Homebuyers in the United States enjoy such low interest rates because most mortgages are not held by your local bank but sold to either Fannie Mae or Freddie Mac where they are pooled (or, securitized). Investors the world over can invest in these securities and, historically, enjoy safe returns. Therefore, their returns are modest. It’s an efficient market.
Buyers of mobile and manufactured homes in communities are not a part of that system. For one, it was developed for residential mortgages and homes in communities are generally not real estate. In most states, they’re chattel or personal property. And, two, while Fannie Mae and Freddie Mac do finance units on leased land, they don’t do that for mobile or manufactured homes in communities.
At the heart of the matter is that home-only loans in communities have not performed well. Had those loans been safe for conventional lender types, maybe it would be different already. ROC USA President Paul Bradley predicts that within two years, owners of manufactured homes in ROCs will have access to home-only loans with rates comparable to the traditional residential real estate market.
Instead, owners of homes in communities are offered chattel loans. That’s why you visit the consumer finance department at the bank or credit union if you’re lucky enough to find one that provides home-only loans in your market. You don’t visit the mortgage department.
What everyone in communities knows is that you pay higher interest rates and generally have shorter terms. Both are absolutely true and neither is easily fixed.
We have been working on changing that since 2001. (I know, pick up the pace, Bradley!) Honestly, we might have been here in 2010 were it not for the deep recession beginning in 2008.
Excuses aside, there’s real progress to report.
First, we are excited to welcome National Cooperative Bank to chattel lending in Resident Owned Communities (ROCs) beginning later this month in Massachusetts. Their plan is to ultimately provide loans and serve ROCs in all ROC USA states.
Their product is good. And, they’re doing it right, with all of the bells and whistles that Fannie Mae will need to buy loans originated by NCB. It is all of that formality that will ultimately produce lower interest rates on home-only loans in ROCs. Highly organized and efficient markets like housing financing require performance data and more formality that many of you are used to, I know. You’ll be seeing community approvals and Recognition Agreements as a part of this process. It makes sense. If you want in, you have to play the rules. That’s business.
But, it’s going to finally answer that age-old question, “Can we get loans that are closer to regular residential mortgage rates?”
The answer, I predict, will soon be “yes.”
I was at Fannie Mae yesterday with a NCB representative. We’re on a good path to making it happen. Not tomorrow but within two years. That sounds near-term to me given my almost 15 years of work on this.
To be sure, the rock solid performance of ROCs over the last 32 years merits this kind of engagement and investment by conventional residential mortgage lenders. We know from the NH Community Loan Fund’s Welcome Home loan program that home-only loan performance in ROCs is outstanding.
This opportunity with NCB and Fannie Mae is in recognition of that solid performance. More news to follow. I was excited and wanted to tell you about seeing the future yesterday. It’s a future I’ve planned for a long time.