MHARR Viewpoint – Industry, Beware the ‘Tip of the Iceberg’

HUD Code manufacturers were recently warned by a knowledgeable source — HUD’s monitoring contractor – that the production oversight changes they are now being pressured to accept on a supposedly “voluntary” basis are only the “tip of the iceberg,” with more to come. Of course, MHARR has been sounding the same alarm, with increasing urgency, since May 2008, when HUD first approached the Manufactured Housing Consensus Committee (MHCC) with a list’ of production enforcement “concerns.” Now, though, it is time for all industry members to learn what this is really about — a perfect example of what is happening to the industry in Washington, D.C. So, take a few minutes and read on.

MHARR said in 2008 that HUD’s list of “concerns,” and later its proposed amendments to the production enforcement elements of the manufactured housing Procedural and Enforcement Regulations (PER), amounted to the attempted institutionalization of an inspection and monitoring “wish list” that the 30-year-plus entrenched monitoring contractor had been seeking for decades – with higher regulatory compliance costs for manufacturers and retailers, and little corresponding benefit for consumers, but much more work for production oversight contractors, including the monitoring contractor and the third-party Primary Inspection Agencies (PIAs). Ever since, MHARR, as one of its top priorities, has worked to ensure that any such changes — if adopted at all – are implemented only through rulemaking, based on specific justification and cost-benefit information, or by individual manufacturers as a result of their own independent and truly voluntary initiative, not as a result of coercion by regulators. Now, though, new evidence confirms that there is much for the industry — and particularly for its smaller businesses — to be concerned about, as HUD regulators try to return to pre-2000 practices, another casualty of the Department’s failure to appoint a non-career program Administrator.

There are two parallel “tracks” to this drive to pressure manufacturers under the guise of “voluntary” cooperation. One track involves the PER regulations. Because HUD’s changes are not specifically required by the existing regulations and because authority to demand those changes under existing regulations is, at best, questionable, HUD proposed a massive overhaul of the PER regulations to the MHCC – at first through a piecemeal process in 2008 and later through one large March 2009 proposal. Ultimately, without justification and specific cost-benefit information to support the overhaul, the HUD proposal failed to win an MHCC consensus in a September 2009 ballot. As a result, there has been no consensus MHCC recommendation on this matter, the relevant regulations have not been changed, and (as of press time) there is no pending rulemaking on the HUD proposal.

Anticipating this outcome, HUD, between September 2008 and July 2009, developed the second “track” of its effort – a Standard Operating Procedure (SOP) for “voluntary” production oversight changes based on “cooperation” between manufacturer personnel, HUD regulators, the monitoring contractor and third-party PIAs. According to HUD, this “internal” operating procedure is not a new or amended “regulation” and so is not subject to rulemaking. Nor has the SOP been submitted to the MHCC for consensus review, even though the Manufactured Housing Improvement Act of 2000 requires consensus procedures for “any” statement relating to a change of policy, procedures or practice regarding inspections, monitoring, or other enforcement matters.

With an overhaul of the PER regulations dormant for now, it is this second SOPbased “track” that has become the focus of HUD activity. Regulators and the monitoring contractor explained this SOP — at first in a “rump” meeting with certain PIAs in 2008 — and later at a public meeting with PIAs, SAAs and some manufacturer representatives in July 2009. At the public meeting, HUD indicated that the SOP would actually reduce regulatory compliance costs or result in only nominal increases, with additional IPIA costs of $1,000 – $2,000.00 (as noted by one private PIA). HUD also indicated that changes in oversight procedures could be evaluated and approved based on an informal PIA report, rather than a complete — and much more costly — plant recertification

Afterward, MHARR warned that “the SOP includes at least 16 new or expanded PIA functions … and multiple new monitoring contractor functions” that would “result in higher compliance costs for manufacturers — both obvious and hidden – that will … be passed to retailers and consumers who already face unprecedented financing obstacles.”

And now, information from around the country is beginning to show results exactly as MHARR forewarned. What was supposed to be “voluntary” is being enforced as mandatory, costs that were supposed to fall are skyrocketing, procedures that were supposed to be streamlined have become more cumbersome, and manufacturers, instead of facing less interference with their “voluntarily” modified production procedures by the monitoring contractor, are facing demands for even more “voluntary” changes, and are being confronted with substantially increased demands for investigations, analyses, red tape, paperwork and documentation.

All of this, moreover, is occurring without a regulation that has gone through rulemaking, at a time when the industry and its consumers cannot afford cost increases that produce no tangible benefit. Even worse, as MHARR fbrther predicts, if enough manufacturers are pressured to “voluntarily” adopt such changes, the need for a rule — and rulemaking — will be moot. Both the SOP and related production oversight changes will become facts on the ground, separate and distinct from any process that could be used to set limits or controls on their expansion and/or abuse.

This is why MHARR has opposed this activity from the start. The industry and its consumers face enough obstacles without a rogue system that unnecessarily increases costs and results in an uneven regulatory playing field within a highly competitive industry. MHARR, therefore, will continue to aggressively pursue a proper resolution of this matter, to protect the industry’s smaller businesses and consumers of affordable housing.

The $64,000 question, though, is where is the rest of the industry on this major battle in Washington, D.C.? Naturally, the industry’s larger businesses have less of a problem with this system than smaller businesses, because they have a broader production base over which to spread increased regulatory compliance costs. This might explain why the other half of the industry in Washington, D.C. has been negotiating with HUD to “improve” this “process” rather than trying stop it, treating a flawed, costly, unnecessary and discriminatory initiative as a de facto rule, as the program undermines safeguards of the 2000 reform law that the industry and consumers worked 12 years to earn.

In MHARR’s view, given the continuing decline of the industry, this is a perfect example of the way that it is being “swift-boated” in Washington, D.C., while its bottomline keeps shrinking.

MHARR is a Washington D.C.-based national trade association representing the views and interests ofproducers of federally-regulated manufactured housing.

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