Section 1129 of the Housing and Economic Recovery Act of 2008 (HERA) amended the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 to establish a duty for the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) to serve three underserved markets: manufactured housing, affordable housing preservation, and rural areas. The purpose of this duty was to increase the number of mortgage investments and improve the distribution of investment capital available for mortgage financing in those markets. Section 1335 of the HERA required the Federal Housing Finance Agency (FHFA), beginning in 2010, to evaluate the extent to which Fannie Mae and Freddie Mac have complied with the “duty to serve underserved markets” and to rate the extent of compliance.
In December 2015, the FHFA issued a proposed rule that would implement HERA’s duty to serve provisions. Again, the statute establishes a duty for Fannie Mae and Freddie Mac to facilitate a secondary market to improve the distribution of mortgage financing for very low, low, and moderate-income families in the manufactured housing, affordable housing preservation, and rural housing markets.
Under the proposed rule for manufactured housing, duty-to-serve credit would be provided for loans that Fannie Mae and Freddie Mac are already undertaking when financing manufactured housing units titled as real estate. There is no equivalent language for chattel loans. According to the proposed rule, this is because real estate loans perform better, have greater borrower protections, and have lower default rates than chattel financing. However, the proposed rule did invite public comment on whether the final rule should authorize duty-to-serve credit for Fannie Mae and Freddie Mac to purchase chattel loans on a voluntary pilot basis.
Approximately 70 percent of manufactured homes purchased today are financed as chattel. Therefore, there has been considerable effort by the industry and its supporters to encourage both Fannie Mae and Freddie Mac to establish pilot programs for chattel finance. I sit on the Board of Managers of the Manufactured Housing Institute’s (MHI) Financial Services Committee. As a group, we not only submitted a lengthy comment letter on the FHFA rule but also invited representatives of both Fannie Mae and Freddie Mac to discuss the chattel issue at an MHI meeting this past May. While Fannie Mae’s presentation was helpful, Freddie Mac’s representatives seemed truly committed to establishing a pilot program for chattel lending.
Not long after the May meeting, Freddie Mac distributed a charter for a Manufactured Housing Initiative Task Force (MHIT) to various select people. This was followed by an invitation to the first meeting of the MHIT, which was held in Reston, Virginia on July 19. There were probably a dozen Freddie Mac staff at this meeting, as well as mortgage bankers, public interest representatives, several MHI staff and several members of MHI’s Financial Services Committee. The discussions were brisk and serious, and we all left the meeting feeling that Freddie Mac is genuinely committed to finding a way to resume purchasing chattel loans. The plan is for the discussions to continue for the next two years, primarily by conference call. While the scope and structure of such a Freddie Mac program will have to be worked out over time, I am confident that this process will eventually yield a much needed secondary market recovery for manufactured housing chattel loans.