{"id":639,"date":"2011-07-15T13:25:51","date_gmt":"2011-07-15T18:25:51","guid":{"rendered":"http:\/\/www.manufacturedhomepronews.com\/industryvoices\/?p=639"},"modified":"2011-07-15T16:33:46","modified_gmt":"2011-07-15T21:33:46","slug":"conspiracy-or-inaction-which-is-to-blame-2","status":"publish","type":"post","link":"https:\/\/www.manufacturedhomepronews.com\/industryvoices\/conspiracy-or-inaction-which-is-to-blame-2\/","title":{"rendered":"CONSPIRACY or INACTION: Which is to blame?"},"content":{"rendered":"

by Martin V. (Marty) Lavin
\n<\/strong><\/p>\n

Our Friend<\/strong><\/p>\n

Ah, finally, I was intent on reviewing the innumerable documents, which built up on the computer I had used for several years.\u00a0 As I scanned the dozens, no hundreds of files in my documents, I came upon some, which stirred memories.\u00a0 Probably none more than R. C. \u201cDick\u201d Moore\u2019s \u201cPerspective #61\u201d of July 18, 2008.\u00a0 Mr. Moore, as most know, is a longtime MH retailer and community owner.\u00a0 As the spirit moves him, he puts out an occasional newsletter, Perspective.<\/p>\n

And what was this memorable missive all about?\u00a0 Well it was a fairy tale about a mysterious \u201cfriend up east\u201d who had MH powers similar to Superman, able to unite the GSE\u2019s, (Fannie Mae and Freddie Mac), Clayton Homes and maybe even Citibank, and Warren Buffett himself, in an effort to stifle all competition for chattel retail lending to the industry.\u00a0 Wow!\u00a0 Strong stuff indeed.<\/p>\n

The gist of the tale is that our \u201cfriend\u201d was paid by the GSE\u2019s to advise them \u201cnot to buy MH paper.\u201d\u00a0 This would also lead to Citibank \u201cpulling the rug\u201d on Origen Financial and Palm Harbor.\u00a0 Then, as all competition is wiped away, Buffett borrows $2 billion in the market which he deposits in the account of the Clayton Homes\u2019 lenders, Vanderbilt Mortgage and 21st<\/sup> Mortgage. \u00a0While the story didn\u2019t as much as make the back page of the Wall Street Journal, I hear Hollywood is interested enough in the story so they\u2019ve spoken to Brad Pitt to play \u201cour friend up east.\u201d<\/p>\n

Who is He<\/strong>!<\/p>\n

Since \u201cour friend\u201d goes unnamed in the several other Moore Perspectives with stories which mention him, there has been substantial speculation on who \u201cour friend up east\u201d is.\u00a0 Presumably with all the players involved in the alleged scenario, this has got to be one powerful S.O.B.\u00a0 Who could it be to wield such power?\u00a0 It\u2019s not Warren.\u00a0 He\u2019s \u201cour friend from Omaha.\u201d<\/p>\n

Some came forward during this series of Perspectives and had the gall to suggest that I, the writer herein, was the powerful and mysterious \u201cfriend up east.\u201d\u00a0 They have also suggested that Brad Pitt is a good semblance of Marty, and would be perfect for the starring role in the movie, or TV miniseries.\u00a0 Well, I\u2019m obviously flattered but can I be the mysterious, unnamed \u201cfriend up east.\u201d\u00a0 As H. Ross Perot said, let\u2019s go to the chalkboard to figure this out.<\/p>\n

The first clue is that \u201cour friend\u201d has been paid by Fannie Mae and Freddie Mac to \u201cadvise them not to buy MH loans.\u201d\u00a0 That assertion is partially right.\u00a0 I did advise Fannie Mae for a number of years on many matters MH, especially about retail chattel lending.\u00a0 Other than informal, unpaid conversation, which we all have with others, I did not work for or with Freddie Mac.\u00a0 Nice people and all, but I never did have that paid assignment there.\u00a0 Too bad.<\/p>\n

No Secret<\/strong><\/p>\n

Parenthetically, my assignment with Fannie Me was never secret, no attempt was made to hide it, by either side, and I always had the assignment on my resume on my web site.\u00a0 So, if I am \u201cour friend up east,\u201d Mr. Moore, who writes that he uncovered that \u201cour friend\u201d was being paid to advise the two GSE\u2019s \u201cabout MH paper,\u201d that \u201csecret\u201d information was hiding in plain sight on my web site.\u00a0 Best place to hide is in plain sight, they say.\u00a0 And while I counseled caution in buying MH loans, based on MH loan portfolio experience, I never counseled anyone not to buy any<\/em><\/strong> loans, only those likely to cause alimentary canal back up.\u00a0 But that doesn\u2019t establish me as \u201cour friend up east,\u201d does it?<\/p>\n

A second allegation is that \u201cour friend\u201d and the Clayton folks were dining together.\u201d\u00a0 Well, yes Kevin Clayton is a longtime friend of mine, I\u2019ve dined with him contentedly many times, including once in D.C. when I went to the hopper late in the dinner and Kevin managed to convince me when I returned that I had lost in a game to determine who got the check for the night\u2019s dinners.\u00a0 Since it was a very large group with lots of big eaters and drinkers the tab was well over $1,000.00.\u00a0 I\u2019d have paid, but . . . . Kevin had the last laugh, he intended to pay all along and he did.\u00a0 Good boy.<\/p>\n

Global Heart Burn<\/strong><\/p>\n

I must admit I did have dinner one night in Omaha, Nebraska with the Clayton folks during the Berkshire Hathaway annual meeting.\u00a0 Kevin had invited me out as a guest and I was invited to dinner by Keith Holdbrooks of Southern Energy Homes, a Clayton subsidiary, and a whole host of Clayton \u201cBig Shots\u201d were there.\u00a0 What was discussed at the table that night?\u00a0 The only memorable discussion I recall is that the table of 12 or 14 people all believed in the myth of man-made Global Warming, except OleMartyBoy, who tried to hold his ground.\u00a0 With religious fervor the group accused me of my disbelief as though I was skeptical of the Immaculate Conception, an uncomfortable situation for all.\u00a0\u00a0 Since that 2008 dinner my vindication is nearer.\u00a0 But still, every American has the right to an opinion, even an uninformed one, and there are plenty around these days.<\/p>\n

So the \u201cdining with Clayton folks\u201d can\u2019t be used against me, unless we were discussing how man-made Global Warming could be used to de-stabilize MH chattel lending.\u00a0 Can it?\u00a0 Some would have you believe it can and perhaps that explains the religious fervor at the table that night.<\/p>\n

Conspiracy Theory<\/strong><\/p>\n

So why do I go on about this?\u00a0 Certainly Mr. Moore is not the only MH figure to write about an industry conspiracy.\u00a0 The estimable George F. Allen, one of MH\u2019s brightest stars, has often brought up the possibility of a conspiracy.\u00a0 And of course, the conspiracy always centers around Berkshire Hathaway and Clayton Homes.\u00a0 Fleetwood, Palm Harbor and Oakwood go unmentioned.\u00a0 The conclusion being that the reason Clayton Homes is the best of what\u2019s left is conspiracy related.\u00a0 The strong management there, excellent home lines, disciplined retail lending by two of their companies, and the fortuitousness of being owned by cash rich Berkshire Hathaway, apparently account for nothing.\u00a0 Would or could Clayton Homes be brought down to Earth if their financial backing disappeared?\u00a0 Perhaps.<\/p>\n

And finally, yes I do live in the \u201ceast,\u201d Burlington, Vermont, being far east and regrettably, far north.\u00a0 But let\u2019s go back to the chalkboard and look at facts, not conjecture.\u00a0 Here are some of the various facts to be considered to explain the industry slide.<\/p>\n

    \n
  1. The packages of chattel loans originated and sold into the ABS market from 1995 to 2003 are amongst the very worst loans of any type<\/em><\/strong> ever sold to investors.\u00a0 If sub prime real estate is a problem, and it is, MH ABS paper is the Uber King-of-Sub Prime.\u00a0 Investors are loath to touch these MH ABS offerings, to this day.<\/li>\n
  2. While the industry has severe operating model deficiencies, little has been done by the industry to shore up these deficiencies.\u00a0 Get the same liquidity to the industry it enjoyed in 1995-1999 and securitize these loans, and the result would still be bloody.\u00a0 Far too little has changed to make much difference.\u00a0 And investors not always being stupid, know this.<\/li>\n
  3. The MH industry is not seen as important enough by government to subsidize its loan losses.\u00a0 It has been prepared to do so with conventional housing, but not chattel MH lending.\u00a0 Scream about it if you will, but that\u2019s the way it is.<\/li>\n<\/ol>\n

    Subsidy Withdrawn<\/strong><\/p>\n

    So, how much easier it is to cry conspiracy than to accept that from 1950 to 1998, when the music stopped, the success of the industry has constantly been subsidized by lenders?\u00a0 When that subsidy was withdrawn in the late \u201890\u2019s-early 2000\u2019s, the industry tanked.\u00a0 Yet, I still hear from many \u201cit worked for 30 or 40 or 50 years.\u201d\u00a0 Worked for whom, I might ask?\u00a0 It did not work for the lenders, so most have left.<\/p>\n

    This brings us to the present, with 2011 expecting between 40-50,000 new home shipments, a continuation of a slide of 90% since 1998.\u00a0 This is serious, right?\u00a0 Yet the industry response has been anything but serious.\u00a0 Most industry response has centered around Washington, D.C. activity.\u00a0 How\u2019s that working for us?<\/p>\n

    The question for some would be how to return to the 1974-1995 trend line of about 240,000 new home shipments per year.\u00a0 This avoids the 1969-1973 bulge, during which we averaged 477,000 home shipments per year, and the 1996-1999 period when we were over 300,000 homes.\u00a0 You know the record since 1998.<\/p>\n

    Whence the Volume<\/strong><\/p>\n

    Let\u2019s look at this return to a much larger industry size for a moment.\u00a0 One would think that given the facts we know, the 40-50,000 home shipments might be \u201cwhere it\u2019s at\u201d into the future.\u00a0 Baring any new flood of \u201cloose\u201d retail lending money, how do we get back to 250,000 homes annually, or even to the 2004-2007, 125,000 homes, give or take?\u00a0 We can depend on FEMA for some homes, floods, disasters and hurricanes willing, but not too many.\u00a0 The LLC\u2019s would like to buy new homes, but their forays there with buy here \u2013 pay here have not created profit enthusiasm for this model.\u00a0 Thus we can\u2019t expect much new home volume there.\u00a0 Retail chattel lending is very constricted, so retailers are unlikely to help with volume.<\/p>\n

    Title I, the former \u201cgreat hope\u201d has proven to be a volume dud, not surprisingly so.\u00a0 Most non-Clayton retail lenders have to stay on the positive side of 700 FICO to survive.\u00a0 Can\u2019t look to them for much volume, eh?<\/p>\n

    The Berkshire Group goes deeper, but they ain\u2019t Greenseco re-incarnate.\u00a0 Only their disciplined lending and strong servicing culture and yes, experience, makes it all work.\u00a0 They are not about to pump out $6.3 billion in MH loans as Conseco Finance did in one year around 2001-02.\u00a0 I would guess if the two Berkshire lenders got to $2 billion combined <\/span><\/span>annually that would be a wondrous job.\u00a0 So even there, not too much excitement either.<\/p>\n

    This leaves real estate placements of HUD\u2019s, a long cherished dream to go against the site built industry and whip their azz.\u00a0 We know that isn\u2019t about to happen, no matter how fervent our dreams.\u00a0 New \u201ceasy\u201d lenders coming to the rescue?\u00a0 Perhaps.\u00a0 Have you tried to finance anything in your personal life recently?\u00a0 If you have you well know the absolute difficulty of any sort of success.\u00a0 Add in our depreciating asset, the manufactured home, and generally scratch and dent credit capability for most of our buyers, and the hope of a new lender exploding on the scene seems demented.\u00a0 But hey, we all live in hope.\u00a0 Remember, Tarzan always said, as he went in and out of terrible scrapes, \u201cWhere there is life, there is hope.\u201d\u00a0 Amen.\u00a0 Just don\u2019t plan your entire business on the return of Conseco, CIT Group, The Associates, Green Point Credit and the others, though heaven knows their return could carry on long enough to shore up my retirement.<\/p>\n

    Regulatory Guillotines<\/strong><\/p>\n

    Unaddressed yet are the new laws affecting lending and the new consumer agency.\u00a0 I can only make one comment here.\u00a0 When was the last time you encountered very complex lending laws, licensing requirements, and a super consumer agency which fueled a burst of sales activity for you?\u00a0 In my time in the industry since 1972, I\u2019ve seen none.\u00a0 Perhaps the impact of many new laws, such as the very HUD code itself were overstated, but without the HUD we were shipping up to 580,000 homes per year.\u00a0 Have you seen that many since in one year?<\/p>\n

    My best guess, and it is only an experienced guess, is that the industry will not be able to roll back the requirement that most industry transactions will come under the purview of one or more of these regulations, will control transactions, and will cause another reduction in HUD volume.\u00a0 Even as the industry struggles with ways to avoid their prohibitions, the impact is most likely to be substantial.\u00a0 I do surely hope I\u2019m wrong.<\/p>\n

    And what will be the impact of LLC owners extending their own financing for the sale, or rent with option for homes in their communities?\u00a0 Again, like everything, things not done during good times but becoming a fallback during bad times usually have warts on them.\u00a0 Self-financing may well be a necessity, and I readily accept that.\u00a0 If you have an LLC with substantial vacancy and the normal financing available will not fill it, one must save themselves, and self-financing, properly executed, can do that.\u00a0 But, it does not speak to the substantial work and personnel necessary to make it work, the need for your own capital, the ever-decreasing used homes availability, the specter of violating some arcane lending law, and not least, a liquidity crunch which would drive one to try to cash out their loans and find there are no buyers or only buyers with a huge 80-90% haircut in value.\u00a0 Some deal.\u00a0 Pay attention here.<\/p>\n

    LLC Fallback<\/strong><\/p>\n

    So one can\u2019t help but think that as the LLC sector, perhaps the most vibrant and last to fall goes through a contraction in numbers, that only well-located communities with a value component to their offering will weather the storm.\u00a0 It has been happening already, as the supply of used homes dries up, and new homes are found wanting for self-finance, the corn fields which became communities may be headed back to corn fields or for other use.\u00a0 Wal-Mart, anyone?<\/p>\n

    If you struggled through reading my \u201cSaving Chattel Lending\u201d you had to ask yourself, \u201cCan it be this hard, Marty?\u201d\u00a0 I surely ask myself the same question each time I prepare one of these papers.\u00a0 If it\u2019s going to be this hard, where does one start, and of the umpteen cures I recommend, which are the five most important?\u00a0 Answer:\u00a0 I don\u2019t know.\u00a0 Second answer:\u00a0 Note that virtually none of my suggested measures have been tried.\u00a0 The only change in the industry financing model, which is \u201cthe\u201d defect, is that we\u2019ve gone from \u201cfogging a mirror\u201d to 700 plus FICO, real credit capability, a completed application, full and adequate documentation and a belief the borrower is qualified in every way to get the loan and pay for the home successfully thereafter.\u00a0 That is the quantum industry leap, which has occurred, and it certainly increases lender survivability, but has destroyed lender and industry new home volume.\u00a0 Want to increase home sales volume?\u00a0 Find a way to attract many more folks with better credit.\u00a0 Stop building many new HUD code homes and selling them and what do you think the outcome will be for most industry segments?<\/p>\n

    So I come back to an industry conspiracy.\u00a0 This all has to have happened because a mysterious, unnamed \u201cfriend up east\u201d used his magical powers to convince some very large, knowledgeable lenders to quit MH chattel lending to throw all the volume to just a few special lenders.\u00a0 Now if only that powerful friend can get SACU, Triad, and USBank to leave the industry, that will be the final step in the conspiracy.<\/p>\n

    Come Now<\/strong><\/p>\n

    Speaking from atop the \u201cGrassy Knoll,\u201d I\u2019d feel better if the industry might look at the known factors, which have brought the industry to its knees, and worked hard to Saving Chattel Lending.\u00a0 Believing in \u201cThe Conspiracy\u201d may let you off the hook of having to do anything, but will do nothing in resurrecting the industry.\u00a0 It will take far more than conspiracy theory to do that. \u00a0# #<\/p>\n

    Martin V. (Marty) Lavin
    \nattorney, consultant, expert witness<\/em>
    \npractice only in factory built housing<\/em>
    \n<\/em>350 Main Street Suite 100
    \nBurlington, Vermont 05401-3413
    \n802-660-9911, 802-238-7777 cell
    \nweb site: www.martylavin.com<\/a>
    \nemail     mhlmvl@aol.com<\/a><\/p>\n

    Editor\u2019s Note:\u00a0 As with Mr. Lavin\u2019s earlier articles, we have honored his request to post his article \u201cas is.\u201d\u00a0 Read his other articles:<\/em><\/p>\n