Borrowers of manufactured home loans face higher interest rates, risks and other hurdles
The Consumer Financial Protection Bureau released a report offering new insights into the financing of manufactured homes, a vital source of loans for millions of manufactured home owners. Prefabricated housing is one of the most affordable types of housing available to low-income consumers and accounts for 13% of the housing stock in small towns and rural areas in America, according to the report. These low acquisition costs, however, often come with higher interest rates and limited refinancing options, according to the office.
The CFPB found that consumers who don’t own the underlying land are more likely to see their homes depreciate and have less protection if they fall behind on payments. These factors combined can make this affordable housing a potentially risky avenue for homeownership.
“This report shows the power of the Home Mortgage Disclosure Act‘s expanded data collection to understand the path to homeownership for some of our most vulnerable families, including Black, Indigenous and Hispanic families, as well as rural and low-income families of all races. and ethnicities, ”said Interim Director Dave Uejio. “Much remains to be done to understand the options available to these families and how best to help ensure that home ownership of prefabricated housing can be a path to financial stability for rural families. and low income who depend on it.
The CFPB report is based on new information on manufactured homes that was added in 2018 to the list of HMDA data collected. This new HMDA data is the only nationwide dataset that directly tracks the different types of financing options for manufactured homes.
Overall, around 42% of prefabricated house purchase loans, according to the report, are “movable” loans, which are secured by the home but not by the land. Generally, home equity loans have higher interest rates and less consumer protection than mortgages. Consumers can choose to obtain home equity loans to avoid endangering the underlying land in the event of default.
In addition, most manufactured home loan applications are turned down and less than 4% of movable property creations were for refinancings, according to the report. The CFPB also found that homeowners seeking a loan for a built-in-place home are approved more than 70% of the time, but less than 30% of manufactured home loan applications are approved. At the same time, even during the low interest rates of 2019, very few manufactured home loans were refinance loans.
The top five lenders account for more than 40% of loans for the purchase of prefabricated housing and almost 75% of personal loans. The four largest originators are specialized lenders who mainly offer furniture loans to owners of prefabricated homes. Over time, non-bank lenders have played an increasingly important role in the prefabricated home loan market, while banks have either downsized or exited the market altogether.
Click here to learn more about the report.