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HUD affordability plan doesn’t include lowering FHA premiums

Steps the department will take include raising manufactured housing limits, updating renovation financing product

The Federal Housing Administration (FHA) is taking steps to address the affordability crisis by boosting supply, but it’s not lowering fees it charges borrowers just yet.

Senior officials at the Department of Housing and Urban Development, which houses the FHA, said today during a press briefing that it would focus on improving financing for manufactured homes and revamp its renovation financing.

A senior HUD official said that updating its 203K program to make it more usable is a “high priority.” The renovation program requires between 10% and 20% of the total loan amount be set aside as a contingency and imposes a 1% origination fee on the borrower.

Another area of focus for the administration is improving its financing for manufactured housing. FHA financed about 34% of the $15.2 billion manufactured home purchase mortgages in 2021, according to HMDA data. HUD offers insurance for manufactured housing mortgages under its Title I program, which is more than 50 years old. The program’s maximum loan term is 20 years.

“It’s been a long time since anyone has given [Title I] a lot of love,” a senior HUD official said.

Specifically, HUD officials said they are looking to “raise the Title I loan limits so that those loan limits are appropriate for today’s market.”

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FHA’s loan limit is $69,678 for chattel financing. That’s significantly less than the average sales price of a new manufactured home without land, transportation, or set-up costs of $108,100 in 2021, according to researchers at the Urban Institute.

But the same official cautioned that chattel financing for manufactured homes — where the borrower does not own the land underneath it — is not an ideal solution. While FHA does finance some chattel loans, it is an extremely small share of the market. In 2021, FHA financed 0.5% of the $5.7 billion chattel market.

“When someone owns a manufactured home but doesn’t own the land under it, that’s not the kind of sustainable homeownership that we are trying to promote,” the HUD official said.

“If [the borrowers] don’t own the land under the unit, they’re at some risk that their landlord will kick them off the land, or raise their rents in an unaffordable or unsustainable way,” the HUD official added.

But not all manufactured homes titled as personal property are titled separately because the borrower rents the land underneath. According to an analysis of Home Mortgage Disclosure Data by the Urban Institute, 28% of borrowers with chattel financing also own the land underneath their home. In some cases, the borrower’s family member or acquaintance owns the land.

The HUD official said that the department will be taking a look at protections it can bring to financing of manufactured housing communities. In 2021, Freddie Mac introduced lease pad protections — including renewable leases, unless there is good cause for non-renewal — for manufactured housing communities it finances.

“We have to look at things like the financing of manufactured housing communities, to see if we can bring more protections into that environment,” the HUD official said. That includes “more good financing for the good operators that we know are out there, whether it’s a resident owned or more traditional owned community.”

But the FHA appears reluctant to reduce borrower fees on FHA financing, one tool in its toolkit numerous mortgage stakeholders have argued for.

In May, more than three dozen independent mortgage banks urged the FHA to cut mortgage insurance premiums. So far, although many observers predicted that newly confirmed FHA Commissioner Julia Gordon would move swiftly to cut mortgage insurance premiums, two months have gone by since her confirmation without a reduction.

“When we approach mortgage insurance premiums, it includes a range of conditions, [including] budgetary implications, tradeoffs within appropriations process, and FHA’s role in the broader housing system,” a senior HUD official said. “But I can assure you we are always looking at this in a dynamic way.”

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