MHARR Washington Update — Report and Analysis April 16, 2012

In This Report:                                    


  • Program Backsliding Resumes

  • HUD Misses Opportunity on MHCC

  • Fire Sprinkler Proposal Defects Revealed

  • New MHARR Front on Expanded Regulation

  • HUD Creates More Confusion on AC and ON-SITE

  • Arbitrary and Untimely Wind Standard Process

  • Serious Questions Renewed on Contract

  • Well-Timed GAO Probe on Track

  • MHARR Renews Efforts on Chattel Financing

  • New PD&R Research on Wrong Track

  • Energy Standards Could Haunt Industry

  • DODD-FRANK Possibilities Increase



RUDDERLESS HUD PROGRAM RESUMES BACKSLIDE

Despite some hopeful signs in 2011 related to changes in program management and notwithstanding the first-ever congressional oversight hearing regarding the implementation of the Manufactured Housing Improvement Act of 2000, it appears that the HUD program is beginning to revert back to its discredited legacy of closed-door decision-making, discriminatory interpretations, procedural shortcuts and other evasions that undermine the rights of regulated parties – especially the industry’s smaller businesses — and the legitimacy of the program.

HUD, for example, is once again pressing its program of expanded in-plant regulation (see, article below). In the key area of Alternate Construction (AC) and on-site completion (see, article below) HUD has dragged its feet – for nearly two years — on final implementation of an on-site completion rule proposed in June 2010, while reportedly retracting, for some manufacturers but not others, a January 2009 ruling that exempts manufacturers obtaining AC approval for three specific types of roof ridge designs, creating a discriminatory two-tiered system that results in increased costs primarily for smaller manufacturers.

This, together with renewed HUD downgrading of the MHCC (see, article below), is happening within a program that is essentially rudderless and outside of the policy mainstream at HUD, effectively controlled by entrenched regulators and an entrenched contractor who continue to bypass key reform provisions of the 2000 law. While this again reinforces the immediate need for an appointed non-career program administrator as required by the 2000 law and sought by both national industry organizations – MHARR and MHI — it also demonstrates, more importantly, the need for continuing oversight and follow-up by Congress to hold the program accountable for full compliance with the law that the industry must have in order to escape stereotyping and discrimination as “trailers” and reach its full market potential. In addition, other steps – which MHARR is now exploring — may ultimately be necessary to press HUD, finally, to fully and properly comply with the 2000 law.

HUD MISSES OPPORTUNITY TO REVERSE DOWNGRADE OF MHCC

HUD’s attempted downgrade of the Manufactured Housing Consensus Committee (MHCC), the centerpiece reform of the 2000 law, has resumed after a brief hiatus between the October 2011 MHCC in-person meeting and the February 1, 2012 congressional oversight hearing. As a result, ten years after its formation, the MHCC more than ever resembles the defunct rubber-stamp Manufactured Housing Advisory Council and not the strong, independent firewall against arbitrary regulation envisioned by the 2000 law.

A major aspect of the effort to downgrade and minimize the MHCC was publicly exposed at the February 2012 oversight hearing when HUD’s witness, under close questioning by several subcommittee members, was unable to explain why the Department has failed to process or even respond to more than 130 (out of 185) MHCC recommendations that MHCC members, representing all program stakeholders, spent years to develop, perfect and fine-tune to reach a consensus.

HUD, moreover, since at least 2009, has increasingly stacked the MHCC against the industry and especially its smaller businesses. The Committee is disproportionately weighted with former HUD-employees, single-issue and special interest advocates, and representatives of large corporate conglomerates who do not share the same concerns as smaller businesses and consumers in maintaining the unique affordability of manufactured housing. This is demonstrated by recent MHCC acceptance of de facto “accessibility” standards (for features already available on an optional basis from manufacturers), an unnecessary and extremely costly MHI-HUD proposed fire sprinkler standard (the unwarranted adoption of which, as predicted by MHARR, is creating new difficulties for the Department, the industry and consumers), and a continuing fascination with wind resistance changes that could add thousands to the cost of a home with no showing of corresponding benefits for consumers.

At the same time, HUD continues with its effort to exclude collective national industry representatives from voting membership on the MHCC – while continuing to appoint collective representatives of other interests – thereby depriving the industry the full benefit of the collective and institutional knowledge, know-how, expertise and collective memory that it has painstakingly developed in dealing with key issues before the Committee. And now, in the latest round of appointments to the MHCC, HUD has apparently ignored a joint request by the industry’s two national associations, MHARR and MHI – directly to Assistant Secretary Carol Galante — for the appointment of a non-lobbyist collective national industry representative from each group. This would have been a golden opportunity for HUD to demonstrate good faith toward the industry on a key issue, but it chose not to do so. Instead, all indications are that there will be no changes to the “producer” members and that other members with expiring terms will be reappointed, including HUD’s hand-picked Chairman — the only MHCC member to have served on the Committee since it was formed ten years ago — and the same HUD-selected subcommittee chairmen.

There also seems to be no urgency at HUD to reconvene the MHCC — even with major regulatory issues pending, as described in the articles below — as the Committee has already missed its anticipated March 2012 in-person meeting and has no scheduled conference call meetings or subcommittee meetings (other than the Wind Task Force, see, article below).

SPRINKLER PROPOSAL CREATING DILLEMA FOR HUD

MHARR has advised HUD that the proposed MHI-HUD “conditional” fire sprinkler standard approved by the MHCC at its October 2011 meeting, is (1) unacceptable; (2) should be rejected in accordance with section 604(a)(4)(B)(ii) of the 2000 law; and (3) that the Department, based on new evidence presented to the MHCC, should instead completely preempt state and local sprinkler requirements for HUD Code homes based on the existing HUD fire safety standards. And now, based on these and other facts, MHARR plans to take further action.

The MHI-HUD proposal should be rejected because there’s no such thing as a “conditional” safety standard. A manufactured home safety standard may be adopted to protect against an “unreasonable risk” of death or injury. An “unreasonable risk” either exits or does not. If there is an “unreasonable risk,” HUD can adopt a federal safety standard to remedy the risk, but if there is no “unreasonable risk,” HUD cannot adopt a standard, even a “conditional” one.

In the case of sprinklers, HUD has never determined or even claimed that manufactured homes without sprinklers but in full compliance with the existing HUD fire safety standards present an “unreasonable risk” of injury or death. And the MHCC never made such finding, nor could it have made such a finding, when the evidence presented to it showed that there is, in fact, no such risk (see below). As a result, there is no legitimate basis for a conditional federal sprinkler standard or any kind of sprinkler standard and this entire matter, with its potentially extreme cost implications, should not be – and should not remain – a pending matter at HUD that, as MHARR continues to maintain, could trigger a petition to seek its adoption as a mandatory, across-the-board standard for all manufactured homes.

Just as importantly, the evidence presented to the MHCC shows that state and local sprinkler mandates should be completely preempted now, because the current HUD fire safety standards, without sprinklers, already provide all the life-safety protection required by federal law. The National Fire Protection Association (NFPA), under pressure from MHARR disputing the data, analysis and conclusions of a July 2011 NFPA report on manufactured home fires, was forced to concede just prior to the MHCC sprinkler vote that “if all pre-HUD-standard manufactured homes were removed from the inventory, the fire death rate per 100,000 occupied manufactured homes would be estimated at 2.4[%] or within the range estimated for other one and two family homes.” The same NFPA report already confirmed — as reiterated by direct NFPA testimony before the Committee — that manufactured homes have fewer fires than other types of one and two-family homes and fewer fire injuries than other types of homes.

Because this data shows that the current HUD fire safety standards already ensure performance equal to or better than other types of single-family homes, thereby achieving the reasonable fire safety required by federal law, fire sprinklers would add nothing to meeting the federal benchmark, while needlessly increasing costs that would exclude large numbers of potential homebuyers from the market and imposing new costs on community owners that, even if sustainable, would ultimately be passed on to homeowners. As a result, HUD not only should reject the proposed conditional sprinkler standard, but should also preempt all state and local sprinkler mandates affecting manufactured housing on the basis of the current HUD fire safety standards.

MHARR OPENS ANOTHER FRONT TO COMBAT EXPANDED REGULATION

Program regulators are once again pushing the program’s costly, unnecessary and intrusive program of expanded in-plant regulation. HUD admits that the program, originally touted as “voluntary,” but now being enforced as mandatory, changes the entire focus of in-plant regulation. But not one element of the program itself has ever been submitted to the MHCC (let alone achieved an MHCC consensus), based on a specious 2010 HUD interpretation – disputed by MHARR — which attempts to negate a key provision of the 2000 law designed to “void” any change to inspection or monitoring procedures not presented to the MHCC.

By consistently seeking to evade the MHCC consensus process regarding the “enhanced checklists,” “Standard Operating Procedure” and “Pilot Audit Process Structure” that lie at the core of this program, HUD has never had to justify the need for any of these changes, or their cost to manufacturers and ultimately homeowners, even though the absolute minimal number of consumer complaints being processed through the program’s new dispute resolution system shows that there is no legitimate reason for any change. Also, as emphasized by MHARR at the February 1, 2012 congressional oversight hearing, HUD, by attempting to bypass the MHCC process, has not yet been held to account for the continuing high cost of the monitoring contract which, due to the make-work nature of expanded regulation, has remained at the same high level despite production declines as high as 87%. This again highlights the need for further congressional oversight and follow-through, including oversight of the proposed 2013 program budget (see article below) that would actually increase funding for the monitoring contract via the make-work elements of expanded regulation.

Similarly, while HUD-proposed changes to the Procedural and Enforcement Regulations designed to provide the legal underpinning for expanded in-plant regulation failed to achieve an MHCC consensus — lacking any information showing their necessity or cost impact — HUD has simply pushed forward with this program, without further MHCC review or rulemaking, expanding in-plant regulation in ways that most heavily impact smaller businesses.

MHARR has made HUD’s unjustified and costly expansion of in-plant regulation — without MHCC approval and without rulemaking to protect the rights of regulated parties — a major issue in its engagement with Congress and the GAO, seeking oversight and accountability, and is now also opening other fronts to address this matter.

STALLING AND DISCRIMINATION REGARDING ON-SITE COMPLETION AND ALTERNATE CONSTRUCTION

In the key area of on-site completion, HUD has dragged its feet – for nearly two years — on final implementation of an on-site completion rule proposed in June 2010. That proposal, supported by all program stakeholders and approved by an MHCC consensus, would avoid the necessity of multiple AC approvals and significantly streamline the time and cost to complete final construction of the home in conformance with the standards at the home-site, but remains stalled without explanation.

To make matters worse, program regulators are seeking to retract a January 2009 ruling (contrary to the 2000 law because it was not brought to the MHCC) by the then-program administrator which exempted manufacturers obtaining HUD AC approval for specific roof ridge designs from the necessity of conducting costly on-site IPIA inspections. HUD now apparently contends that the Administrator had no authority to grant such an exemption, which should serve as a warning that when the industry deals with regulators who skirt the law, what those regulators give, those (or other) regulators can also take away.

Adding to the confusion and chaos is the fact that the retraction is being applied only to new AC approvals. Thus, manufacturers which had AC requests approved before the retraction will be able to continue without on-site inspections, while newer AC approvals, some of which have been delayed by regulators for more than a year without explanation, will require costly on-site IPIA inspection, placing companies with the newer AC approvals at a major competitive disadvantage while needlessly increasing costs and delaying move-in times for homebuyers. These arbitrary actions create a discriminatory two-tiered system that needs to be addressed and resolved.

HUD CONTINUES TO PRESS ARBITRARY WIND STANDARD PROCESS

An MHCC “Task Force” has been considering revisions to the Part 3280 HUD wind standards for the past three years based on updates contained in the American Society of Civil Engineers (ASCE) 7-2005 model wind standard. Instead of simply adopting changes in the ASCE 7-2005 standard across the board, however, which would result in the reduction of some current wind resistance values, HUD regulators have arbitrarily maintained that updates to the standards cannot result in any reduction of the protection provided by the current standard. As a result, the Task Force has reviewed “compromises” which “cherry-pick” elements of the ASCE 7-2005 to update the HUD standard without reducing any wind pressures.

MHARR has consistently maintained that while not opposed to an update of the standards, picking and choosing among different standards is another matter altogether and any change must be justified as both necessary and cost-effective. Furthermore, there is no legitimate basis for the position of HUD regulators that new science, new technology and new model standards can never result in reductions to elements of the HUD standards. That arbitrary position would violate key goals of federal manufactured housing law – i.e., ensuring the affordability of manufactured housing and encouraging innovative and cost-effective construction techniques – and could establish a costly and damaging precedent.

While the latest Task Force “compromise” was deemed unacceptable in September 2011 due to excessive cost, this process is still being promoted by HUD regulators through an alternative approach discussed during a March 2012 conference call. Without any kind of a showing, however, that changes are needed, justified, or cost-effective, this activity should not be going forward, particularly when industry production remains at relatively low levels and increased purchase costs would exclude potential homebuyers from the HUD Code housing market.

HUD PROPOSES INDEFENSIBLE INCREASE IN CONTRACTOR FUNDING

On February 13, 2012, HUD released its proposed 2013 budget and appropriations request, including budget justifications for the federal manufactured housing program. That request would increase total program funding from $6.5 million in 2012, to $8.0 million, primarily to fund an increase in the value of the monitoring contract — which HUD has confirmed it will re-issue this year — even though industry production has decreased to historically low levels and is only now beginning to slowly recover. Both as part of its program oversight and as part of the appropriations process, Congress should hold HUD to account for its actions regarding the monitoring contract.

There has been no effective competition for the monitoring contract in decades. The HUD program has had the same monitoring contractor (i.e., the same continuing entity, with the same personnel, albeit under different names) since the inception of federal regulation in 1976. Although the monitoring contract is officially subject to competitive bidding, the contract has been a de facto sole source procurement with bidding criteria and award factors that track the experience and performance of the existing contractor, effectively preventing any other bidder from competing for the contract. The one time that another organization did submit a bid, its lower-priced offer was subject to a second round of analysis that ultimately deemed the incumbent contractor’s proposal best for HUD. All of this has discouraged potential competitors from even bidding on the monitoring contract.

Without new ideas and new thinking, as a result of an entrenched monitoring contractor, the program effectively remains frozen in the 1970’s – treating manufactured homes as inherently defective “trailers” and has not evolved along with the industry. Based on this outdated system and mindset, both the program and the contractor have a history of continually ratcheting-up regulation, with more detailed, intricate and costly procedures, inspections, record-keeping, paperwork and red-tape, despite the fact that consumer complaints regarding manufactured homes, as shown by HUD’s own data, are minimal. This also explains why monitoring contract costs have not only failed to decline in tandem with industry production, but are projected by HUD to increase.

Congress needs to take action to break this cycle of de facto sole source contracts and ensure genuine competition for the monitoring contract and a contract that is not artificially inflated with make-work regulation, such as HUD’s program of expanded in-plant regulation that needlessly raises costs for consumers and excludes potential homebuyers from the HUD Code housing market. At the same time, funds should be reallocated from the monitoring contract to the State Administrative Agencies (SAAs) which serve as the front line of consumer protection for a growing number of new and existing homes.

GAO MOVING FORWARD WITH CONGRESSIONALLY-REQUESTED PROBE OF HUD PROGRAM

The Government Accountability Office (GAO) is continuing the probe of the HUD manufactured housing program requested by Congress in November 2011, specifically including the Department’s failure to fully and properly implement key reform provisions of the 2000 reform law which has been the consistent focus of MHARR’s congressional engagement initiative since November 2010.

In a January 2012 meeting with GAO officials in Washington, D.C., MHARR emphasized the need for specific, concrete and rapid action by HUD to implement the 2000 law and its principal objective of ensuring the parity of manufactured homes as “housing” for all purposes. MHARR explained in detail the direct connection between HUD’s failure to fully and properly implement specific reform provisions of the 2000 law and: (1) worsening discrimination against manufactured housing as “trailers,” (2) the “domino effect” of negative impacts on the industry and manufactured housing consumers in key areas, especially the availability of public and private consumer financing; (3) HUD’s ongoing, needless and unnecessarily costly expansion of in-plant regulation, bypassing MHCC review, and a host of other consequences; and (4) the exclusion of manufactured housing from public and private housing programs.

The GAO officials indicated their probe of the program, as requested by Congress, had begun and that it would be seeking additional information in its role as the congressional “watchdog” organization. MHARR will stay in close contact with the investigation team at GAO and will press for a timely and complete report which, according to comments by members of Congress at the February 1, 2012 oversight hearing, could become the basis for further oversight proceedings including, potentially, a hearing on the report itself.

RENEWED EFFORT ON CHATTEL FINANCING

MHARR has consistently emphasized in its engagement with the Federal Housing Administration (FHA) the Government Sponsored Enterprises (GSEs), their federal regulator, the Federal Housing Finance Agency (FHFA) and the Government National Mortgage Association (GNMA) that the availability of personal property (chattel) loans and a properly functioning FHA Title I program is extremely critical to the survival and expansion of the manufactured housing industry and also to the lower and moderate-income American families who purchase HUD Code homes.

Now, based on encouraging engagement with GNMA concerning reconsideration of its restrictive “10-10” rule in an effort to improve and expand financing sources for – and the availability of — FHA Title I personal property loans, MHARR has examined various approaches to re-vitalize and expand personal property manufactured home financing in the private sector as well. As a result, MHARR has extensively reviewed relevant legislation and related information on this matter, which it now plans to pursue once again with relevant agencies and officials.

Because chattel loans are typically used by the lower and moderate-income homebuyers to finance the industry’s most affordable homes, they remain a crucial component of the manufactured housing market and should be advanced within the private sector by the GSEs.

Accordingly, based on its in-depth examination of the record concerning chattel financing and its key role, MHARR now plans a renewed administrative effort to pursue this matter from a fresh perspective and will continue to press for expanded availability of personal property financing on all fronts.

HUD PD&R RESEARCH SHOULD ADDRESS BIG PICTURE FOR INDUSTRY AND CONSUMERS

HUD’s Office of Policy Development and Research (PD&R), including relocated manufactured housing program staff, is preparing to conduct research involving manufactured housing that would potentially duplicate or overlap previous PD&R research used by the HUD program office in the past to impose new or expanded regulation. PD&R recently requested input from manufactured home builders for a new 5 to 10 year HUD “research agenda.” A website link lists four goals for this activity: (1) promote energy-efficient buildings and location-efficient communities that are healthy, affordable and diverse; (2) facilitate disaster preparedness, recovery and resiliency; (3) ensure open, diverse and equitable communities; and (4) build the capacity of local, state and regional private organizations.

MHARR has consistently urged HUD to include manufactured housing as an equal partner and participant in all of its various housing programs. The approach of PD&R in this case, however, seeking to involve manufactured housing in generic research having potential regulatory uses and impacts, is not only unnecessary with regard to performance standards such as those of the HUD Code, but is also reminiscent of past misdirected PD&R practices which Congress ultimately stepped-in to correct. Indeed, Congress, in the 2000 law, amended the law’s “research” section to focus on “big picture” issues for the industry and homebuyers, stressing research to encourage and promote financing, including an expanded role for the Federal Housing Administration (FHA), Fannie Mae, Freddie Mac and Ginnie Mae in the manufactured housing market, but PD&R’s new “research” would not meet this directive.

More importantly, today’s manufactured housing is a unique type of residential dwelling that, after 8 decades of practical experience, trial and error, technological development, refinement and evolution, has achieved a delicate balance between maximum affordability and maximum benefit to – and protection of – homebuyers. Any unwarranted, misdirected, or simply uninformed tampering with this critical balance, even with the best of intentions, could undermine that critical balance with negative consequences for the industry and consumers. HUD already knows what manufactured homes can do to meet its goals and the housing needs of Americans. What is needed is not more generic research, but a change in HUD’s attitude and approach toward manufactured homes, to treat them as “housing” and to include them as equal participants in all housing programs.

Consequently, with HUD Code manufacturers building their best homes ever, the industry should be pressing for HUD Code manufactured homes to be included in all government and private housing programs in order to create new and expanded public and private markets not only for the benefit of the industry, but to provide opportunities for lower and moderate-income American families.

HUGE BATTLES LOOM OVER ENERGY STANDARDS

Under the Energy Independence and Security Act of 2007 (EISA) the Department of Energy (DOE) was to have adopted new manufactured housing energy conservation standards by December 31, 2011. At present, a draft DOE rule is currently under review by the Office of Management and Budget (OMB) and could be published during 2012.

The industry’s consistent position has been that energy is an aspect of the construction of manufactured homes and that this issue – and related regulations – should remain under the ultimate authority of HUD which, unlike DOE, is required to consider the cost impact of – and justification for – any standard. This is particularly important in the case of energy standards because, as MHARR has explained time and again, long-term “life-cycle” savings mean very little to a consumer who cannot afford to buy a home due to higher initial purchase costs. And this factor is even more important in the current economic climate, where public and private consumer financing has been very scarce.

As a result, MHARR has urged DOE to defer the adoption of any new energy standards. When Congress passed EISA, it did not foresee the subsequent mortgage crisis, economic recession and drastic decline in production of manufactured homes. Given the magnitude of this decline and its duration, new energy standards that could substantially increase the purchase price of a new home, particularly when combined with a parallel DOE enforcement system that would substantially increase regulatory costs, is something that manufactured home buyers can ill-afford.

If DOE does proceed, however, any proposed manufactured housing standards should be reviewed and modified as necessary by HUD for compliance with the federal manufactured housing law, including cost-impact on purchasers of manufactured homes. Furthermore, as part of this consultation with HUD, and again as provided by EISA, any proposed DOE standards should be referred to the MHCC for review and consensus comment prior to publication as a proposed rule.

NEW BILLS INCREASE DODD-FRANK’S REFORM POSSIBILITIES

On March 27, 2012, the House Financial Services Committee approved two bills to correct certain aspects of the Dodd-Frank law. The bills approved by the Committee are: H.R. 4235, which ensures that U.S. and foreign regulators can share necessary swaps data to increase market transparency and facilitate global regulatory cooperation, and H.R. 3283, which fixes the extra-territorial reach of Dodd-Frank Act regulations on the over-the-counter derivatives market.

Notwithstanding the Committee’s consideration of these bills offering corrections to the Dodd-Frank law, neither addresses the predicament that Dodd-Frank has created for the manufactured housing industry and manufactured homebuyers. That said, however, and notwithstanding the future of these two bills, the Committee’s mere consideration of these amendments is a positive signal that the conventional wisdom in Washington, D.C. on the Dodd-Frank law – that it cannot be touched or altered in any way – may be changing in an election year, and that might spell some good news for manufactured housing and consumers.

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

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