Comments to the New Mexico Regulation and Licensing Department
Manufactured Housing Committee
on Proposed Revisions to 14.12.2.20 NMAC

March 28, 2002

I am Kevin Jewell, a Policy Associate with the Consumers Union Southwest Regional Office, and lead researcher on Consumers Union SWRO's Manufactured Housing Project. I will be commenting on behalf of Consumers Union(1) regarding proposed changes to the down payment and deposit rules, section 14.12.2.20 of the New Mexico Administrative Code.

Consumers Union is a non-profit membership organization dedicated to providing consumers with information, education, and counsel about goods, services, health and personal finance. Consumers Union also initiates and cooperates with individual and group efforts to maintain and enhance the quality of life for consumers. Consumers Unions' income is solely derived from the sale of Consumer Reports, its other publications, and from noncommercial contributions, grants and fees.

Consumers Union has advocated for improvements in the construction and sale of manufactured homes for over 25 years, starting with our work on the 1974 federal legislation that created the HUD code. Most recently, we launched a two year project to study equity building for low income manufactured home buyers. Homeownership is a national priority. Buying a home buys not just shelter, but a stake in the community and an opportunity for a family to build equity. Homeownership is a well-worn track up the economic ladder for families and communities alike.

Unfortunately, manufactured housing has all too often failed to deliver on the promises of homeownership. Nationally, the manufactured home industry expects to repossess over 90,000 homes this year alone.(2) Behind each repossession is the story of a family that has lost not just a home, but their credit rating and access to credit as well. Some families end up with a large deficiency balance. For these families, the experiment of homeownership failed, leaving them worse off then before.

The consumer is not the only loser when repossession rates are high. The communities these families live in have likewise suffered through lost taxes and higher resident turnover. The lenders are left with collateral they can only sell wholesale for often less then 30 cents on the dollar.(3) In the long run, the manufacturers and retailers lose as well, because new homes cannot complete with the flood of inexpensive repossessed units on the market.

Our research has led us to conclude that the structure and process of the manufactured housing sale contributes to these high repossession statistics. Consumers who pay more than the home is worth, or pay more than they can afford, are more likely to either walk away from the loan or involuntarily default on payments they cannot make. To reduce defaults, and the negative impact for all the stakeholders in the industry, it is important that consumers receive a fair price for the home. The best way to encourage fair pricing is to encourage consumers to shop and compare.

Regulation of consumer deposits is central to the ability of consumers to shop and receive a fair price for what may be the biggest purchase of their lives. Our research estimates that almost one in five complaints about manufactured housing to the Attorney General and the Office of the Consumer Credit Commissioner in Texas were about problems with refund of down payments or deposits.(4) Review of the minutes of your committee shows that an equally high, if not higher, proportion of the complaints before your division also relate to this issue. Clear, easily enforced rules on deposits are vital to making these transactions work.

However, the proposed rule changes to 14.12.2.20 NMAC do not set up a comprehensive system that will serve to facilitate the purchase transaction.

The proposed language does ensure that many terms of the transaction must be outlined before a deposit is taken from a consumer. Consumers need information about the transaction to make informed decisions. Likewise, the language allows consumers to retrieve their funds if their credit is not approved by a bank or finance company.

Unfortunately, this does not address the situation of consumers who are not denied credit outright, but are denied credit at reasonable rates. We have heard from many consumers that the final contract financing terms ended up significantly more expensive then the terms they were quoted when they walked on the lots.(5) If a dealer already has a monetary commitment from the consumer to go through with the sale, they may look for the lender with the highest commissions rather then the lender with the best terms.

Limiting the non-refundable deposit to $150 or "actual costs incurred" does not alleviate this situation. $150 is a serious sum that many consumers, especially low income consumers, can not afford to lose. And "actual costs" is a vague term that could be subject to abuse. Among the documents received by the MHD, and reviewed by Consumers Union through an open records request, was a fee schedule from a retailer that included fees of $25 fax a credit application (per lender), and a $210 fee to prep the application and pull a credit report. In this day and age the cost of a fax should be measured in pennies, and consumers can pull their own credit report for around $12. High volume lenders may be able to get that same information for even less. A salesperson's time to negotiate a deal and sell the financing should be treated as overhead by retailers.

The true price and profit in the sale is in both the home and the financing. If consumers are to be able to comparison shop for a fair price, they need to know all of the terms of the transaction before they become bound to the deal.

We recognize that your committee has become very familiar with the issues covered by this regulation. You have heard many consumer complaints on this subject, reviewed other states regulations, and drafted several variations on 14.12.2.20 NMAC in the last few years. I have attached a sheet with general guidelines on down payment and deposit regulations that we endorse. We hope you will take our specific concerns enumerated above on the proposed 14.12.2.20 NMAC, as well as our general recommendations on the subject, into mind as you go forward. New Mexico has the third highest proportion of state residents living in manufactured housing of any state in the nation, and these residents deserve the ability to shop for a fair price.(6)

Sincerely,

Kevin Jewell
Policy Associate
Consumers Union Southwest Regional Office

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Footnotes

(1) Consumers Union is a nonprofit membership organization chartered in 1936 under the laws of the state of New York to provide consumers with information, education, and counsel about goods, services, health, and personal finance; and to initiate and cooperate with individual and group efforts to maintain and enhance the quality of life for consumers. Consumers Union's income is solely derived from the sale of Consumer Reports, its other publications and from noncommercial contributions, grants and fees. In addition to reports on Consumers Union's own product testing, Consumer Reports, with approximately 4.6 million paid circulation, regularly carries articles on health, product safety, marketplace economics, and legislative, judicial, and regulatory actions which affect consumer welfare. Consumers Union's publications carry no advertising and receive no commercial support. More information on our work on manufactured housing can be found at www.consumersunion.org/mh/

(2) PR Newswire "Champion Enterprises, Inc. Reports 2001 Year End and Fourth Quarter Results" 2/13/02

(3) GreenPoint Financial. "Exiting Manufactured Housing Investor Conference Call." January 3, 2002.

(4) Mitchell, Kathy. "In Over Our Heads." Consumers Union Southwest Regional Office Public Policy Series, Vol. 5, No. 1, February 2002. (http://www.consumersunion.org/mh/)

(5) Mitchell, Kathy. "In Over Our Heads." Consumers Union Southwest Regional Office Public Policy Series, Vol. 5, No. 1, February 2002, see side bar on page 22.

(6) "Mobile Homes Find Niche in the Carolinas," The Charlotte Observer, 12/22/01

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Recommendations for State Manufactured Housing
Deposit and Down Payment Regulations

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The guiding principle for a refund of deposit/down payment regulation should be to allow consumers to shop for and to receive a home for a fair price with fair financing.
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In general, an effective deposit and down payment regulatory system should:

· Clearly define the difference between deposits and down payments.

· Make down payments and other fees and payments rescindable if the home is not delivered as contracted (i.e. as ordered and undamaged) and properly installed in a timely manner. We suggest 45 days or date stated in contract.

· Bar retaliatory action, such as negative reports to credit bureaus, against consumers who exercise their rights to a full refund of deposit or timely rescission under this section.

· Mandate standardized receipts for deposits that clearly state the consumer's rights under the rules in the language the transaction was orally conducted.

· Apply equally to homes sold under a retail installment contract or a mortgage transaction.

· Apply equally to homes sold in inventory or so called special order homes.