Since the use of this little known loan guarantee program has been minimal in the past few years, several have questioned it's viability. While it's true in the past 8-10 years, there have not been much use of this program, recent financing and market conditions make the timing right for qualified projects. All that has recently changed for the better.
But first a little history lesson:
At the height of new m/h LLCommunity (mobilehome park) development in the late 80' and early 90's there was a massive failure of several of the larger m/h chattel mortgage lenders, primarily the result of the high rate of loan defaults on poorly underwritten loans. This failure caused new community developers to look elsewhere for home financing to fill their newly built homesites within their communities. Without adequate financing, they were doomed to failure by the lack of income from homesite lease payments. FNMA was considering adopting a program for long term chattel loans on HUD code homes which were installed on leased homesites, and proposed a set of rules. One of these rules required a "notice of lease" to be recorded on the public records for a community in which their new loans were to be made.
Problem was: the FHA207m program financing agreement did not provide for any other recorded instruments, junior or senior to be placed on a property which was the subject of a loan guaranteed by the 207m program. Without this notice, FNMA said they wouldn't make the loans as being considered. As a result, several projects which were being considered, withdrew and some which were about to finish construction even "turned in the keys" to their projects, saying in essence "here are the keys", without any viable source of financing, there is no way I have any hope to sell homes, and therefore fill my vacant sites. "My project is dead in the water", they added post-mortem.
The word spread rapidly among the HUD offices that in order to seriously consider financing a community using the 207m loan guarantee program, the sponsor (developer/owner) would have to show a source of viable home financing for residents to purchase their homes. And, to make matters worse, they required the source to be "proven"; that is to say, they must show an adequate source of totally committed funding which would provide a sufficient amount of capital at terms and conditions meeting the new resident's resources and credit worthiness to fill the projects needs to stabilized occupancy.
This became almost impossible, since most developers obviously weren't prepared to provide sources with enough fully committed capital at market terms for new residents, so all but the few that were already starting to fill their communities dropped their applications. The few which were under filled, soon failed, and were foreclosed on by HUD and sold for "a few dimes on the dollar" to various "bottom feeder" investment groups. In later years these investors were abler to fill vacant sites with used and repo homes using self financing. Others just withered away and eventually were closed down.
The Housing and Economic Reform Act (H.E.R.A.) of 2008.
Recognizing this lack of viable chattel mortgaging financing for m/h, Congress included some badly needed reforms to the little used FHA Title I financing program. Although the program included financing for site built home improvements, it also had provisions for financing m/h on leased homesites, and in a lesser m/h land-home package financing. Loan limits, and the structure of the guarantees for lenders. When President Bush finally signed the bill into act, these limiting provisions were eliminated, and the loan limits were indexed for inflation, assuring increasing loan sizes to match market home price increases.
It took until July of 2010 for the HUD staff to fully implement necessary changes to the underlying loan underwriting rules. In the meantime, the secondary market lender of choice GNMA had placed a moratorium on any new lenders, which left only twp active lenders using the program. Finally in August of 2010, they lifted their moratorium with some new lender financial requirements. Since then several lenders have been approved for the sale of their FHA title I originated notes, and several others are applying for approvals.
The situation now:
This greatly changes the home financing options for sponsors considering refinancing, acquiring or developing m/h LLCommunities. And as a result, the HUD staff when now considering 207m loans are eliminating this major objection. Of course the project still must meet the other program requirements.
At the present time, there are several refinance and rehab projects in various HUD offices being considered for financing using the program. In time, it is expected there will be acquisitions and new development projects as applicants in qualifying market areas.
Please don't hesitate to call me with your questions about a project which you are considering as a candidate for this great community financing program.
Edward "Ask Eddie" Hicks
(813) 661-5901
