Bringing the Pieces of Home Together presents News at Noon with Erin Patla

Coming up, Experts Say While Important, Title 1 Only Part of Financing Puzzle

But first…this story.

Bringing the Pieces of Home Together

They are the Rodney Dangerfields of new housing; they get no respect. Often misnamed and misunderstood, they are the exception to the rule. But for homebuyers like Jamie and Andrew Kach, they make sense, the said to Leslie Mann, in special to the Tribune Newspapers

Collectively called factory-built homes, they are built in whole or in part in factories, then moved to their home sites where they can be permanently installed. These factory built homes are outnumbered by conventional “stick-built” houses.  Nevertheless, they offer significant benefits to their buyers.

“It was way faster; the house was up in a week,” Jamie Kach said to Mann.  Kach stated they left their Chicago condo for the green space and great schools found in the Highland Park area. “I have friends who have built (site-built) houses that took months and months. Also, this was much less hassle. We didn’t have to wait for subs to show up or deal with weather delays.”  Kach stated.

Before meeting with Neil Fortunato of Green Building Technologies Inc. in Highland Park, Kach explained that she wasn’t familiar with factory-built homes. “He showed us that with a panelized house, we could have a high-quality house with our own floor plan and green products like spray-foam insulation.”

The Kaches chose panelized builder Sterling Premium Building Systems in Wausau, Wisconsin.   Fortunato’s Green Building Technologies  had worked with Premium Building Systems before. Kach met with a Sterling representative at Fortunato’s office.  There they selected the doors, hardware, roof shingles, siding, staircase/railings and windows that would become the elements of their new home.

Upon the arrival of the Kaches’ panelized sections, Fortunato’s crew assembled the floor, wall and roof sections.  Next came the exterior, made of  a fiber-cement siding and reclaimed brick. Move-in day is planned for September, once interior crews finish their work.

“When people hear ‘factory-built,’ they think of mobile homes,” says Fortunato, who built two Sterling houses before the Kaches’ home.  He explained that today’s factory building is a far cry from the mobile homes of old.

Unlike pre-HUD Code mobile homes, factory built homes of all types today offer quality and control advantages that conventional housing simply can’t touch. There is less waste in the construction process.  The homes are built ‘tighter,’ so they are more plumb as well as energy efficient.

Factory building has a different reputation in other parts of the world.  Emanuel Levy, of the Systems Building Research Alliance, based in New York said: “They are more common elsewhere, especially Japan and Sweden. In many other countries, ‘factory-built’ equals ‘high-quality,’ o they don’t have the stigma they have here.” In went on to explain how in England, buyers call them MMCs (modern methods of construction).

Product manager Steve Wirtala from Sterling explained: “We’re building inside, away from the weather, so we can control the quality,” “Everything is plumb and square and totally customized. If there is a con, it’s that things move fast, so you don’t have time to make a lot of last-minute changes.” Using the panelized process, Wirtala explained that start to finish the process takes about 3 months.

The factory built housing world is comprised of many elements.  One is HUD Code or manufactured homes.  Manufactured homes can have the same residential look, quality and livability as conventional construction.  Manufactured homes can range from entry level product that is solid and safe, yet basic in appearance and amenities.  But once installed more upscale modern manufactured homes can also be indistinguishable from site built counterparts.  Because the HUD Code is federal and pre-emptive, modern manufactured homes can be designed for a certain climatic and wind zone and placed anywhere in the U.S.  Manufactured homes can be single or multi-section, can be placed on permanent foundations or over basements, and can be multi-level or ‘two story’ as well.  Sizes for manufactured homes range from 400 square feet, to well over 3000 square feet depending on their configuration.  Using special designs, they can have tall roof elevations, and the same types of siding or exteriors as conventional construction.  Garages or other elements can be added to manufactured homes once on site.  Manufactured homes can often be half the cost of conventional construction, yet the safety, energy efficiency and durability are required by law to rival conventional building through the HUD Code’s ‘performance’ building standards.

Modular and panelized homes are built to local building codes, such as the Uniform Building Code or UBC.  Modular and panelized construction can range from the very modest dwellings to literally modular mansions that could be 10,000 square feet or more in size.  Costs tend to be 10-30% lower than conventional on-site construction.

All methods of factory building are faster and more efficient, so they have large green advantages of conventional construction.  According to the National Association of Home Builders, prefab construction is about 5% of all conventional building.  New manufactured homes are some 10% of the current total of new housing starts, according to statistics supplied by the Manufactured Housing Institute.

Mann’s research reminds us that factory-built houses aren’t new. Sears, Roebuck & Co. and Montgomery Ward shipped home kits to buyers by railroad in the earlier 20th century. In the 1940s, the Lustron Corp. used the old Tucker automobile factory in Chicago to build steel framed houses. Famed architect Frank Lloyd Wright worked on American System-Built Houses in the 1950s.  World wide, factory building is in vogue today.

“We have not, as an industry, learned to promote our homes,” admits Vic DePhillips, chairman of the National Association of Home Builders’ (NAHB) Building Systems Councils. “The buyer must make it his mission.” to learn what home and style makes the best sense for their situation. “I recommend visiting the factory too,” adds DePhillips. “Everyone’s Web site is pretty, like model homes. But at the factory, you’ll see their work firsthand.”

Housing consultant Fred Hallahan of Hallahan Associates in Baltimore, told Mann that Americans built 13,000 modular houses in 2009, which was down from the 2005 peak of 43,000. Hallahan explained that modular and panelized building has taken a slide, along with conventional construction.’s Tony Kovach, the editor for a trade journal that covers all elements of the factory built housing industry, explained: “Factory building is well poised for a rebound.  There is a lot more interest by the main stream media than before.  There are also books like Sherri Koones new series, like “PreFabulous Homes!” which are drawing more and positive attention to the world of factory built housing.  With incomes down, and most elements of modern factory building being so much greener and more affordable, factory building in America is the way of the future.“ Kovach said.

Factory-built houses are more concentrated in some areas than others. John Perry, chief executive of Contempri Industries Inc., a modular house manufacturer in Pinckneyville, Ill told Mann that: “Sometimes, we are excluded because a town is union-controlled,” Some cities… “don’t allow permits for anything ‘factory-built.’ But other towns, like Antioch, are fine with it and have even gone as far as to send their inspectors to our factory.” In states that are “home-rule,” like Illinois, he adds, each municipality is free to set its own rules. “So it’s like having 32,000 little countries, each with its own rules,” says Perry.’s Kovach explained that the problem that Perry described is part of the reason that Congress gave the manufactured home side of the factory built housing industry its pre-emptive status over local building codes.  “In principle if a manufactured home has been designed for an area’s climate, roof load and wind zones, manufactured home builders can get in theory the benefit of bypassing the types of hassles that Perry described to Mann.” Kovach explained.  “The challenge is that in some towns, in spite of the passage of the HUD Code and its many updates, regulators don’t always honor the intent of the federal manufactured housing laws.  Where they do, because building hassles are simplified and costs are controlled, the consumer wins.”

Since June 15, 1976, when the Federal Manufactured Home Construction and Safety Standards (the “HUD Code”) kicked in – there have been no more mobile homes built in the U.S.  Legally the updated style of that construction is now called a manufactured home. Manufactured homes includes amenities once restricted to stick-built houses such as tray ceilings, whirlpool tubs and walk-in closets.

Until the media and public perception catches up with the modern realities of factory building, the numbers of factory built homes are likely to lag behind conventional construction.  “But the reasons for this are a lack of information.” Kovach states. “When you get passed the old myths, here are the new realities.  All types of construction – even on site building – use elements made in a factory.  Cabinets, roof trusses, lumber, all of these things are pre-cut or built in factories.  So are the appliances, the wiring of a home, etc. So the question is, are you going to assemble all of your parts on site – as so called stick builders do, or are you going to do most of your building in factory – move it to the final site and permanently install the home?  Everything is site completed, but most everything starts in a factory somewhere!  So once you get passed the old mobile home myths, it is logical to see that the evolution and future of home building in America will be based in American factories.  This also gives us a source of potential job creation that the U.S. economy sorely needs.” Kovach said.  “Great quality, durability, safety and appeal.  That’s factory building today.  You can spend more on conventional construction, but why would you want to do that when you can achieve the same or better outcome using factory building.”

“Up next, Experts Say While Important, Title 1 Only Part of Financing Puzzle, but first a message from our sponsors”

This podcast of News at Noon is sponsored in part by

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and lead-out of “Now, back to the news…”

Experts Say While Important, Title 1 Only Part of Financing Puzzle
by Industry in Focus Reporter Eric Miller

ELKHART, IN June 17, 2010—It’s a well-known fact, the manufactured housing industry is suffering from a lack of financing. To many in the know, the key to restoring its availability is 1) the full implementation of the Title I program improvements approved by Congress in the Housing and Economic Recovery Act of 2008 and 2) the implementation of Duty to Serve (DTS) underserved markets by Fannie Mae and Freddie Mac (GSEs).

Yet representatives from Fannie and Freddie were not present at a recent Housing Finance Summit on June 2 in Elkhart, Indiana, sponsored by Congressman Joe Donnelly. Moreover, many industry members were disappointed that the proposed rule to implement the DTS provision of the Housing and Economic Recovery Act of 2008 by the Federal Housing Finance Agency (FHFA) does not include either chattel transactions or land-home packages where the land and the home are subject to separate liens.

Few industry observers minimize the potential positive impact from Title I program improvements or including chattel loans in DTS; Congressman Donnelly calls it an essential component of ensuring that the manufactured housing industry remains competitive.  Meanwhile, there’s a quiet move forward for community operators to self-finance manufactured home purchases. Meeting success, major industry players are gathering data that will later be presented as evidence of positive performance to banks hoping to lure the banks into the chattel loan market.

For the time-being, availability of financing remains tight, and industry consultant George Allen says the alternative has been for manufactured home communities to take equity from their properties and function as banks. It’s an alternative a growing number of community operators are embracing. Allen points out that this market grew from a couple million dollars in loans in the late 1990s to somewhere between $3.5 billion and $5 billion in 2009.

“It’s the future, at least for the time being,” Allen says.

While owner-originated financing still represents a small portion of the over-all manufactured home market and is largely used to finance existing homes, the evidence of profitability is mounting. Currently Allen notes positive performance statistics on housing loans originated on site in manufactured housing communities are being melded together by a major but unidentified loan servicer assisted by three or four of the largest land-lease community portfolio owners in the world.

“The goal is to offset and negate lingering bad taste from the Green Tree catastrophe,” Allen says. Once a major player in the chattel loan market, Green Tree’s parent company Conseco experienced huge losses on its portfolio and filed for bankruptcy in 2002.

Allen explains how banks could be approached. “Positive performance will be made public to the right banks at the time. Then we’ll say, “Here’s what we’ve learned and here are the results. This is why you should come back into the chattel loan business.”

Some in the industry see the absence of representatives from the GSEs at the financial meeting in Elkhart as further evidence these organizations are not interested in providing chattel loans. To consultant Kenneth Rishel, this is, on the surface at least, understandable.

“Every time the government has tried to do personal-property manufactured home loans, they have lost money,” Rishel says, explaining that in his view, the reason is a failure on the part of GSEs to acknowledge that manufactured housing loans are a specialized product.

Rishel says his own company, Precision Capital Funding, hasn’t had a loss in 35 years of lending on personal property.  Rishel explains that in order to make manufactured home loans and not lose money, that top performers apply a lot of things to underwriting and servicing that the government has never applied.

“They (the FHA) don’t understand it and don’t have the knowledge to make those loans,” Rishel says. To him, as important as it is to show banks and the government that the loans can be profitable, it is equally important to help them acquire the specific knowledge how to do so.

“It’s going to require a willingness on the part of the people in the industry to spend time and money to sit down with the GSEs and teach them what they don’t know,” Rishel says, adding that the plan also would require their willingness to learn.

To industry advocates in Washington, none of that negates the importance and immediacy of implementing regulations already on the books.

“Initially, it could mean more than 20,000 homes,” says Danny D. Ghorbani, President, Manufactured Housing Association for Regulatory Reform (MHARR). “Some say up to 25,000 homes. FHA Title I implementation would help the industry and consumers tremendously.”

MHARR Senior Vice President Mark Weiss adds to that, explaining that FHA loans currently account for approximately 35 percent of total housing finance market, which to the manufactured housing industry would mean some 17,500 homes. “If we could get proper participation even up to that average level, it would make a tremendous difference,” Weiss says.

Thayer Long, Executive Vice President, Manufactured Housing Institute (MHI) also stressed the importance of implementing Title I. He pointed to a recent Harvard study that showed people are looking for less expensive, smaller homes.  That describes manufactured housing, which is well-suited to fill the needs of larges numbers of consumers, so long as they can find financing.

“Title 1 could bring more lenders into marketplace,” Long says. “Even just a three or four percent increase in the number of buyers is significant when you’re talking about 50,000 or 60,000 homes.” Long emphasizes that FHA loans are 90 percent insured, making them particularly attractive to lenders.

Tim Williams, President of 21st Mortgage, says his company is already providing financing for manufactured housing. It’s just that the cost of money is greater and because the rates are higher. As he explains it, this is because it costs the same to originate and service a loan of $50,000 as it does a loan of $250,000.

Williams says access to the GSEs’ low-cost funds could help, but so far the GSEs have ignored Congress’s DTS mandate.

Williams expects some boost when Ginnie Mae approves lenders as issuers of Title 1 loans – he expects 21st Mortgage will be one of the first – but the market impact may be modest.

“It affects only borrowers who qualify under FHA,” Williams explains. “We’re already making those loans using money that costs a little more than six percent. It will give us lower-cost money and open up the market to more customers, but it’s not going to add five percent to industry shipments.”

Ken Rishel estimates that current about six percent of loans that ought to be financed are being financed. While in terms of the entire market, those numbers are significant, Rishel notes that even a doubling would leave that number at just 12 percent.

“That still leaves a substantial percentage of potential sales that are not being financed,” Rishel says. “We still need another way to do it, and the only way I believe is owner-assisted financing.”

“We’re going to see a much greater percentage of community owners getting into community-assisted financing the right way, learning how to finance brand-new houses.” Rishel explained that while this channel is becoming more prevalent, a small but growing percentage goes to finance newly-constructed manufactured houses.

“The customer base is there,” he says; “the only thing standing in the way of industry is lack of financing.” ##

“On behalf of Production and IT Manager Bob Stovall, Editor Tony Kovach and the entire writing and support team, this is Erin Patla, G’day!”

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