Washington, D.C., February 18,2010 – Prompted by the continuing refusal of the Department of Housing and Urban Development (HUD) to appoint a non-career Administrator for the HUD manufactured housing program as provided by Congress in the Manufactured Housing Improvement Act of 2000, the Manufactured Housing Association for Regulatory Reform (MHARR) has prepared a comprehensive White Paper (see below) showing the worsening negative impacts of this decision on both American consumers of affordable housing and the manufactured housing industry.
The manufactured housing industry, which is comprehensively regulated by the federal government, is the only source of non-subsidized, affordable home-ownership for lower and moderate-income families across the United States. Yet, the industry has experienced a drastic decline in recent years, with production in 2009 reaching an historic low of fewer than 50,000 homes. The White Paper explains, in detail, how the long-term absence of an appointed non-career Administrator for the federal manufactured housing program has negatively affected both financing for manufactured housing and the program itself.
The MHARR White paper provides, in a comprehensive, consistent and uniform format, a compilation of the negative impacts that HUD’s failure to appoint a non-career manufactured housing program Administrator has had on American consumers and the manufactured housing industry.
MHARR is a Washington, D.C.-based national trade association representing the views and interests of producers of federally-regulated manufactured housing. 1331 Pennsylvania Avenue, NW Suite 508 Washington, DC 20004 202-783-4087 Fax 202-783-4075
Congress, in the Manufactured Housing Improvement Act of 2000 (Act), established a non-career Administrator for the HUD manufactured housing program, with specific authority and accountability to: (1) ensure the full and proper implementation of the program reforms contained in the Act; (2) ensure the proper, ethical and unbiased management and operation of the program; (3) serve as an appointed, policy-level advocate to “facilitate the availability of affordable manufactured homes;” and (4) “to encourage innovative and cost-effective construction techniques for manufactured homes.” Despite this clear directive from Congress, both the Bush and Obama Administrations have refused to fill this position, leaving an extended void of leadership within the Department regarding manufactured housing and its consumers.
In the absence of such a specifically accountable, policy level appointee as program Administrator, these congressional purposes have not — and are not – being achieved. Instead, as is shown below, the reforms of the 2000 Act have been ignored, evaded, circumvented, or distorted beyond recognition. HUD and the program continue to discriminate against manufactured housing, treating manufactured homes as “trailers” in need of continual “improvement” rather than legitimate housing, with adverse impacts on the acceptance and financing of manufactured housing. Nor have program or HUD officials lifted a finger to assist the industry and its consumers with badly needed financing improvements through FHA, while the program has reverted to pre-2000 Act practices, as it has stifled and manipulated the centerpiece reform of the 2000 Act — the Manufactured Housing Consensus Committee (MHCC).
The losers of this failure to act are the consumers. It is tragic that a department of the federal government that is responsible for providing, promoting and advancing affordable housing opportunities for gJ Americans, and most particularly lower and moderate-income working families, is unwilling and defiant in refusing to provide the leadership and accountability deemed necessary by Congress for a program with responsibility for the nation’s leading source of affordable non-subsidized housing.
I. MANUFACTURED HOME FINANCING:
Manufactured housing production and sales have declined by nearly 90% since 1998 and nearly 80% since 2001 due, in part, to a lack of consumer financing. Clearly, the availability of credit is a problem facing many sectors of our economy, but other sectors have an advocate within the Administration to act on their behalf. In the absence of the leadership and accountability of an appointed program Administrator, however, there is no coherent HUD policy to support or advance the availability of financing for manufactured housing consumers:
- A final rule to implement critical upgrades to the FHA Title I manufactured housing loan insurance program authorized by Congress in the Housing and Economic Recovery Act of 2008 (HERA) has inexplicably been delayed and has not been issued.
- Because FHA has not issued a final Title I rule, a Ginnie Mae moratorium on the securitization of Title I loans remains in place. This moratorium has severely restricted the availability of FHA Title I-based consumer financing for manufactured housing purchases, especially for lower and moderate-income consumers.
- HUD has done nothing to support or advance the implementation of the HERA “duty to serve underserved markets” (DTS) mandate as it applies to manufactured housing. As a result, GSE policies which discriminate against manufactured housing and make private manufactured housing financing virtually unobtainable remain in place.
- A proposed HUD rule to replace the current FHA manufactured home foundation guide with the new MHCC-approved manufactured home installation standards has been stalled at HUD with no activity since 2008. This rule would conform FHA installation requirements with the HUD standards, resulting in cost savings and reduced delays for the industry and consumers, but has not been implemented.
UPDATE: On February 4, 2010, HUD issued a notice in the Federal Register to reopen comments on a plan to further delay the implementation of this rule. The reasons for this delay, as stated by HUD, are that: “…there have been some delays in submissions of state certifications, in HUD’s review and acceptance of state certifications, and in the implementation of HUD’s program for states where HUD will administer the installation program.” (Emphasis added). Thus, while the HUD program — with more career staff than ever — has to fully implement the federal installation standards and federal installation program that Congress @i&t toI have in place by 2005 as one of the key improvements of the 2000 reform law. And now this delay will directly and negatively impact the availability of FHA financing and limit the affordable housing choices of consumers.
- Hundreds of new and updated standards recommended by the MHCC have been stalled at HUD for years. Action on these recommendations, to bring the HUD Code in line with other major codes, has been delayed so long at HUD that incorporated reference standards have become outdated and now need to be revised. This action hurts consumers because outdated segments of the Code have been used as an excuse to discriminate against manufactured housing and manufactured housing consumers.
- HUD claims in a January 1 1, 201 0 letter that “improve[d] quality control practices will assist the industry by attracting lenders back to the manufactured housing market.” There is not, however, and never has been, any evidence that such practices are in need of “improvement,” or that the unavailability of manufactured home consumer financing is in any way related to such practices.
II. MANUFACTURED HOUSING PROGRAM:
Without the leadership and accountability of an appointed program Administrator:
- The HUD program remains a “trailer” program, focused on “improving” supposedly deficient manufactured housing (even though the industry today is producing its best homes) rather than increasing the availability and utilization of manufactured housing as affordable, non-subsidized housing resource. This harms the public image of manufactured housing and negatively affects its market appreciation, harming consumers.
- Institutional HUD resistance to key reforms of the 2000 Act designed to improve and modernize the program has continued unabated. As a result, those reforms — after ten years — have not been fully and properly implemented, (see attached list).
- The operation and functions of the program — and program interaction with stakeholders – have become overtly politicized and polarized to the detriment of the industry’s smaller businesses. This politicization is affecting competition within the manufactured housing market to the detriment of consumers. For example, HUD — directly and through its enforcement contractor – has pressed manufacturers into costly overhauls of their in-plant inspection practices that are not required by existing regulations. This represents a much greater burden for smaller manufacturers than for larger companies that are able to expense overhead through a larger production base.
- The program has severely and improperly restricted the role and authority of the MHCC and has manipulated its membership. (see below).
- The program has regularly bypassed MHCC review of major changes to program policies and practices, in violation of the letter and intent of the 2000 Act to ensure consensus support for such changes by program stakeholders and simultaneously reduce disputes. This has resulted in inconsistent requirements imposed on manufacturers, an uneven regulatory playing field that discriminates against certain manufacturers, and regulatory uncertainty that unnecessarily increases compliance costs ultimately passed to consumers.
- While bypassing MHCC review, program officials have participated in closed-door meetings with segments of the industry regarding policy and enforcement matters, further creating and exacerbating an uneven regulatory playing field which harms consumers.
- The enhanced federal preemption of the 2000 Act has not been implemented and, in some cases, HUD’s unduly narrow construction of the old 1974 preemption language has been retrenched, leaving manufacturers and consumers subject to state and local demands that increase costs or even exclude manufactured housing altogether as a low-cost, nonsubsidized housing option for lower and moderate-income Americans, while further depriving consumers of the federal protection provided by a preemptive code.
- HUD has created a false and unsupported distinction between “construction” and “installation,” under which the new HUD installation standards are non-preemptive. This allows states and localities to impose demands that can unnecessarily increase costs or exclude manufactured housing altogether. It also removes the entire crucial issue of installation from the statutory authority of the MHCC for purposes of updates or revisions and leaves consumers without federal protection on this important matter.
- Although industry production has dramatically declined, the number of HUD program bureaucrats has expanded. This has led, among other things, to a make-work overhaul of HUD’s enforcement procedures — imposed without MHCC review. This is leading to increased billing by the program monitoring contractor and private Primary Inspection Agencies (PIAs) and increased manufacturer compliance costs that will unnecessarily increase costs for consumers.
- The program remains dependent on the same entrenched, revenue driven enforcement contractor that it has had for over 30 years, based on de fact0 sole source solicitations that have consistently failed to produce competition. This leaves the program stagnant and bereft of new ideas and approaches that could result in lower costs for consumers.
III. MANUFACTURED HOUSING CONSENSUS COMMITTEE:
Without the leadership and accountability of a non-career Administrator, the program is working to undermine the role, authority and functionality of the centerpiece reform of the 2000 Act — the MHCC – and has manipulated its composition in order to undermine its independence and effectiveness, and favor the interests of the industries larger businesses vis-a-vis smaller companies. These changes that may seem only procedural, but — in toto — but will emasculate the MHCC and ultimately harm consumers. Among other things:
- HUD has restricted the jurisdiction of the MHCC by effectively reading the catchall provision – section 604(b)(6) – out of the Act. This allows HUD to implement major changes to enforcement policies and practices without MHCC review and bypasses the need for justification and cost-effectiveness information for such changes, resulting in higher enforcement and compliance costs that are passed to consumers.
UPDATE: On February 5, 2010, HUD issued an “Interpretative Rule” (effective immediately), without opportunity for public comment, which eliminates advance MHCC review and comment on any HUD action or “statement” that does not rise to the level of a “rule” as defined by the Administrative Procedure Act (APA). This renders the “catchall” section of the Act — 604(b)(6) – meaningless and undermines much of the utility and benefit of the consensus process.
Under sections 604(b)(l) and (b)(2), regulations and formal “Interpretative Bulletins” – which required notice and comment rulemaking under the APA and 24 C.F.R. 3282.1 13 respectively, even before the 2000 reform law was ever passed — are subject to advance MHCC review and comment to the Secretary. MHCC review for such matters is thus in addition to notice and comment rulemaking.
Catchall section 604(b)(6), by contrast, was included in the 2000 reform law specifically to apply the consensus process — in advance — to an entire range of interpretations and changes to program practices and procedures relating to enforcement, inspection and monitoring that do not rise to the level of a regulation or formal “Intemretative Bulletin” and are, therefore, a subject to notice and comment rulemaking. This was done to minimize the type of disputes that had arisen prior to 2000, when HUD routinely imposed new or significantly modified inspection and monitoring procedures as a matter of “interpretation,” without rulemaking and without input from program stakeholders or regard for their concerns.
By limiting the application of section 604(b)(6) to matters that rise to the level of an APA “rule” – and would, therefore, be subject to notice and comment anyway, the February 5, 201 0 rule reads that section out of the Act and significantly restricts the role of the MHCC by placing a multitude of HUD interpretations and other decisions affecting enforcement, inspections and monitoring beyond its consideration and reach.
- HUD has eliminated the statutory jurisdiction of the MHCC over installation by creating an unsupported distinction between installation and “construction” standards. This distinction has led to disputes over enforcement jurisdiction and has impacted design and installation costs that are ultimately paid by consumers.
- HUD has refused to provide justification and cost information to the MHCC for proposed rules, even though the Act requires the MHCC to consider such information in making recommendations to the Secretary.
- HUD has not implemented the regular 2-year code update cycle recommended by the MHCC to ensure timely updates to the HUD standards. This skews the baseline costs of manufacturers relative to the minimum performance-based standards, thus negatively affecting the ability of manufacturers to design and build homes with features – over and above that minimum baseline — that consumers need and want.
- HUD, in 2009, attempted to impose a “gag” rule to limit the public and constituency communications of MHCC members, including members’ communications with Congress and has continually threatened to revive this effort. The resulting lack of transparency would further debilitate the MHCC and harm the interests of the industry and consumers.
- Although HUD has (properly) continued the collective representation of consumers on the MHCC, it has now eliminated the collective representation of manufactured housing producers, significantly disadvantaging the smaller industry manufacturers and businesses that have traditionally pooled their limit resources behind a unitary/collective representation on the MHCC.
- The broader politicization and bias of the HUD program is mirrored by recent “producer” appointments to the MHCC, which have left the industry’s largest manufacturer with two representatives and the industry’s largest manufacturers with four votes (of seven), while the collective representation of the industry’s smaller businesses has been eliminated. This will undermine the legitimacy and independence of the MHCC — and its recommendations — and will lead to increased disputes.
- HUD has unilaterally revised the MHCC’s bylaws, without a 213 majority MHCC vote, as required by the bylaws themselves (section A.8.3(a) July 25, 2007 MHCC bylaws). These unilaterally-revised bylaws will further skew the independence and legitimacy of the MHCC by giving HUD’s non-voting MHCC member &., Designated Federal Official — DFO – currently the career HUD program manager), veto power over individual appointments to MHCC subcommittees, where the bulk of the MHCC’s substantive work is accomplished. This will erode the independence of the MHCC while strengthening the influence and control of HUD career regulators.
- HUD rejected an MHCC-recommended reform of the arcane and outdated 1970’s-era Subpart I vehicle-type “recall” regulations, tailored to the “trailers” of yesteryear, that would have held all regulated parties (not just manufacturers) accountable for any work which causes a defect.
- HUD modified MHCC recommendations in order to allow any registered engineer to over-ride the manufacturer’s design and instructions. This will increase chances for installation-caused defects and unnecessarily increase costs for consumers.
- Contrary to MHCC recommendation, HUD has included close-up of multi-section homes in the non-preemptive installation standards, contrary to MHCC recommendation, thereby allowing states and localities to impose costly additional mandates on the industry that will ultimately be passed to consumers in higher prices.
- HUD has allowed the services of the MHCC’s Administering Organization (AO) to lapse for extended periods, impairing the work of the MHCC.
IV. THE LACK OF AN APPOINTED ADMINISTRATOR HURTS THE CONSUMER AND THE INDUSTRY:
Some have claimed that the lack of a non-career Administrator has had a minimal impact on the industry and consumers of affordable housing. They state that the dire condition of the manufactured housing industry is more the result of the economic downturn and that the drive to put an appointed non-career Administrator in place is inconsequential. Nothing could be further from the truth.
When Congress passed the 2000 Act and President Clinton signed it into law, the role of a non-career Administrator was considered key to implementing the reforms envisioned by the law, to increasing the availability of affordable housing to consumers, and to providing full accountability to Congress for the full implementation of the law and its reforms,
As this document demonstrates, none of those steps have occurred. Further, consumer financing options languish in a bureaucratic morass. HUD has not issued a final FHA Title I rule nearly two years after improvements were legislated by Congress and the Ginnie Mae moratorium on the securitization of manufactured housing purchase loans continues.
Finally, there has been a near total breakdown in communications. This crisis goes beyond the industry and its regulator. There is no voice for manufactured housing within the Department or with other executive branch departments. The lack of a noncareer Administrator also hampers the ability of Members of Congress to do their jobs, as Members are increasingly frustrated that there is no “point person” at HUD with whom they can work.
The appointment of a non-career Administrator will not solve all of the problems facing the industry and consumers. However, at this crucial time for the industry and consumers of affordable housing, the lack of leadership and positive solutions from HUD only exacerbates an already bad situation.