, and I trust that you all
will take that seriously because I think, as Mr. Yates was
pointing out, it is just a little fee, a little fee, a little
bit here, a little bit there, and the next thing you know, you
are talking about something that is a barrier to being able to
do what the consumer wants to do. And I think that is something
all of us at every level of government have to be really keenly
aware of.
So thank you for your answer.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 30 days for Members to submit written questions to these
witnesses and to place their responses in the record.
I also understand that Congressman Fincher has a statement
that he would like to have entered into the record. And so, I
would ask unanimous consent for that. Without objection, that
is so ordered.
I would also like to recognize--I think Larry Campbell is
here, from the city council. Thank you, sir, for being here.
I wanted to again thank the city for making this available.
Many thanks to Mayor Saunders and all of the staff who put this
together.
I also thank the Sheriff's Office, and all of our staff
here who worked so hard to put this together.
Finally, let me thank everybody in the audience who
attended today. I am very grateful to you all for your interest
in this subject and, of course, thanks to each of the witnesses
for traveling here today to be with us. I think this hearing
was very helpful to us, and I know that it will be very useful
as we go back to Washington and consider these important
subjects.
And so, with that, this hearing is now adjourned.
Thank you.
[Whereupon, at 10:21 a.m., the hearing was adjourned.]
A P P E N D I X
November 29, 2011
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