Manufactured Housing Manufactured Housing Lending in Lending in
CommunitiesCommunities
Marty Lavin, Tim Williams, Marty Lavin, Tim Williams,
Jeff MouatJeff Mouat
The Industry PullbacksThe Industry Pullbacks
High volume periods, then peaks followed High volume periods, then peaks followed by a crashby a crash
During crash better lending and better During crash better lending and better types of loanstypes of loans
more loans with real estatemore loans with real estate
more loans on private propertymore loans on private property
many fewer loans in communities resultmany fewer loans in communities result
much higher credit with better execution much higher credit with better execution
Funding SourcesFunding Sources
1960’s and 1970’s – till ’731960’s and 1970’s – till ’73
Virtually every bank involved (52% of all new Virtually every bank involved (52% of all new housing starts)housing starts)
Then crash, and GECC and S & L’s till late Then crash, and GECC and S & L’s till late 1980’s1980’s
Then crash, and ABS markets start in 1987Then crash, and ABS markets start in 1987
Crash and no new source in sight for moneyCrash and no new source in sight for money
Who will be next? (125,000 annual shipments Who will be next? (125,000 annual shipments now)now)
Will GSE’s Become a Source?Will GSE’s Become a Source?
Tremendous liquidity and cloutTremendous liquidity and clout
Know how to really study problemKnow how to really study problem
Very adverse to losses, already lost their Very adverse to losses, already lost their naivete, and won’t reenter without naivete, and won’t reenter without changeschanges
(Conseco bonds handled that)(Conseco bonds handled that)
ABS and the MarketsABS and the Markets
Tremendous lossesTremendous lossesNow know the facts and learning moreNow know the facts and learning moreLess risk adverse than GSE’s, but will Less risk adverse than GSE’s, but will want similar protections, still perceive want similar protections, still perceive many problemsmany problemsProbably will partner with GSE’s, which Probably will partner with GSE’s, which would provide substantial increased would provide substantial increased liquidityliquidityBoth have lost their MH naiveteBoth have lost their MH naivete
How does this Affect Community How does this Affect Community Lending?Lending?
Home depreciation greatest in communitiesHome depreciation greatest in communitiesHighest percentage of total repos are in Highest percentage of total repos are in communities and greatest severitycommunities and greatest severityLenders and community owners have not always Lenders and community owners have not always been friends in downturns or defaultsbeen friends in downturns or defaultsToday lenders highly wary of in-community loansToday lenders highly wary of in-community loansI estimate 100,000 – 125,000 homes of in-I estimate 100,000 – 125,000 homes of in-community chattel loans not being done at community chattel loans not being done at presentpresent
Depreciation in Communities Depreciation in Communities is the Enemyis the Enemy
High gross – low volume sales model industry High gross – low volume sales model industry standardstandardComunities as a housing option in given marketsComunities as a housing option in given marketsLeasehold rents pricing policies in communitiesLeasehold rents pricing policies in communitiesKnow the rules for pricing your rentsKnow the rules for pricing your rentswhat is your competition? Apts and other what is your competition? Apts and other housing, other community rentshousing, other community rentsmortgage payment needs, or replacement costs mortgage payment needs, or replacement costs may be inadequate measures for community may be inadequate measures for community ownersownersvacancies mean somethingvacancies mean something
Measures Industry Lenders Push Measures Industry Lenders Push and Need to Stem Depreciationand Need to Stem Depreciation
CAS – Community Attribute SystemCAS – Community Attribute SystemInvoice database, IBTS Invoice database, IBTS MHI database MHI database Shorter repayment term. Shorter repayment term. Reduced gross profit at sale Reduced gross profit at sale Better installation performanceBetter installation performanceBetter and longer home warranties *Better and longer home warranties *Greater resident lease protectionGreater resident lease protectionMSRPMSRPForming much better resale networkForming much better resale networkTIPSTIPSLBPLBPMARIMARICommunity Owners/Lenders AgreementCommunity Owners/Lenders Agreement
21st Mortgage 21st Mortgage Programs and Programs and Comments – Comments – Tim WilliamsTim Williams
Origen Financial Origen Financial Programs and Programs and Comments – Comments – Jeff MouatJeff Mouat
Q & AQ & A
Company HistoryCompany History 9/1995 - 219/1995 - 21stst begin with 4 employees begin with 4 employees
9/1998 - Tighter underwriting EVA9/1998 - Tighter underwriting EVA
6/2000 - Buyout AHS/CMH 50% 6/2000 - Buyout AHS/CMH 50% investorinvestor
12/2001 - Buy Assoc. portfolio12/2001 - Buy Assoc. portfolio
9/2003 - BRK buys Clayton9/2003 - BRK buys Clayton
12/2003 - Clayton buys 2112/2003 - Clayton buys 21stst mortgage mortgage
Why did they quit?Why did they quit?AccessAccessAssociatesAssociatesBankAmericaBankAmericaBelgraviaBelgraviaBombardierBombardierBurginBurginChaseChaseCITCIT
Manufactured Home Lenders of the 90’s
• Conseco• Deutsche • Dynex• Greenpoint• MCI• IndyMac• Southtrust• United Companies
What didn’t they What didn’t they understand?understand?
Differentiation among score Differentiation among score rangesranges
Importance of EquityImportance of Equity
Repossession loss curveRepossession loss curve
Significance of home locationSignificance of home location
95% LTV Repossession 95% LTV Repossession History History
Orig YrOrig Yr LOANSLOANS REPOSREPOS
YR 1YR 1 YR 2YR 2 YR 3YR 3 YR 4YR 4 YR 5YR 5 YR 6YR 6 YR 7YR 7 YR 8YR 8
19961996 594594 203203 22 3333 3737 5252 1717 1717 2626 1919
19971997 13121312 391391 1515 7878 8181 6363 5050 5555 4949 00
19981998 20832083 605605 3030 155155 8585 100100 134134 101101 00 00
19991999 603603 110110 99 1616 3535 3131 1919 00 00 00
20002000 808808 124124 77 3737 4444 3636 00 00 00 00
20012001 13761376 165165 88 7676 8181 00 00 00 00 00
20022002 11131113 6262 1515 4747 00 00 00 00 00 00
20032003 10861086 1111 1111 00 00 00 00 00 00 00
TotalTotal 89758975 16711671 9797 442442 363363 282282 220220 173173 7575 1919
89758975 78897889 67766776 54005400 45924592 39893989 19061906 594594
33.5%33.5% 1.08%1.08% 5.60%5.60% 5.36%5.36% 5.22%5.22% 4.79%4.79% 4.34%4.34% 3.93%3.93% 3.20%3.20%
95% LTV Repo Frequency by 95% LTV Repo Frequency by Scores RangeScores Range
CBSCRCBSCR LOANSLOANS YR 1YR 1 YR 2YR 2 YR 3YR 3 YR 4YR 4 YR 5YR 5 YR 6YR 6 YR 7YR 7 YR 8YR 8 TotalTotal
00 835835 1.56%1.56% 7.91%7.91% 6.59%6.59% 8.24%8.24% 6.80%6.80% 5.85%5.85% 5.38%5.38% 3.45%3.45% 45.76%45.76%
<600<600 10911091 2.11%2.11% 9.59%9.59% 7.00%7.00% 7.16%7.16% 5.60%5.60% 4.30%4.30% 4.61%4.61% 1.96%1.96% 42.33%42.33%
600-650600-650 25462546 1.02%1.02% 6.46%6.46% 6.65%6.65% 5.57%5.57% 4.92%4.92% 5.31%5.31% 4.17%4.17% 3.08%3.08% 37.18%37.18%
651-700651-700 23712371 0.93%0.93% 4.45%4.45% 4.43%4.43% 4.02%4.02% 4.55%4.55% 3.36%3.36% 3.59%3.59% 4.03%4.03% 29.37%29.37%
>700>700 21342134 0.61%0.61% 2.28%2.28% 2.71%2.71% 2.22%2.22% 2.30%2.30% 2.14%2.14% 1.12%1.12% 3.03%3.03% 16.41%16.41%
TotalTotal 89778977 1.08%1.08% 5.60%5.60% 5.36%5.36% 5.22%5.22% 4.79%4.79% 4.34%4.34% 3.93%3.93% 3.20%3.20% 33.50%33.50%
95% LTV Repo frequency of 95% LTV Repo frequency of Loans OutstandingLoans Outstanding
CBSCRCBSCR YR 1YR 1 YR 2YR 2 YR 3YR 3 YR 4YR 4 YR 5YR 5 YR 6YR 6 YR 7YR 7 TotalTotal
00 1.59%1.59% 8.55%8.55% 7.75%7.75% 10.34%10.34% 9.83%9.83% 8.60%8.60% 9.15%9.15% 55.80%55.80%
<600<600 2.15%2.15% 10.44%10.44% 8.08%8.08% 8.98%8.98% 7.98%7.98% 6.16%6.16% 7.39%7.39% 51.17%51.17%
600-650600-650 1.03%1.03% 6.95%6.95% 7.13%7.13% 6.81%6.81% 6.46%6.46% 7.33%7.33% 6.15%6.15% 41.86%41.86%
651-700651-700 0.94%0.94% 4.79%4.79% 4.37%4.37% 4.84%4.84% 5.73%5.73% 4.60%4.60% 4.99%4.99% 30.25%30.25%
>700>700 0.61%0.61% 2.44%2.44% 2.52%2.52% 2.60%2.60% 2.78%2.78% 2.75%2.75% 1.45%1.45% 15.15%15.15%
95% LTV by Score Range, 95% LTV by Score Range, Ignore prepaymentIgnore prepayment
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
1 2 3 4 5 6 7
0
<600
600-650
651-700
>700
95% LTV by Score Range After 95% LTV by Score Range After Prepayment Prepayment
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
1 2 3 4 5 6 7
0
<600
600-650
651-700
>700
90% LTV Repo Frequency of 90% LTV Repo Frequency of Loans OutstandingLoans Outstanding
CBSCRCBSCR LOANSLOANS YR 1YR 1 YR 2YR 2 YR 3YR 3 YR 4YR 4 YR 5YR 5 YR 6YR 6 YR 7YR 7 TotalTotal
00 516516 0.59%0.59% 5.26%5.26% 4.85%4.85% 4.97%4.97% 3.69%3.69% 8.48%8.48% 2.85%2.85% 30.69%30.69%
<600<600 801801 1.14%1.14% 6.13%6.13% 5.43%5.43% 6.15%6.15% 5.83%5.83% 7.33%7.33% 4.95%4.95% 36.94%36.94%
600-650600-650 18541854 0.87%0.87% 4.13%4.13% 3.80%3.80% 6.14%6.14% 4.87%4.87% 3.44%3.44% 4.46%4.46% 27.70%27.70%
651-700651-700 18781878 0.48%0.48% 2.09%2.09% 3.17%3.17% 3.45%3.45% 3.37%3.37% 5.24%5.24% 2.63%2.63% 20.42%20.42%
>700>700 19561956 0.20%0.20% 1.88%1.88% 1.01%1.01% 1.11%1.11% 2.40%2.40% 2.49%2.49% 1.11%1.11% 10.20%10.20%
Repossession Rate by Credit Repossession Rate by Credit Score and Down PaymentScore and Down Payment
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
95% LTV 55.80% 51.17% 41.86% 30.25% 15.15%
90% LTV 30.69% 36.94% 27.70% 20.42% 10.20%
0 <600 600-650 651-700 >700
Private property loans score 600-Private property loans score 600-650 650
5% annual rate
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
1 2 3 4 5 6 7Year
Communities loans score 600 – Communities loans score 600 – 650650
8% Avg. annual rate
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
1 2 3 4 5 6 7Year
Reason for poor performanceReason for poor performance
Community incentives reduce equityCommunity incentives reduce equity
Premature decline in housing ValuePremature decline in housing Value
Value determined by total housing costValue determined by total housing cost– Home payment + site rentHome payment + site rent– Relative to alternativesRelative to alternatives
Alternatives = Apartments, site built and Alternatives = Apartments, site built and other communitiesother communities
Value deteriorationValue deterioration
Assume site rent at inception = $300Assume site rent at inception = $300
$35,000 home 5% down = $385$35,000 home 5% down = $385
Total housing paymentTotal housing payment = $685 = $685
Alternative site built @ 6% = Alternative site built @ 6% = $114,000$114,000
Assume $100 site rent increaseAssume $100 site rent increase
Home value goes down From $35000 to $25,885
Alternative site built increase to $131,000
Customer AlternativesCustomer Alternatives
Can’t sell?Can’t sell?
Pay higher rent on home with $10,000 less Pay higher rent on home with $10,000 less valuevalue– Pride of ownership declinesPride of ownership declines– Real depreciation becomes evidentReal depreciation becomes evident– Customers are trapped Customers are trapped – Only exit is RepossessionOnly exit is Repossession
Lender SolutionLender Solution
Limit exposure to only high equity Limit exposure to only high equity customers and best credit customerscustomers and best credit customers
Customize plans for certain communitiesCustomize plans for certain communities
Differentiation among communitiesDifferentiation among communities
2004 MHI Lender of the Year
Origen Financial LLCOrigen Financial LLC
Completed $64MM IPO in May ’04Completed $64MM IPO in May ’04
Completed $150MM 144A equity raise and converted to Completed $150MM 144A equity raise and converted to a Mortgage REIT in October ’03; followed by an a Mortgage REIT in October ’03; followed by an additionaladditional $10MM private placement in Feb ’04 $10MM private placement in Feb ’04
Maintained servicing portfolio of approx. $1.3B, while Maintained servicing portfolio of approx. $1.3B, while originating almost $410MM since Januaryoriginating almost $410MM since January
Selected as 1 of 9 lenders from Fannie Mae MH InitiativeSelected as 1 of 9 lenders from Fannie Mae MH Initiative
Received the MHI 2004 Lender of Year AwardReceived the MHI 2004 Lender of Year Award
What We OriginateWhat We Originate
Home Only (93.64%)Home Only (93.64%)
Land Home (6.36%)Land Home (6.36%)
Comparable Appraisal (16.63%)Comparable Appraisal (16.63%)
Buy For Program (6.04%)Buy For Program (6.04%)
Secondary Homes (2.78%)Secondary Homes (2.78%)
Portfolio ChangesPortfolio Changes
Portfolio Characteristics:Portfolio Characteristics: 20042004 19991999
LTILTI 1.271.27 1.511.51
Average TermAverage Term 230230 331331
Term < 20 YearsTerm < 20 Years 94%94% 16%16%
New HomesNew Homes 62%62% 89%89%
Land Lease Land Lease 63%63% 25%25%
Community Approval ProgramCommunity Approval Program
Collateral Review Specialists approve where the Collateral Review Specialists approve where the community in which Origen borrowers place their community in which Origen borrowers place their homeshomes
Pass/Fail Community Approval Program: allows Pass/Fail Community Approval Program: allows homes to be financed via the advance method in the homes to be financed via the advance method in the approved communitiesapproved communities
Comparable appraisals will not be allowed in pass/fail Comparable appraisals will not be allowed in pass/fail communities unless that community has also been communities unless that community has also been specifically approved for the Comparable Appraisal specifically approved for the Comparable Appraisal ProgramProgram
Community Approval ProgramCommunity Approval Program
Criteria for Pass/Fail Community Approval ProgramCriteria for Pass/Fail Community Approval Program::
Allows homes to be financed via the advance method in Allows homes to be financed via the advance method in approved communities:approved communities:
Must have a completed Community Fact SheetMust have a completed Community Fact Sheet Must submit a copy of lease agreementMust submit a copy of lease agreement Must submit a copy of community’s business licenseMust submit a copy of community’s business license Must have paved street and public access Must have paved street and public access Must have full-time managementMust have full-time management All utilities must be publicly providedAll utilities must be publicly provided Satisfactory Dun & Bradstreet report on communitySatisfactory Dun & Bradstreet report on community Must have a minimum of 25 spacesMust have a minimum of 25 spaces Community must have at least a 15-year lease (property)Community must have at least a 15-year lease (property)
How a Community Impacts a Home’s Value
Everyone has heard the old saying that the 3 most important factors in real estate are location, location, location. This may oversimplify the truth slightly, but the point is well taken that a home’s value can be strongly influenced by the quality of the housing surrounding it and by the quality and desirability of the neighborhood. When most prospective buyers start looking for a home they will target certain neighborhoods. They choose these neighborhoods for a variety of reasons including housing costs, schools, shopping, employment, parks, safety, and a wide variety of other factors. There is typically a direct correlation between the desirability of the community and the cost of the homes in that community. This same concept holds true in manufactured housing. Certain communities can command higher lot rents and higher sales prices due to a strong demand by homeowners and buyers. This demand is due to features such as the location of the community, attractiveness of homes, landscaping, recreational facilities, pools, clubhouses, playgrounds, daycare, school systems, etc. “Location can have a 24% impact on the value of a manufactured home. The value can drop 14% in an undesirable location, or rise 10% in a superior location.” * Here is an example of a typical double-wide manufactured home:
Superior Community $55,000
Inferior Community $43,000
Average Community $50,000
+ 10%
- 14%
Lenders who finance new and existing manufactured homes should make sure that their maximum advance process takes location into consideration.
* 1998 Datacomp Analysis of Sales Price vs. Community Rating
Comparable Appraisal Community Comparable Appraisal Community ProgramProgram
It is necessary to finance the “location” not the It is necessary to finance the “location” not the “amenities”“amenities”
The program uses comparable appraisals to determine property The program uses comparable appraisals to determine property valuesvaluesA vacancy rate less than or equal to 5%A vacancy rate less than or equal to 5%Positive resale activityPositive resale activityMust sign MHI Community AgreementMust sign MHI Community AgreementMust have on site managementMust have on site management
Differentiation Amongst CommunitiesDifferentiation Amongst Communities
Community Attribute SystemCommunity Attribute SystemAttributes have a 1 to 5 weightAttributes have a 1 to 5 weight
Separated Into Three Major CategoriesSeparated Into Three Major CategoriesManagement/ Infrastructure/ Economic Management/ Infrastructure/ Economic
AttributesAttributesCommunity Features/ Amenity AttributesCommunity Features/ Amenity AttributesHome Activity/ Resale Market AttributesHome Activity/ Resale Market Attributes
Management/ Infrastructure/ Economic Management/ Infrastructure/ Economic AttributesAttributes
Lot Lease HistoryLot Lease History
Vacancy RateVacancy Rate
Rent ControlRent Control
Local Attributes (schools, shopping, location, etc…)Local Attributes (schools, shopping, location, etc…)
County UnemploymentCounty Unemployment
Comparable ApartmentsComparable Apartments
Community Features/ Amenity AttributesCommunity Features/ Amenity Attributes
Community AppearanceCommunity Appearance
Age of HomesAge of Homes
Types of homesTypes of homes
Community AmenitiesCommunity Amenities
Home Activity/ Resale Market AttributesHome Activity/ Resale Market Attributes
Average Selling Price (new and used)Average Selling Price (new and used)
Frequency of RepossessionsFrequency of Repossessions
Days on MarketDays on Market
Resale MarketResale Market
76
78
80
82
84
86
88
90
92
94
Total Score
Appearance
Ind. Homesites
Location of Comm
Resale Values
Ind. Homes
CntyUnemploymentAvg. Selling Price
Orderly ResaleMkt.Area Growth Rate
Type of Streets
Freq. of Repos
TopTop 10 - Total Score 10 - Total Score
Top 10 - FeasibilityTop 10 - Feasibility
4.55
4.6
4.65
4.7
4.75
4.8
4.85
4.9
4.95
5
Total Score
Appearance
Layout
Type of Streets
Amenities
Ind. Homesites
Ind. Homes
Municipal Util.
Type of Parking
# of Sites
Distribution oftype
Top 10 – Attributes ImpactTop 10 – Attributes Impact
3.3
3.4
3.5
3.6
3.7
3.8
3.9
4
4.1
Total Score
Resale Value
Freq. of Repos
Occupancy History
Avg. Selling Price
Orderly Resale Mkt.
Appearance
# of Non-Owned
Factors Control Rent
Ind. Homesites
3yr-5yr Rent History
Days on Market
Compar. Apt. Rents
Avg. Rental History
MHI Community AgreementMHI Community Agreement
Agreement between Community Owner and Lender that Agreement between Community Owner and Lender that explains who is responsible for what in the event of a explains who is responsible for what in the event of a repossessionrepossession
MHI Agreement HighlightsMHI Agreement Highlights
Lender doesn’t pay back lot rentLender doesn’t pay back lot rent
Lender is allowed 12 months to resale home in Lender is allowed 12 months to resale home in community without paying rent if the community has a community without paying rent if the community has a vacancy greater than 5%vacancy greater than 5%
Lender must bring home up to community standards Lender must bring home up to community standards within 60 dayswithin 60 days
If home is to be sold wholesale, Lender shall negotiate If home is to be sold wholesale, Lender shall negotiate exclusively with Community Operator for the sale of the exclusively with Community Operator for the sale of the Home for 30 daysHome for 30 days
Thank You!Thank You!