The Telephone Audit and Final Repairs

When a consumer purchases a site built home that will need repairs to ensure its value as collateral, the lender typically does not release the final loan funds until a lender's inspector has walked through the home to verify that all repairs are complete and adequate. Although all manufactured homes require repairs upon installation, manufactured home lenders may release funds based on a "telephone audit" with the consumer. The lender verifies by phone that the home was delivered, but may release the funds to the dealer before repairs are actually complete. One dealer instructed consumers to complete the telephone audit as soon as the house was delivered and "blocked" and before completion of installation, let alone repairs.(35)

Since the lender may not send an independent witness to the site, dealers can encourage false phone reports. A consumer living in Abilene purchased a home in Bastrop, to be placed on land in Bastrop. Sight unseen, the dealer told the consumer to report to Conseco that the home was delivered and on the lot. Instead, the lot chosen by the family was not actually for sale and only a number of undesirable lots were available. When Conseco began demanding payments on the loan, "I told him that we have never even seen the home. He asked if we had given a phone audit stating the home was on the land. We explained that we were misinformed and were told to tell Conseco that the home was on the land."(36)

This subdivision of double wide homes east of Austin represents
the new image of manufactured home living.

Some consumers report no contact with the lender at all. When Ms. S. of Eagle Lake (above) rejected her home, she asked the Attorney General, "Why was it that Conseco Bank could release a check to Nationwide without any kind of contact with my self...or my mother?" She called the lender as well. "What kind of bank would let you make a major purchase like this and not come out to see if their consumer was satisfied."

Since the lender may release funds as soon as the home is "blocked," the consumer's payments may begin well before repairs are complete, even if the consumer cannot yet live in the home. Mr. H. of Spicewood bought a land/home package in May of 1998, but the dealer would not do any repairs. The consumer even agreed to mediate, but when the mediator found for the consumer and required the dealer to void the contract, the dealer claimed the mediation was illegal. According to the consumer's March, 2000 letter to the AG, "the home has never been lived in because they would never do the repairs. They have started the payments before we ever did the walk through."(37)

J.W. and Francis Latham of Houston, a retired couple, put ten percent down on a $65,950 home at a dealer in Lufkin. When the home was delivered to the dealership, they were invited to see it and sign the loan documents. They thought the home looked ok, although it was hard to tell since it was in pieces, but they did not want to sign anything else until it was put together on their lot. "He told me if we didn't sign the loan contract, that home wasn't going anywhere," Mrs. Latham told Consumers Union.

So the couple signed and started to make payments, even though the installation and repairs were still not complete to the couple's satisfaction a year later. They moved in ten months after the purchase, although the home did not match their expectations. "We wanted everything in the house like the model on the lot," said Mrs. Latham. Mr. Latham had a suggestion for the Attorney General. "Before I close this letter, a law should be, that before you have to sign a contract on a mobile home, it should be on your property and everything as it should be. Like building a house."

Some banks entering the manufactured housing loan niche have discovered the importance of an independent, final home inspection as part of the loan process. Murphy Bank, which lends to high-end manufactured housing buyers in California, flies its loan officers in to visit each home personally before extending a loan. Lenders that spend less money and time investigating each deal have faced serious losses. Home Federal Savings suggested that banks make loans only to local customers--not those several states away--after it wrote off millions in bad loans. These lenders believe it is important to keep an independent eye on transactions for their own good and the good of the consumer.

More recently, GreenPoint Financial charged off $663 million in mobile home business. According to the company's CEO, the manufactured housing loan business is like auto lending, but without the same checks and balances. Fitch Investors Service notes that recent trends towards "irrational pricing" helped push the industry into a free fall. With adequate and independent home inspections prior to release of loan funds, both banks and consumers would have confidence in the underlying value of the asset and dealers would have to provide prompt repair service if they expected to be paid.(38)

Predatory Lending

Most discussions of predatory lending focus on home equity loans secured by standard homes, or sometimes very high cost, short term personal loans. But any loan can be predatory if it meets some or all of these criteria:

A high cost or deceptively marketed 30-year retail installment contract for a manufactured home may share many of these features, but most important for our purposes, it strips a family's equity in the home.

There remains some question whether a manufactured home-in and of itself-appreciates over time (creating family wealth). Consumers Union hopes to weigh in on that question in the near future. But regardless of the appreciation rate, a home that is tied to a high interest loan packed with excessive fees, prepaid and financed points, and expensive insurance may be worth far less than is owed for the first half of the contract.

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