The Big Picture on GSE Reform and Manufactured Housing
With much of the industry focused on the implementation of the Dodd-Frank financial reform law and the impact of pending Consumer Finance Protection Bureau (CFPB) regulations on existing sources of manufactured home financing (an effort that MHARR fully supports), a broader, farther-reaching and ultimately more significant debate over the future of the Government Sponsored Enterprises (GSEs) the role of the federal government in the home finance markets and the availability of home financing is beginning to play-out in Washington, D.C. The danger for the industry and the American consumers of affordable housing as this debate unfolds is that manufactured housing, with the industry’s attention focused elsewhere, could be left out in the cold, absent from a much larger policy discussion, where a basic – and potentially problematic — consensus already appears to be emerging.
In the House of Representatives, the Financial Services Committee has held ten hearings on the future of home financing and a path forward from the currently-insolvent taxpayer-supported GSEs toward “a sustainable national housing policy.” At the most recent such hearing on June 12, 2013, the Committee Chairman specifically emphasized that the implementation of the Dodd-Frank law on the one hand, and “big picture” GSE reform on the other, are two completely separate issues, stating: “Regardless of its relative merits, Dodd-Frank was silent on Fannie and Freddie. Silent as to the existence of a government sanctioned duopoly that was at the epicenter of the [housing] crisis. Silent as to their cooked books. Silent as to a system where Wall Street investors offloaded their risk onto Main Street taxpayers…. Thus, the task of reforming them falls upon us.”
The issue facing both Congress and the Administration, therefore, is the nature of that “reform.” Fortunately, with three bills currently being developed in the Senate – and one in the House – there appears to be an emerging consensus, in terms of broad policy, within Congress and between Congress and the Administration about the future character, nature and scope of government involvement in home financing. Under that emerging consensus, a successor structure to the GSEs would involve a “risk-sharing” combination of private and public guarantees in order to return to the original mission that led to the formation of the GSEs in the wake of World War II – helping credit-worthy middle Americans and especially first-time borrowers, purchase a home that they can truly afford — the same segment of the population from which the vast majority of manufactured homebuyers are drawn. Unfortunately, though, none of these developing bills specifically address manufactured housing and, more particularly, the need for appropriate support for manufactured home personal property (chattel) lending, which currently finances the bulk of the industry’s production (in excess of 70% according to Census Bureau data) and is in demand by moderate and lower-income families as the best means of access to the industry’s most affordable homes.
The emerging “big picture” consensus, meanwhile, is reflected in recent comments from both Congress and the Administration. Thus, at the June 12, 2013 Financial Services Committee hearing, the Chairman said: “Clearly all Americans want a … fair opportunity to buy a home they can actually afford to keep. It is clearly time to displace a system of false hopes and broken dreams which have arisen from misdirected government policies and subsidies that regrettably incented, browbeat, or mandated financial institutions to loan money to people to buy homes they all too often could not afford.” Similarly, President Obama recently declared that government housing finance policies need to focus on “helping… Americans who work really hard [and] play by the rules day in and day out to provide for their families.” Consistent with this philosophy, the Administration has made it clear that the days of the GSEs subsidizing ever-larger home loans for wealthier Americans — or those in over their heads — are over. Instead, the evolving second-term housing policy of the Administration is focused on returning the GSEs’ successor(s) to their original and economically vital mission of helping decent, hard-working, credit-worthy Americans who pay their bills, and especially first-time borrowers, own a home that they can truly afford – precisely the type of homebuyers who are served by affordable manufactured housing and need expanded access to reliable, high-volume sources of financing.
With this emerging philosophical consensus, it is essential that the segment of the industry most directly and immediately affected by such big picture changes – i.e., the post-production sector (retailers, communities, finance companies, insurance providers, etc.) – be fully engaged in the process that will ultimately determine the future of home lending in the United States — especially as it pertains to secondary market support for manufactured home chattel lending.
MHARR is currently preparing an analysis of this rapidly developing issue that will provide a basis and suggested path for action by the industry and consumers of affordable housing to bring an end to financing discrimination against the nation’s most affordable source of home ownership.
HUD Program Budget Should Increase SAA Funding
As Congress works on a potential 2014 federal budget, MHARR has communicated with the HUD appropriations subcommittees in both houses and has responding to specific questions regarding aspects of the proposed 2014 HUD manufactured housing program budget.
While the program budget, under much closer congressional scrutiny in recent years, has declined substantially from the $14 million requested by regulators as recently as 2011, the 2014 HUD request of $7.53 million nevertheless represents an increase of more than $1 million over the $6.5 million funded in 2012 (albeit slightly less than the $8 million requested in 2013). As part of this total, HUD is seeking a direct appropriation of $1 million – a reduction from the $2.5 million direct appropriation authorized in 2012 – but has indicated that in 2014 it will propose an increase in the label fee from the current $39 per section, to $100.00 per section.
Responding to congressional inquiries regarding the overall budget and specifically the proposed label fee increase, MHARR has been consistent in maintaining that the issue is not whether the label fee should be changed, but what is done with that additional revenue based on relatively low industry production levels. Thus, MHARR has indicated that funding allocations within the program should be closely scrutinized by Congress, as they continue a regulatory model that relies too heavily on contractors – fueling over-reach and regulatory excesses that do nothing to benefit consumers — while HUD’s state partners, the State Administrative Agencies (SAAs), funded through label fee allocations, are starved for operating revenue and face the constant threat of elimination by budget-conscious state governments.
Specifically, although the proposed budget reduces funding for the main monitoring contract from $6 million in 2013 to $4 million in 2014, there is no justification offered for maintaining even that level in the face of current production levels. Moreover, the 2014 budget allocates $1.5 million to an installation “inspection and enforcement” contract and $500,000 to a “dispute resolution enforcement” contract with – (1) no assurance that those contracts will be awarded to contractors that are “separate and independent” from other program contractors (such as the monitoring contractor) as required by the Manufactured Housing Improvement Act of 2000; and (2) no justification for the specific amounts requested. This is particularly true for the consumer satisfaction program, where available information indicates that the number of referrals to the HUD-administered federal program have been minimal.
By contrast, program funding for the SAAs, under the 2014 proposal, will remain locked-in at the same $3.3 million allocated in both 2013 and 2012, even though the SAAs — as the first-line of consumer protection and response under the HUD program – and unlike program contractors, are responsible for an ever-growing number of homeowners living in both new and existing HUD Code homes.
Accordingly, MHARR has urged Congress (again) to review these allocations and proposed expenditures for their necessity, justification and appropriateness, and more importantly, the need to provide additional funding to HUD’s state partners – as planned and intended by Congress in the original 1974 manufactured housing law — while further reducing funding levels for contractors
New Windstorm Legislation Underscores Need For MH Protection
With a boost from recent natural disasters, two bills have been introduced in Congress that would re-authorize and amend the National Windstorm Impact Reduction Act of 2004. The original 2004 law established a federal inter-agency working group and program – led by the Federal Emergency Management Agency (FEMA) — to achieve “measurable reductions in losses of life and property from windstorms … through a coordinated federal effort aimed at improving the understanding of windstorms and their impacts and developing and encouraging the implementation of cost-effective mitigation measures to reduce those impacts.”
Recognizing then that “mitigation measures” developed by the “working group” could be incorporated within the HUD Code without proper consideration of all the factors required by applicable law – including the unique construction and affordability of manufactured housing, as well as federal preemption and the performance character of the HUD Code – MHARR and MHI (acting as the Coalition to Improve the Manufactured Housing Act), beginning in 2001, successfully pursued the inclusion of an exception for federally-regulated manufactured housing in the 2004 law. That exemption (codified at 42 U.S.C. 15705) provides that no measure developed by the inter-agency working group can apply to federally-regulated manufactured housing without first going through the consensus and rulemaking procedures established by the 2000 reform law.
The importance of this manufactured housing exception – which MHARR will continue to monitor because of the potential that it could be amended, altered, or even repealed in the final version of any new legislation passed by Congress — is highlighted by substantive changes that the current pending bills would make to the original law. Most importantly, the primary responsibility of the working group, under the 2013 re-authorization, would become even more regulatory in nature, with new language stating that the program director: “shall ensure that the program … promote[s] the implementation of windstorm risk reduction measures by federal, state and local governments, national standards and model building code organizations, architects and engineers, and others with a role in planning and constructing buildings….” Similarly, the National Institute of Standards and Technology (NIST), an agency that has been critical of manufactured housing in the past, is designated as the “lead agency” for the working group. Consequently, the hard-earned MHARR-MHI 2004 exemption language must be retained in order to protect the industry and consumers of affordable housing against the potential imposition — by fiat — of recommendations emerging from the working group.
EPA Publishes Proposed Formaldehyde Standards
As MHARR has reported previously, the Environmental Protection Agency (EPA), on June 10, 2013, published long-awaited proposed rules concerning formaldehyde emissions from composite wood products. The two proposed rules would establish federal standards for formaldehyde emissions from certain defined composite wood products, as well as a framework for a third-party certification program for composite wood product producers.
The proposed EPA rules are designed to implement the Formaldehyde Standards for Composite Wood Products Act, which was signed into law on July 7, 2010. That law – passed after a coalition of special interest groups petitioned EPA in 2008 to regulate formaldehyde emissions from composite wood products under the Toxic Substances Control Act — directed EPA to establish federal formaldehyde standards and related enforcement mechanisms for hardwood plywood, particleboard and medium-density fiberboard that are identical to standards already adopted and enforced by the California Air Resources Board (CARB). Under the EPA proposal, enforcement of the new federal standards, at the component supplier level, would begin one year after publication of the final standards rule in the Federal Register.
MHARR will now thoroughly review each of these proposed rules for their potential impact on manufactured housing, with a particular emphasis on cost-related issues and potential unintended consequences — and will submit appropriate comments to EPA on behalf of HUD Code industry manufacturers. Similarly, the MHCC should review these proposed rules to assess their potential impact on manufactured housing and consumers, and submit appropriate comments if warranted.
Comments on both proposed rules are due on or before August 9, 2013.
MHCC Stagnation Continues
Despite HUD program assurances of a more regular schedule of in-person and telephone conference call meetings – including a projected meeting for the Spring of 2013 – the Manufactured Housing Consensus Committee (MHCC) remains essentially moribund, with no new full Committee meetings, and only one subcommittee conference call meeting, following its October 2012 session in Washington, D.C. And, as of the publication date of this Update, no new Committee or subcommittee meetings are scheduled for the immediate future.
The stagnation of the MHCC, following a three-month lapse in administering organization services during 2012, and with multiple new and impending issues that should and must be considered, including, but not limited to: lumber reference standards; approvals for hinged roofs; EPA formaldehyde standards; formaldehyde product testing; air inlet and vent separation; and toilet seat certification, among others, is unacceptable and represents yet another HUD tactic to downgrade the role, authority, independence and functionality of the MHCC consistent with its institutional resistance to the full and proper implementation of the 2000 reform law over the past decade-plus.
This specific effort by HUD regulators to minimize the MHCC through inactivity and other devices needs to be an element of the investigation of the federal program by the Government Accountability Office (GAO), given the fact – as MHARR has made clear in its engagement with GAO officials — that the role and functionality of the MHCC was identified as a key point of inquiry by Congress in its written investigation referral to GAO. More importantly, though, it demonstrates, once again, the urgent need for an appointed non-career program administrator in accordance with the 2000 law to ensure, among other things, that the program fully complies with all reform provisions of that law, including proper consultation and interaction with the MHCC. Toward this end, MHARR and MHI jointly requested, at a May 22, 2013 meeting in Washington, D.C. that Indiana Senator Joe Donnelly personally intervene with the HUD Secretary to seek the appointment of an appropriate candidate as well as the appointment of collective industry representatives to the MHCC. The stagnation of the MHCC, however, is a perfect example of why these appointments are such a high priority for both national industry associations.
RV Exemption – Via Definition – In The Manufactured Housing Law
Since reporting in the April 19, 2013 MHARR Washington Update on an effort by recreational vehicle (RV) interests to expand the current limited exemption for “self-propelled” RVs contained in the federal manufactured housing law – inserted in 1999, via the appropriations process — MHARR continues to receive numerous inquiries from industry members regarding this issue. From those inquiries as well as reports in the trade press and information obtained from other sources, it is apparent that there remains a great deal of misunderstanding and confusion within the HUD Code industry and among RV interests regarding the history and background of this matter, as well as the potential impacts of an expanded RV exemption.
In an effort to clarify the issues related to the RV exemption — and provide RV interests with the benefits of its institutional memory and knowledge regarding the genesis of the federal manufactured housing law, its relation to RVs and the inclusion of a size-based RV exemption in the HUD Procedural and Enforcement Regulations — MHARR executives recently met with RV industry representatives for a two hour-plus information session. As part of that discussion, the RV representatives explained that their efforts were driven by concerns that HUD, states and localities would attempt to regulate RVs as “housing” or manufactured housing although they are not intended or designed to be used as a dwelling.
Understanding the predicament that RV interests face in this regard, MHARR reviewed all the relevant issues with the RV industry representatives and offered suggestions for alternative approaches that would not involve tampering with the federal manufactured housing law – which would not necessarily resolve their stated concerns — or potentially creating a class of un-regulated de facto residences.
Because of the intricate details, history and institutional memory needed to dispel the misinformation and confusion surrounding this issue, MHARR will continue to be engaged on this matter as circumstances warrant.
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The Manufactured Housing Association for Regulatory Reform is a Washington, D.C.-based national trade association representing the views and interests of producers of federally-regulated manufactured housing.