Rep. Arlene Wohlgemuth, R-Burleson

Chickens Come Home to Roost (Feb. 2003).
By Kevin Jewell

The manufactured housing industry in Texas is showing its true colors-blaming recent plant closures and high repossession rates on a law passed two years ago designed to protect consumers by treating manufactured housing loans as conventional loans.

However, after years of poor lending practices, we believe the chickens have come home to roost in the manufactured housing industry.

The bill (HB 1869) by Rep. Arlene Wohlgemuth, R-Burleson, was a reaction by the Legislature to the impending collapse of the industry, not the cause of the collapse, and instituted new consumer protections that help homebuyers avoid fraud. The manufactured housing industry blames the law for a 44 percent decline in manufactured home shipments. Several manufacturing plants and scores of dealers have closed in the contraction of the industry. But in fact, new manufactured housing shipments are down across the country-not just in Texas-and this national contraction has everything to do with the industry practices that inspired the new law in the first place.

Poor underwriting and bad lending practices raged in the industry in the late 90s. These bad loans have come back to haunt both the industry and Texas families, with the repossession of tens of thousands of homes. The repossessed homes, dumped back on the market, resulted in a massive oversupply of manufactured homes. Acres of repossessed units await new buyers: why should they buy a new home when they can get a nearly new repossessed unit at a fraction of the price?

Compounding this oversupply is the exit of the lenders from the market. Burned by delinquencies and repossessions, many of the lenders fled. Those that remain have limited their lending as they wait out the storm.

These twin problems — a flood of used homes and the exodus of lenders — have led to a decline in production around the nation. Since 1999 some 80 factories and 4,000 retail outlets have closed around the country. Not only did the lending binge hurt the thousands of families whose homes were repossessed, but the industry that caused it.

Both of these problems were caused by the peculiarities of manufactured home loans. Sold on personal property loans-like a car or a couch-manufactured home sale prices were never confirmed by independent appraisals, and loan terms were frequently subject to change at closing. This opened the door to dealer chicanery. In a study last year of complaints about manufactured homes at the Texas Attorney General's office, almost half alleged dealer fraud or misrepresentation. Frequently consumers owed far more on the loans than the homes were worth. Interest rates on personal property loans averaged 2 to 4 percent higher than conventional loans. On the average doublewide, this could cost an additional $56,000 over a 30-year loan, putting the purchaser further under water. Repossessions skyrocketed.

The Legislature in 2001 recognized that the manufactured home market was on course to fail. Rep. Wohlgemuth's bill set out to fix the problem. The law moves manufactured homes that are not on leased land out of the specialized manufactured home loan market and into the conventional mortgage market. By making the homes real property, instead of personal property, a federal law with consumer protections for home buyers applies to the transaction. Independent appraisals, standard business practice in the conventional market, ensure that consumers get what they pay for. All of these changes are intended to cut down on the level of repossessions and bad loans.

Shipments to Texas are down 44 percent, but shipments to Colorado are down 51 percent, and 48 percent in Arkansas. Neither of these states have passed Texas-style reforms to this market, making it hard to blame the easy scapegoat of misdirected government.

The Texas manufactured housing industry has to stop pointing fingers and take responsibility for the mess they created. They are hurting, but the blame rests squarely on their shoulders.