Recent history has shown that the regulations designed to implement the Dodd-Frank Act thresholds for High-Cost Mortgages under the Home Ownership and Equity Protections Act (HOEPA) for personal property loans are having a severe negative impact on the sale and finance of Manufactured Home Construction and Safety Standards (HUD Code) manufactured homes. New and used chattel homes valued below $20,000 have been particularly impacted by the regulations. While a proposed legislative solution is now in sight, it remains to be seen whether Congress has the necessary motivation and focus to enact this important legislation.
By way of background, I spent the last few years of my government career at the Consumer Financial Protection Bureau (2011-2014), better known simply as CFPB, though I managed the Manufactured Housing Program Office at HUD for several years as well. Dodd-Frank not only transferred to CFPB the other HUD statutes I managed, including RESPA, the Safe Act and Interstate Land Sales, but also transferred principal HUD staff. I was assigned to the team writing the implementing regulations for the Dodd-Frank appraisal provisions. At the same time, another team of CFPB attorneys went to work on rules to implement Dodd Frank lending provisions establishing HOEPA thresholds.
Under current law, manufactured housing chattel loans are covered by HOEPA if the annual percentage rate (APR) exceeds the average prime offer rate (APOR) by more than 8.5% for loans of less than $50,000. However, given all the additional requirements for points and fees that come with the new HOEPA rules, chattel loans below $20,000 are simply not economical. As a result, most if not all lenders have simply stopped making these loans.
Perhaps the most serious consequence of the new CFPB thresholds is that consumers seeking to sell their homes for less than $20,000 are essentially trapped. Since loans for those amounts are no longer available, they have been forced to accept whatever cash deals they can find. Since these deals tend to be well below market value, we are presented with a prime example of Dodd-Frank and CFPB causing serious financial pain for the very disadvantaged consumers they are supposedly designed to help.
In CFPB’s defense, the agency simply adopted the HOEPA threshold for personal property loans that was included in the revised definitions for High-Cost Mortgages in section 1431(a) of the Dodd Frank statute. Fortunately, the statute gave CFPB the specific authority to exempt broad categories of loans from HOEPA coverage (see TILA 1026.32(a)(1)(i)(A)). However, despite a considerable effort by the industry to educate CFPB on this chattel issue, thus far CFPB has not responded favorably to any request that the thresholds be raised.
The good news is that bi-partisan bills are now working their way through Congress that would solve this problem by changing the HOEPA thresholds in section 103 of the Truth in Lending Act (15 U.S.C. 1602) to APOR plus 10% for transactions under $75,000. Known as the Preserving Access to Manufactured Housing Act (HR 650/S 682), this legislation would thereby protect the true value of an estimated 1.7 million manufactured homes that might be refinanced or sold with a loan balance under $20,000. A bipartisan majority in the House passed Congressman Stephen Fincher’s (TN-8) bill in April and sent it to the Senate. Identical legislation has been introduced in the Senate by Sen. Joe Donnelly (D-Ind.) and remains in the Banking Committee.
These bills would also remedy another problem introduced by Dodd Frank and CFPB, that being the definition of “loan originator” in Section 103 of the Truth in Lending Act (15 U.S.C. 1602). As it stands now, manufactured housing retailers and their employees are considered loan originators, and therefore subject to SAFE Act licensing and NMLS registration, if they give virtually any advice to prospective consumers regarding financing. These bills would amend Section 103 to exclude a retailer of manufactured housing or its employees from the definition of loan originator. The exception would be when the retailer or its employees receive compensation for assisting consumers with the lending process that exceeds the compensation received in a comparable cash transaction. This would free up retailers to actually assist their customers with basic lending questions.
Hopefully, Congress will move forward to enact this important legislation and provide consumers with relief from the unintended consequences of Dodd-Frank.