By Lesli Gooch With the Dodd-Frank Act turning five and both House and Senate committees evaluating its consequences, it is important to move away from blanket generalizations and focus on the real world impact in communities across America. While some inside-the-Beltway assessments hail the law as universally positive for consumers, this overlooks the experiences of many families, retirees and veterans, particularly in rural America. For these individuals, the law designed to protect consumers is having the opposite effect.
The Dodd-Frank Act is preventing everyday Americans from accessing the financing they need to purchase quality manufactured homes they can afford in the communities where they live and work. This is occurring because many lenders had to stop making manufactured home loans when the Dodd-Frank Act classified the loans as “high-cost.” Ironically, the loans receive this negative classification because they are small loans, reflecting the fact that manufactured homes are less expensive and more affordable. Even though the loans are fixed rate, fully amortizing, require a down payment and do not contain loan features such as interest-only options, negative amortization, balloon payments, or prepayment penalties, manufactured loans are now lumped into a designation created for high risk loans. The Dodd-Frank Act already recognizes that different rate and cost thresholds are appropriate for smaller loans; the issue is just that the thresholds have proven inadequate and require adjustment.
The problems for manufactured housing are made worse by an improper classification of manufactured home retailers as “loan originators,” simply for helping consumers identify potential lenders for their circumstances. With only a handful of lenders willing to make manufactured home loans, it is hard enough for consumers to obtain the financing they need without this added problem. The Dodd Frank Act has prevented manufactured housing retailers from doing what any real estate agent or homebuilder does for a consumer during the home purchase process.
While the law’s intent was to protect consumers, it is currently forcing many credit-worthy families to opt for less optimal housing alternatives and pay higher housing costs. Current manufactured home owners are losing equity as home values drop because potential buyers can’t get financing. In the midst of a national affordable housing crisis, it is unconscionable that federal rules are limiting access to credit for affordable, quality housing.
Rural America has been hit the hardest; one in every seven homes is a manufactured home, apartment complexes are limited, and affordable housing is scarce. Recently, a single mother from Saint Marys, Ohio, was denied financing for a manufactured home, even though she has a solid credit score, a steady income, and a 10 percent down payment. The manufactured home she wanted was the most affordable housing option in the area, costing less than her rental apartment, and would have enabled her family to live in a safe community with a yard for her children. Yet, federal policies prevented her from getting a loan. An Army National Guard member from North Little Rock, Arkansas, could not obtain financing for a manufactured home for his family that would have been twice as large, and less expensive, than the 60-year old house he is renting. Stories like these are happening every day, in communities across America. The good news is that neither a new federal program, nor housing assistance, nor additional federal spending is needed to solve this problem. To restore the American dream of homeownership for these credit-worthy families, Congress must only make a simple change to the Dodd Frank Act.
Legislation is pending before Congress (H.R. 650/S. 682, the Preserving Access to Manufactured Housing Act) that would restore availability of financing for manufactured homes, while upholding the Dodd-Frank Act’s stringent protections against predatory lending. Changes to landmark legislation are often needed to correct unintended negative consequences and the Dodd-Frank Act is no exception. After five years of the Dodd-Frank Act, it is important to remain mindful that there are families being denied their American dream because of an unintended consequence. With a simple adjustment, financing for the largest form of unsubsidized, affordable housing in the country will be restored.
Dr. Lesli Gooch is senior vice president, government affairs for the Manufactured Housing Institute.