As we come to the 4th of July or Independence day, I decided to carve out some time to add what I hope to be constructive ideas to the manufactured housing industry chattel lending issue.<\/p>\n
Being involved in the industry for over 25 years I have rode the shipment roller-coaster (like many of you) more than once.\u00a0 However, we cannot look to the past as our salvation for the future.\u00a0 Nor can we look to Washington D.C. for our salvation.\u00a0 Our \u201cfriends\u201d in Washington D.C. can\u2019t even balance a checkbook or a budget.\u00a0 As my kids learned in college, there\u2019s book smart (passing the tests) and then there is the real business world.\u00a0 All the studying done in college has had very little to do with their business life experiences (or so they tell me).<\/p>\n
So now what?\u00a0 While presenting my idea for the industry, I\u2019m simultaneously having a Rep. Paul Ryan-Marty Lavin moment.\u00a0 Put your idea out there and let the attacks begin.\u00a0 Even so, I still wish to share my thoughts as they may springboard (or whiteboard) the manufactured housing industry to the answer we all seek.<\/p>\n
1st – Washington D.C.<\/strong> \u2013 This is the land of unintended consequences.\u00a0 Where to start?\u00a0 Safe Act, Dodd-Frank, CFPB or TARP pick any of the alphabet soups, did they do anything for us?\u00a0 As an industry what did we do to them?\u00a0 Sure we can relive what the Green\u2019s did to the bondholders on Wall Street.\u00a0 But they were bondholders who took on a risk for a return.\u00a0 Whether it was a straight deal or not is why people charge for due diligence reporting.\u00a0 Did we cause the mortgage backed security world to implode?\u00a0 No, for that, I say look to D.C.\u00a0 Fannie, Freddie, FHA, VA and Ginny Mae all were smarter than the rest of us. They wanted homeowners, so they put programs in place to get what they wanted.\u00a0 Forget underwriting, down payments, proof of income, job verification and speculators, they wanted loans.\u00a0 Did mortgage brokers take advantage of the system?\u00a0 Yes!\u00a0 Did they write the rules? No!\u00a0 Those that are guilty of fraud should be punished to the full extent of the law.\u00a0 Our industry was and still is collateral damage.\u00a0 I guess that\u2019s what happens when you are to close too the bomb blast.<\/p>\n 2nd \u2013 Banking Institutions \u2013<\/strong> Coming originally from a bank and credit union background I understand where depositories are coming from with regard to the decisions they make for our industry. Over the years we have presented opportunities to a myriad of institutional sources of capital and over 250 said, \u201cNo thanks\u201d. The irony was, most of them actually liked the opportunity and the plan behind it. Some of the ones that said no, even said it was an outstanding opportunity and program. The ones that signed on, had some of the best results they had ever experienced with installment loans. But a funny thing happened along they way.\u00a0 The keys to the vault were hijacked from the decision makers and placed into the hands of auditors and regulators.\u00a0 Many lenders cannot make loans due to the ever-changing capitalization requirements.\u00a0 If you really want to get your banker excited, ask them what has happened to the premiums for deposit insurance from FDIC & NCUA.\u00a0 With the new lending regulation and bookkeeping (ratios) requirement ball always on the move, my lenders became deposit acquisition specialists. The TARP (Trouble Asset Relief Program) program did not live up to it\u2019s name and became a vehicle for the big banks to get bigger.\u00a0 If you are not familiar with the PNC – National City merger that alone should give anyone reason to pause.\u00a0 I know that lenders want to make loans; it\u2019s how they derive their income.\u00a0 Not every bank can go to the Fed window and play the daily swap game between Fed funds and Treasuries (Citi).\u00a0 So we are left with an under capitalized banking system (in the regulators view) that has put a lid on lending.\u00a0 Based on current economic trends, the housing market inventory (both real & shadow), the troubled alphabet soups mortgage operations and D.C. politics, I unfortunately do not see lenders running to us with bags of money for a long time.<\/p>\n 3rd \u2013 Ourselves \u2013 <\/strong>While we have been in a steady ten plus year shipment decline we cannot excuse ourselves.\u00a0 Our market has remained basically the same since I started all those years ago, newly wed and nearly dead.\u00a0 While parts of the industry have tried to morph into \u201ctraditional housing\u201d e.g. bigger is better, we still had rampant documentation fraud, blown up invoices, backbreaking advances, excessive loan terms, lot rents increasing into un-affordability and our own \u201ctrick\u201d lending programs (ersatz\u00a0 ARM\u2019s & 30 year paper).\u00a0 We are now being treated like the child we presented ourselves as to the world.\u00a0 While everyone points the finger at everyone else as the culprit we all forgot the golden rule.\u00a0 The guy with the gold makes the rules and they decided to go home.<\/p>\n Over my years in this business, I have observed several areas where the industry system consistently fails. In order for homes to hold their value, there needs to be a healthy system for resale of homes owned by homeowners, just as there is in site built housing. Unfortunately, no such system exists in manufactured housing. MLS does not support our re-sale market in most states.\u00a0 We\u2019ve talked about our own MLS for my whole career and while there have been some great attempts (for example mhvillage) we are still a second class citizens compared to the real estate market.\u00a0 By not having a re-sale market program we only hurt ourselves as our current residents cannot sell their home and, as a consequence, get mad, depressed and finally jingle mail the keys to the lender or community and leave.<\/p>\n Industry lending philosophies contribute to that problem by charging higher interest rates on pre-owned homes. Even after all my years in the business, it still stuns me to this day that we charge interest rates based on the age of the home. This does not happen in site built housing, thus giving site built an advantage, and manufactured housing a disadvantage, when it comes to the performance of the collateral from a lender perspective and investment performance of the home to everyone else. It also depresses any attempts to create a healthy system for reselling existing homes.<\/p>\n Another problem is the method in which repossessed inventory is handled. While the lenders should have a better plan than most do, many parts of the industry conspire to keep them trapped in a guaranteed to fail program. Almost every independent retailer, and many community operators treat outside finance companies like victims to be slaughtered rather than as important partners at the table. When a home is repossessed, many hands, motivated by self-centered greed are demanding money from the lender. Retailers want full profit fees to move homes onto their sales centers where they sit unsold until the lender gives up and allows the retailer to \u201csteal\u201d the home so that the retailer can then sell the home and \u201chit a home run\u201d on the lender\u2019s loss. The retailer is both short sighted and greedy in this transaction, and the lender lacks the fortitude they should have to shut the retailer off from future financing.<\/p>\n While the environment is somewhat better on the community side, it varies greatly from community to community. When Ken Rishel was a community owner, he correctly viewed outside lenders as important stakeholders. As a consequence, he saw the value of shared risks and never charged lenders lot rent, maintenance fees nor commissions for selling their repos if his people couldn\u2019t get a sale price higher than the deficiency balance on the loan. When he began to focus on outside lending, he persuaded other community owners to the same view. When I started Precision Financial with Diane years ago, we asked community owners to agree to much of the same terms and many agreed.<\/p>\n Unfortunately, those community owners are not in the majority. Most expect lenders who own homes in the community to pay tenant\u2019s back lot rent, the rent going forward until the home is sold, a commission for selling the home, and, learning from retailers, the lender\u2019s home often goes unsold, with the hope of \u201cstealing it\u201d so, they to, can hit a home run on profits when the home is sold.<\/p>\n Until everyone involved possesses either the moral integrity, or sees the business wisdom to treat all the stakeholders fairly, the system is broken. It may limp along as it has been doing, but the problems that hold manufactured housing back will remain.<\/p>\n Appraisals have also become a problem in part because of the lower prices of repossessed homes. We have loans we cannot do because they will not appraise either through comps or through NADA, or even our own proprietary system of appraisal. We are now reaping the field we sowed.\u00a0 All the wholesale homes have lowered everyone\u2019s collateral value.\u00a0 Not only have home values been depressed, but also what is happening to the community value if all the home values are 30% to 50% less and occupancy is going south?<\/p>\n Industry Image<\/strong><\/p>\n To go RV\u2019ing or not to go?\u00a0 There have been many ideas floated within the industry as to what is needed to change the public, regulator and banker\u2019s perception.\u00a0 This issue is above my pay grade.\u00a0 However, Einstein defined insanity as \u201cdoing the same thing over and over but expecting different results.\u201d\u00a0 All I know is that we have let others define us.\u00a0 It is time we define ourselves.<\/p>\n So now what? <\/strong><\/p>\n I think there are 4 plausible solutions<\/strong> for everyone to ponder.<\/p>\n 1. Everyone can subscribe to partnering with Clayton Homes<\/strong>.\u00a0 Who wants to fight Mr. Buffet?\u00a0 I have been an admirer of his for years and even own Berkshire Hathaway stock.<\/p>\n 2. Captive Finance<\/strong> \u2013 while D.C. is not making it easy, it is a stable and reliable plan for those who have the expertise, or are willing to hire the expertise they need. That it creates new challenges is undisputed because, done correctly, it requires a whole new set of business skills that few community owners or retailer possess. Done incorrectly, it is a disaster waiting to happen. It is not a short-term solution, but rather a long-term one that almost demands affiliations with outside experts to succeed.<\/p>\n 3. Current lenders \u2013<\/strong> Be sure to take care of the ones left.\u00a0 They have been with us through the darkest of times.\u00a0 Take care of them today and they will be here tomorrow to take care of us.<\/p>\n 4. Lastly, a new idea. <\/strong> While not a new idea, as it served its purpose in the past for another industry and may well serve a purpose for us.\u00a0 I\u2019m talking about a manufacturer based captive lending program.\u00a0 While it carries risk, it also carries a stick.\u00a0 If you\u2019ve never been involved in an auto dealership that had a sizeable portfolio with GMAC, Ford or Chrysler you do not understand the size of the stick the manufacturer captive lender holds.\u00a0 If you loaded them up with poor-bad paper and cause high losses, it could cost you your dealership franchise.\u00a0 No one wants to risk that decision.\u00a0 In the beginning, before the automobile captives became market share driven, they would only finance their own products and were the most profitable arm of the entire company.\u00a0 Our company has been researching this concept for a number of years, and we are in a position to help make this happen if a group of manufacturers would actually sit down in the same room and band together to make it happen. To this point, there have been no takers. Their dislike and mistrust of each other seems to color their survival instinct.<\/p>\n In the end, from my point of view, lending is about the 4 C\u2019s:<\/p>\n Capacity<\/strong> \u2013 Can they afford the purchase without strain? Will that income continue? The federal government controls none of these traits.<\/p>\n If you have made it this far, thank you.\u00a0 Will any of these ideas help?\u00a0 I hope so.\u00a0 If anything, at least a conversation may start. Years ago when people asked me what I thought, I told a few and they thought I\u2019d lost my mind. When I investigated the current D.C. promulgations, people again thought I\u2019d lost my mind.\u00a0 After awhile you begin not to speak up.\u00a0 I was hoping the whole time that I was wrong.\u00a0 Oh, I wanted to be so, so, wrong.\u00a0 To Marty Lavin, I want to wish you well and treasure all the things I learned from you. They painted you, Gubb Mix, Ken Rishel and I with the same brush; only they have been far harder on you than the rest of us.<\/p>\n I asked my dad one time to try and fix my golf swing.\u00a0 His advice after watching me was that there are 1,000 things going on in my swing and where would I like to start.\u00a0 Our industry has many things it can improve on.\u00a0 We need to start.\u00a0 We still have and always will have the best affordable housing option story to tell people. # #<\/p>\n By Pat Curran, President As we come to the 4th of July or Independence day, I decided to carve out some time to add what I hope to be …<\/p>\n
\nCharacter <\/strong>\u2013 Would their word and their handshake be enough to make the loan?
\nCollateral<\/strong> \u2013 Are the ATF & LTV viable for the terms and conditions of the loan
\nCredit<\/strong> \u2013 Have they proven they have the self-control to manage their money and do they feel responsible for paying their bills on time?<\/p>\n
\nPrecision Capital Funding<\/p>\n","protected":false},"excerpt":{"rendered":"