MAY 6, 2011
by Danny Ghorbani — Capping a process that began a decade ago with an MHARR Petition for Rulemaking, HUD has published proposed revisions to its Subpart I notice and correction regulations. That proposal, which is the subject of comprehensive MHARR comments, presents, at best, a mixed bag. While it incorporates certain positive elements of MHARR’s 2001 proposal to overhaul Subpart I, as well as the consensus recommendation of the Manufactured Housing Consensus Committee (MHCC), the HUD proposal, ultimately, falls short again in reforming a regulatory structure that is inappropriate for housing, unfairly targets manufacturers and is inefficient and needlessly costly for homebuyers.
Right off the bat, let’s be clear, Subpart I is an outdated relic that is inappropriate for manufactured housing, as legitimate housing, supposedly at parity with other types of homes and other segments of the housing industry. An artifact of an earlier era when manufactured homes were relegated to the status of “trailers” and treated as a type of specialty vehicle, it unfairly implies, by its very existence, that manufactured housing is inferior to other types of housing, helping to fuel and compound discrimination against manufactured housing in critical areas such as consumer financing, placement and zoning. HUD could — and should — have remedied much of this if it had, over the past 10-plus years, fully and properly implemented key reforms of the 2000 law designed to ensure the status and parity of manufactured homes as legitimate housing. But, as every industry member knows, this has not happened, and the resulting discrimination has crippled the industry over the past decade.
Subpart I implements section 615 of the original 1974 federal manufactured housing law, which itself was derived from — and based upon — the federal safety law for automobiles, the National Traffic and Motor Vehicle Safety Act of 1966 (NTMVSA). With this vehicle-based heritage, it is not surprising that the 1974 law, through section 615, effectively provides for the recall of manufactured homes, in much the same manner that NTMVSA provides for the notice and correction of certain defects found in motor vehicles. Subpart I, adopted in 1976 and maintained by HUD without substantial amendment since, establishes specific mandates and procedures relating to such “recalls” of manufactured homes.
In the intervening 35 years, however, manufactured housing technology, materials and construction techniques have significantly advanced, while the utilization of manufactured housing has changed as well. Today, the vast majority of manufactured homes are never moved once they are sited at a particular location. This tracks the corresponding growth and sophistication of the typical manufactured home, to the point that over the past decade, up to 80% of the manufactured homes sold in a given year have been multi-section, with an average of nearly 1,800 square feet of floor space.
Recognizing these profound changes, Congress, in the Manufactured Housing Improvement Act of 2000, enacted specific reforms designed to bring an end to discrimination against manufactured housing as “trailers,” to more appropriately protect manufactured housing consumers as homebuyers, and to ensure the parity of manufactured homes as legitimate housing. Consequently, Congress, among other things, provided for: (1) manufactured housing installation standards and enforcement programs in all fifty states; (2) a consensus process for the development, interpretation and revision of the federal standards and regulations; and (3) a consumer dispute resolution system in all fifty states, with the authority to enter orders against manufactured home producers, retailers and installers — above and beyond the protection of the standard one-year warranty and optional extended warranties provided by manufacturers.
Thus, while the 2000 law did not expressly repeal section 615, it established new, cost-effective, multi-level and multi-party homeowner safeguards — appropriate to housing — that warrant a more flexible and less onerous approach to Subpart I than has been the case since 1976. The HUD proposal, however, ignoring these reforms, as the program has done in other contexts, falls far short of the reform that is necessary and urgently needed, as it rejects the central premise of both the 2001 MHARR reform proposal and the June 2005 consensus recommendation of the MHCC — that in light of the changes enacted by the 2000 law, it is inappropriate to hold manufacturers solely responsible for any and all non-compliances and “defects” found in a home, for all time, regardless of when the defect was introduced, who introduced the defect, or how it was introduced.
This forces HUD to engage in tortuous logical contortions in an effort to reconcile sole manufacturer responsibility under Subpart I with multi-party dispute resolution under the 2000 law. Ultimately, however, that effort fails, leaving manufacturers exposed, potentially, to regulatory liability traps and other inconsistencies that are inappropriate and indefensible in a program with the power to impose criminal penalties.
Thus, while elements of the proposed rule that are based on MHARR’s 2001 Subpart I reform proposal and the MHCC June 2005 consensus recommendation, including: (1) a “likely exists” standard for manufacturer determinations; (2) a longer time period for manufacturer determinations; (3) elimination of undefined terms such as “problem” and “failure to conform;” and (4) the inclusion of a “good faith” element for manufacturer determinations that can be considered in determining penalties, are positive and will improve Subpart I overall, the HUD proposal — beyond rejecting the concept that regulated parties should be held accountable for defects that they cause — is flawed in that, among other things, it: (1) leaves the “possible existence” of a defect as the standard for HUD and SAA Preliminary Determinations; (2) deletes the current transit damage exemption; (3) deletes the concept of defects introduced “during the course of production;” and (4) mandates a costly new “periodic” IPIA review of all Subpart I records maintained by a manufacturer.
All of these points are fully addressed in comments submitted by MHARR that urge HUD to go the last step toward true Subpart I reform in the final rule that it ultimately publishes. HUD’s response will tell a great deal about its respect — or lack thereof — for an industry that provides the best affordable housing available to homebuyers today.
In MHARR’s view, therefore, HUD’s proposed Subpart I rule falls well short of the Subpart I reform that is sorely needed, and leaves much more still to be done.
Danny D. Ghorbani is President of the Manufactured Housing Association
for Regulatory Reform. MHARR is a Washington, DC-based national
trade association representing the views and interests of producers of federally-
regulated manufactured housing.