The  market for new manufactured homes declined significantly from 1996 to  2005, but homes that were purchased were larger in size and more often  placed on private property. Modular homes can often be built  in the same factory as manufactured housing but are not required to meet  the HUD Code. As a result,  data on the number of manufactured home parks in each state and at the  national level are limited. According to 2005 American Housing Survey data, monthly housing costs  for manufactured homes generally were lower than for site-built homes  (see fig. Owners of Manufactured Homes Have More Consumer Protections If Homes Are Considered Real Rather Than Personal Property, and Protections Provided by States Vary

Borrowers with loans for real property are generally entitled to a broader  set of protections under a federal law governing the loan settlement  process than borrowers with personal property loans. Personal property loans typically are subject to repossession rather than  foreclosure. States Give Manufactured Homeowners Varying Levels of Notice, Protection and Compensation Related to Length of Leases on Land, Rent Increases, Evictions, and Park Closures

Tenant protection issues affecting owners of manufactured homes include  the length of the leases for land, rent increases, requirements for eviction,  and park closures. We analyzed state laws in eight states and found  varying written lease requirements (see fig. More Information Is Needed to Determine the Impact of Proposed Changes to the Title I Program

Legislative proposals to change the Title I program would increase loan  limits; insure each loan made; incorporate stricter underwriting  requirements; and establish up-front premiums and adjust annual  premiums; but the potential effects of the changes on the program and the  insurance fund are unclear. According to some FHA and industry officials,  the potential benefits for borrowers include larger loans with lower  interest rates to buy larger homes. And, in all  instances where borrowers had medium or high default risk, we show the  fund experiencing a loss. The agency also has not yet collected data needed to help  assess risks such as credit scores and land type. FHA officials explained  that it had not done so because the Title I program was low-volume and  because they were unsure if the legislation would pass. In contrast to other housing types, many lending industry officials  suggested that the cost of recovery for lenders when a loan defaulted was  greater with manufactured homes. FHA only insured slightly more than 1,400  loans in 2006. However, FHA has not  articulated which borrowers would be served, how the loans would be  priced under a risk-based structure and the expected increase in risk to  the General Insurance Fund, how the loans would be underwritten, and  the additional data it plans to collect to manage the program. Specifically, the objectives of this report were to (1) describe  selected characteristics of manufactured housing and the demographics of  the owners, (2) compare federal and state consumer and tenant  protections for owners of manufactured homes, and (3) describe the  proposed changes to FHA’s Title I Manufactured Home Loan program and  assess potential benefits and costs to borrowers and the federal  government. We incorporated  various risk factors unique to manufactured home lending (such as site  location and loss mitigation practices of lenders), as well as other  commonly used predictors of loan performance such as credit scores, into  a model to illustrate ways in which these key factors might affect the  performance of manufactured housing loans and, thus, how variation in  these key factors might affect potential gains and losses to FHA’s General  Insurance Fund. Appendix II: Scenario Analysis Methodology

To gain an understanding of the effects of the proposed changes to the  Federal Housing Administration’s (FHA) Title I Manufactured Home Loan  program, we developed an approach that could illustrate potential effects  of the changes on the program.
Why GAO Did This Study

Pending legislation to the Federal Housing Administration's (FHA) Title I Manufactured Home Loan program would increase loan limits, insure each loan, incorporate stricter underwriting requirements, and set up-front premiums. GAO was asked to review (1) selected characteristics of manufactured housing and the demographics of the owners; (2) federal and state consumer protections for owners of manufactured homes; and (3) the potential benefits and costs of the proposed changes for borrowers and the federal government. In addressing these objectives, GAO analyzed select Census data; researched federal laws and laws in eight states; interviewed local, state, and federal officials; and analyzed various scenarios that might affect Title I program costs.

What GAO Found

According to 2005 American Housing Survey data, most manufactured homes (factory-built housing designed to meet the national building code) were located in rural areas in southern states, and most were occupied by lower-income owners rather than renters. Although the market for new manufactured homes declined substantially from 1996 to 2005, buyers increasingly bought larger homes and placed them on private property rather than in manufactured home parks. In addition, some states are experiencing park closures, with the properties being converted to other uses. Overall, manufactured homes can be an affordable housing option, with monthly housing costs lower than for other housing types. Owners of manufactured homes generally have more consumer protections if their homes are considered real rather than personal property, but protections provided by laws in the states GAO examined vary. Consumer protections extending to lending and settlement processes for personal property loans are not as broad as those for real property loans (mortgages). Also, delinquent Title I borrowers can be subject to repossession or foreclosure, but the consumer protections for repossession are often less extensive than those for foreclosure. State laws give owners of manufactured homes on leased land varying levels of notice, protection, and compensation related to length of leases, rent increases, evictions, and park closures. According to some FHA and lending officials, potential benefits of the proposed changes for borrowers include loans big enough to buy larger homes and more financing as more lenders participate in the program. The program insured about 24,000 loans in 1990 but only about 1,400 loans representing $54 million in mortgage insurance in 2006. While the changes could benefit borrowers, according to FHA and the Congressional Budget Office, the potential costs could expand the government's liability. To gain an understanding of the effects of the proposed changes, GAO presented various scenarios. Although risk factors unique to manufactured home lending (such as placement on leased land) as well as commonly used predictors of loan performance (such as credit scores) are associated with default risk, these data were not available. Instead, GAO modeled different variations of borrower default risk and other factors (such as premiums and lender recovery) that were based on the experience of FHA loans to illustrate how variations in these key factors could affect potential gains and losses to FHA's General Insurance Fund. The analysis suggests that in all instances where borrowers had medium or high default risk, the fund would experience a loss. However FHA has not articulated which borrowers would be served, how the loans would be underwritten and priced under a risk-based structure, or collected data on credit scores and land ownership type. FHA explained that among other reasons, it had not done so because the Title I program was currently a low-volume program. As a result, the effects of the proposed changes are unclear.