Perspectives

Exploring Innovative Financing Options for One of the Largest Affordable Housing Opportunities

Jose VillarrealManufactured housing has helped low- and moderate-income households achieve homeownership since the 1970s and continues to be an important affordable housing option for both owners and renters. Rent prices in manufactured housing often average half the cost of comparable apartments, making manufactured housing one of the largest sources of unsubsidized affordable housing in the country. According to the Manufactured Housing Institute, about 50,000 manufactured housing communities (MHCs) exist in the U.S., housing about 2.7 million Americans. Some of these communities have thousands of homes; others are small, where two or three homes share a parcel. Fannie Mae is committed to supporting these important communities and the industry with the help of our lender partners.

In rural communities, 66 percent of renter households occupy single-family homes, 19 percent occupy apartments, and 15 percent occupy manufactured housing rentals. While many of these manufactured housing rentals are provided by an owner on an individual plot of land, others are located in larger MHCs. Nearly 2,000 counties with rural census tracts have at least one MHC. In fact, about a quarter of all MHCs – more than 10,000 – are located in rural counties.

Renter Households in Rural Communities

In January of this year, Fannie Mae launched its three-year Duty to Serve (DTS) Underserved Markets Plan. Under the plan, we are developing solutions to address critical housing challenge­­s in three markets that are underserved by the housing finance system but offer significant opportunities – manufactured housing, affordable housing preservation, and rural housing.

Our team is focused on innovating, testing, and learning how to best provide liquidity to the MHC market segment. Since our first pilot in 2000, our book of business has grown, totaling over $9 billion in 2017. Last year, we financed over $1.8 billion in MHC business representing 22 percent of the industry total for the year. As of Q3 2018, we have already acquired $1.8 billion and are on our way to surpassing 2017 numbers. Much of our success is due to innovative products, best-in-class service, and enhanced delegation to our lender partners through the Delegated Underwriting and Servicing (DUS®) model. The DUS model offers a wide variety of financing structures for MHC owners and allows us to do more MHC business with greater certainty of execution, providing borrowers with faster decisions and quicker closings.

MHC Transaction Volume

Doing more for Manufactured Housing Communities under Duty to Serve

To support our efforts, we've engaged broadly with the manufactured housing industry. We formed a Manufactured Housing Advisory Council to inform our work in this market. At Fannie Mae, the Multifamily MHC team is working on models to preserve the affordability and stability of manufactured housing across the country.

Over the past few years, our team has met with industry leaders, presented at major industry conferences, and conducted extensive research to examine needs and to listen to concerns. We are looking to provide innovative solutions, including:

Non-traditional community ownership:

  • Resident Owned Communities (ROCs): In an ROC, the owners of each manufactured home in the MHC form a nonprofit entity, which holds title to the land and manages the community. Each owner of a manufactured home is an equal shareholder or member of the ROC, and owns their own manufactured home on a site that is leased from the ROC. The ROC has control over lot rent, community repairs, and improvements – providing greater protection to the residents against arbitrary evictions than in a typical MHC.

Fannie Mae has partnered with ROC USA and National Cooperative Bank (NCB) (a Fannie Mae lender partner) to develop and implement a test pilot program to acquire Mortgage Loans secured by a ROC property, and gain more understanding of these financing structures. With the approval of our regulator, the Federal Housing Finance Agency (FHFA), we plan to provide financing for up to five ROC-secured Mortgage Loans in 2019, and more in 2020.

  • MHCs owned by nonprofits: We are also developing a product to increase loan acquisitions for MHCs owned by other types of nonprofit entities.

In many areas of the country, manufactured housing remains the largest stock of affordable housing. Nonprofit entities purchase these communities to preserve their affordability and to provide funds to make improvements. Typically, the nonprofit entity is able to make these purchases through grants provided by city, county, and state government, combined with low interest private loans. However, a demand exists for additional funding sources and more flexible financing terms.

We are currently testing models to increase loan acquisitions in this space to help in the preservation of these properties, and plan to release a product enhancement in early 2019.

Protections for MHC tenants

  • Tenant Pad Lease Protections (TPLPs): FHFA has outlined specific protections to afford tenants of MHCs certain additional rights in areas where state law does not already provide mandatory tenant protections, and has tasked Fannie Mae with providing increased liquidity to MHCs that meets the specified minimums TPLPs. These TPLPs address renewable lease terms, rent increases, rent payments, unit sale and sublease rights, and advance notice of a planned sale or closure of the community.

Our research found that no states or localities currently require all of FHFA's proposed TPLPs. We have consulted with community owners, states, manufactured housing organizations, and lenders to understand the challenges and benefits of adoption. We have learned that requiring owners to convert all leases within a community prior to acquisition can be onerous. We have tested several models to incentivize owners who adopt the TPLPs. In early 2019, we will launch a product enhancement to provide a choice for owners when considering financing options.

We feel these efforts demonstrate an innovative spirit and our long-standing commitment to MHCs. Moreover, as we enter the second year of our DTS plan execution, we'll continue to learn and adjust as necessary to get it right and better serve our markets. Beyond DTS, we'll work to keep our core MHC business strong, supporting and listening to our customers and the market.

We appreciate the engagement of the industry as we work together to realize the potential of MHCs for people and communities nationwide. We stand committed and engaged in our mission to create and preserve affordable housing for owners and renters throughout the country.

Jose Villarreal
Manager, Multifamily MHC Product Development

November 27, 2018