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MANUFACTURED HOUSING IN NONMETROPOLITAN AREAS:
A DATA REVIEW

© Housing Assistance Council, 1996

Permission is granted ONLY to nonprofit community-based organizations to reproduce and/or adapt this document, and only for their own use.

FINANCING MANUFACTURED HOUSING

Part of both initial and monthly housing costs is determined by the type of financing used to purchase the unit. Manufactured housing can be financed in several ways. Usually, it is financed with installment personal-property loans, much like automobiles, often with retailers³⁶ directly involved with the financing. A nationwide industry survey found that nearly three out of four manufactured home loans (for new and existing units) in 1993 were placed through retailers.³⁷ The average value of loans originated through retailers (including existing units) was $22,897, and of loans made directly with financial institutions, $25,344. As illustrated in Figure 9, finance companies held the vast majority of manufactured home consumer loans, followed by commercial banks, savings and loan institutions, and credit unions. In more remote areas, where the existence of few banks, savings and loans, or credit unions creates a barrier to housing finance of all types, the availability of financing through retailers might be an important incentive to choose manufactured housing. 

Figure 9. Financing Sources for Mobile Homes

Using consumer installment loans has the advantage for both retailers and buyers that such loans are quicker and simpler to obtain than mortgage loans. Installment loans may be available to persons whose credit rating prevents them from obtaining a mortgage loan. Further, an installment loan applies only to the structure and not to the land upon which it is placed, so it works well for units being placed in mobile home parks and for homes being placed as accessory housing units at existing home sites, or on Indian reservations where land is not individually owned and the mortgage approval process can be cumbersome. Placement as accessory housing is more possible in nonmetropolitan areas where there are fewer zoning restrictions to auxiliary structures and where, as previously noted, fewer units are placed in mobile home parks. Installment loans can be made while the unit is still on the retailer's lot, so there is no need for interim financing. 

Installment loans for manufactured housing, however, usually have shorter terms and higher interest rates (4 to 5 percent higher), and sometimes larger down payments, than mortgage loans. Some lenders will accept land in lieu of down payments with installment loans. Then the owner does not make a cash down payment, but the lender will hold a mortgage on the land. This might seem to be more workable in rural areas where people may be more likely to own the land for the home site. AHS data shows, however, that land was rarely used in lieu of a down payment. Personal savings were used by almost half of borrowers for their down payment, as illustrated in Table 11.

Table 11.  Financing Mobile Homes

	Nonmetro Mobile Homes	Nonmetro Non-Mobile Units	Central City Mobile Homes	Suburban Mobile Homes
Down Payment Major Source: Sale of Home	24 %	32 %	26 %	27 %
Down Payment Major Source: Savings	58 %	50 %	59 %	56 %
Down Payment Major Source: Land of Site	--	1 %	--	--
All Households with Mortgages:	42 %	48 %	33 %	39 %
FHA Mortgages	2 %	9 %	--	2 %
VA Mortgages	2 %	5 %	5 %	3 %
FmHA Mortgages	1 %	4 %	--	--
Other Type Mortgages	96 %	81 %	95 %	95 %
Mortgages Under State or Local Programs	3 %	12 %	9 %	4 %
Median Purchase Price	$15,221	$32,201	$16,503	$16,873
Median Term at Origination	14 years	28 years	13 years	13 years
Median Current Interest Rate of Mortgages	11.3 %	8.7 %	11.6 %	11.3 %
Median Monthly Payment for Principal and Interest	$263	$369	$275	$250

"--" means zero or rounds to zero.

About 10 percent of manufactured home purchases were financed by mortgage loans, according to the National Commission on Manufactured Housing, which also recommended that more use be made of mortgages for financing manufactured housing purchases. Most lenders require that the unit must be permanently placed on a foundation and be on land owned by the homeowner in order to qualify for a mortgage loan. The proportion of homes being placed on their owner's private property increased from 33 percent in 1980 to 39 percent in 1990,³⁸ which could make mortgage financing more feasible. Nevertheless, the Manufactured Housing Institute found that mortgage loans made up only 2 percent of the 144,364 loans originated in the nation in 1993. The average loan amount was $50,202, indicating that those mortgages were used for more expensive, often double-wide, homes. It should be noted, however, that some lenders do not keep separate records of manufactured housing when it is on a permanent foundation and being treated as real estate, so some data on loans are not captured as manufactured housing. It is not clear whether the difference between the Commission's 10 percent mortgage figure and MHI's 2 percent was due to actual changes in mortgage originations over time or simply to differences in the studies' methodologies.

Mortgage lending has been affected by the specialized lending treatment that the federal government has accorded manufactured housing. Because such housing is regarded as less durable than other units, higher down payments and shorter terms have often been required. As manufactured housing has come to be seen more like other real estate, the terms and lending regulations have become more like that of other housing.³⁹ The federal government has included manufactured housing in Rural Housing Service (RHS, formerly the Rural Housing and Community Development Service, and earlier the Farmers Home Administration, or FmHA), Department of Veterans Affairs (VA), and Federal Housing Administration (FHA) programs. The FHA Title I program can guarantee loans for manufactured homes, for manufactured homes and the property on which they are located, or for just manufactured home lot purchases. FHA Title II can be used where the home is permanently placed on land and treated like real estate. From 1991 through 1993, when an average of 209,600 new manufactured homes were being placed annually, the average number of manufactured home loans guaranteed under FHA Title I annually was only 20,211 nationwide. The average number of VA manufactured home loans was 144.⁴⁰ RHS requires that the home and land be included in one loan. Only 23 loans for manufactured housing were closed by RHS in fiscal year 1994. These federal programs have helped only a small part of the market. Manufactured housing has also been included in the secondary markets of the Government National Mortgage Association (GNMA) for personal property loans, and Fannie Mae (formerly the Federal National Mortgage Association, or FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC, or Freddie Mac) for real estate mortgages. 

Federal programs and regulations are generally the same for metropolitan and nonmetropolitan areas, with the exception of RHS, whose loans are available only in areas meeting a unique definition of "rural" -- in nonmetro areas, generally places of up to 20,000 population that are rural in character. Lower cost of land and its availability for manufactured housing in nonmetropolitan areas, however, might logically make federal mortgage programs easier to use there. Nevertheless, in 1993 FHA and VA mortgages each were used by only about 2 percent of all nonmetro mobile home households with mortgages. FmHA loans were used for 1 percent of the mortgages (see Table 11).

The AHS found that about half of nonmetropolitan mobile homes in 1993 had some sort of secured loan,⁴¹ a lower proportion than that for non-mobile units in nonmetro areas, but a higher proportion than for metro mobile homes. AHS data also confirmed that buyers of mobile homes paid higher interest rates over much shorter loan maturity periods than buyers of conventional housing. The median term of the loans on nonmetro mobile homes was 14 years, compared to 28 years for other nonmetro housing. Median current interest rates for nonmetro mobile home loans were 2.6 percentage points higher than for other nonmetro housing (see Table 11). (This AHS variable did not distinguish between mortgage and installment contracts.) Shorter maturity periods translate into larger monthly payments, but may also mean smaller lifetime interest costs. Cash-short low-income buyers, of course, may focus on the monthly payment amount instead.

Higher financing costs were offset by the lower cost of the manufactured structures and, therefore, smaller loan amounts. With the median value of nonmetro mobile homes about one-fourth of that for other nonmetro housing units (as shown in Table 8), the median monthly principal and interest payment, even with the higher rates, was $263 for mobile homes (Table 11). This was fully 29 percent lower than that for other nonmetro housing units in 1993.

In summary, the same mechanisms can be used to finance manufactured housing in metropolitan and nonmetropolitan areas. Installment loans, usually placed through manufactured home retailers, are the primary finance mechanism for manufactured housing. While more expensive, installment loans are easier and more convenient to obtain than mortgage loans, especially in nonmetropolitan areas where there are few or no lending institutions. Less sophisticated buyers or those with poor credit ratings may feel that they have no choice but to accept these more expensive installment loans instead of seeking mortgage loans. Retailers may encourage installment loans because such loans can be made faster through the retailer's connections and because they generate profit for the retailer.

Mortgage financing remains the exception rather than the norm, partly because mortgage programs usually require that the home be placed on a permanent foundation on land owned by the same party as the house. Federal credit agencies and regulations have included manufactured housing in programs similar to other housing. Lower land costs and land availability in nonmetropolitan areas have resulted in more manufactured homes being placed on separate lots rather than in mobile home parks, so they could more easily be eligible for real estate mortgages. There appears to be unused opportunity for mortgage financing of manufactured housing. Mortgage financing would probably be less costly for consumers, but is unlikely to be encouraged by retailers.

MOBILE HOME PARKS

One reason that mortgage financing may not be used is because the unit will be placed in a mobile home park where the individual lot is rented. Zoning laws, especially near metropolitan areas, often have effectively restricted manufactured housing to placement in parks. Lower initial costs of renting the lot have had the appeal of making mobile home park living less expensive on a monthly basis. Some manufactured home owners have liked the freedom from responsibility for park maintenance that comes with renting their lot.⁴² 

Although, as noted above, AHS data indicates that mobile home parks are less common in nonmetro areas than in metropolitan locations, at least one other study has found that, because of restrictions and land prices, most new mobile home parks have been placed away from cities in places where land costs make park development feasible. New parks often require expensive infrastructure that compels large park size.⁴³

Mobile home parks include a spectrum of living arrangements. Some parks are little more than a series of tiny lots on which to place a unit and receive utility services. These are high density communities with little privacy and few amenities. Other parks offer a range of amenities including recreational facilities and programs. Some parks were developed for retired persons and offer services specific to their needs and wants, including security, few maintenance responsibilities, and leisure opportunities.⁴⁴ 

Although a few mobile home parks are jointly owned by the residents as condominiums or cooperatives, most are owned by developers who set the rents and rules. Home owners are vulnerable to potential problems because moving may be prohibitively expensive. Transporting and installing a manufactured home can cost several thousand dollars, and moving it even more. There may not be openings in other parks, and the initial costs of developing their own lot for a manufactured home may be prohibitive for low- and moderate-income households. Many sources describe problems encountered by renters of sites in mobile home parks.⁴⁵ The problems can be grouped in the following categories:

• Rent increases. There are many complaints about rent increases in mobile home parks. Increases are often larger than the residents' income growth and are viewed by residents as excessive.⁴⁶ Yet they may have little choice but to pay what the park owner is asking. 
• Park closures. Especially in growth areas, park owners may decide to sell the land when there is a good offer. Residents may face an expensive move or have nowhere to go. Land owners and investors may use mobile home parks as an interim strategy to gain income while their land appreciates. Further, some parks are sited with a time-limited conditional use permit.
• Poor park management and maintenance. Poor maintenance is often mentioned as a problem experienced by park residents. It can lead to physical and social problems in the park, diminishing the quality of life and the value of every unit located there. Fear that complaints may lead to eviction discourages full use of tenants' rights. 
• Restrictive rules. Many different kinds of rules have been imposed by park owners. Some parks have rules restricting the placement or sale of units to those brokered by the park owner. Others may impose rules like charging parking fees to visitors or limiting additions to the unit. Rules may be added after a family has moved in that substantially change the quality of life. 
  Lesser access to municipal services. Local governments may not provide municipal services such as trash pickup or even police protection within mobile home parks. As the National Commission on Manufactured Housing described it, the park owner therefore "functions as a mini-city government, providing many of these services and building the cost into the lot rent." This situation increases the costs of occupying a home in a park, and means that park residents may receive a very different level of services than their neighbors.⁴⁷
• Connections between retailers and parks. Manufactured home retailers may require that purchasers rent a site in a specific park, sometimes one owned by the retailer itself. Such requirements increase retailers' profits at the expense of purchasers' ability to choose where to live, and to obtain reduced site rental rates by comparative shopping.

These abuses have occurred in part because state laws historically have not protected residents of manufactured home parks, or simply have not been used to protect them. Seeing a clear need, by 1991, 32 states had enacted protective laws applying specifically to park residents. Even where state statutes do exist, their provisions vary widely. Only 18 of the 32 statutes require written leases and disclosure of all park fees, for example. Twenty require owners to give residents some notice of a change in land use, although simple notice usually does not give a homeowner organization -- even where one exists -- enough time to make a counteroffer. Only six states give residents a right of first refusal to purchase their parks, and only two require the owner to accept a buy-out at fair market price.⁴⁸ 

Other state laws may also apply, such as those dealing with fraud, unfair and deceptive acts and practices, and landlord/tenant relationships. Also, local governments may enact ordinances applying protections where state laws do not. Some states and localities have limited rent increases for manufactured home park tenants, with varying degrees of success. According to the AARP, Florida judges have seldom overturned rent hikes despite the state's prohibition on "unconscionable" increases. In California and New Jersey, on the other hand, local governments have extended their rent control ordinances to parks, with results more favorable to park tenants. 

Hoping to influence the development of new legislation at the state level, the AARP has published a model state statute dubbed "The Manufactured Home Owner's Bill of Rights," developed by the National Consumer Law Center. Another protective effort gaining support in some places is the purchase of parks by tenants themselves or by other entities interested in preserving parks as housing sites. 

Mobile home parks can have several kinds of ownership, depending on state laws. Some parks are owned cooperatively by their tenants, either in a stock cooperative or a limited-equity cooperative designed for low-income households. In some states, mobile home parks can be held in condominium ownership. Cooperative or condominium ownership lets home owners control the management and future of their park while spreading the infrastructure and management costs and the responsibilities among all the residents. Local or state governments may themselves own parks to increase the supply of affordable housing, although (like any government housing program) that can be problematic because of cost and/or political opposition. Mobile home parks can also be owned by nonprofit corporations. The device of placing the land in a land trust can be used to dedicate the park to low-income housing in perpetuity.

Since siting a new mobile home park may meet with local resistance, collective ownership may be more easily achieved through the conversion of an existing park. Conversion of an existing park is a complex process that requires resident initiative, the support of a lender, and local and/or state government cooperation. Lenders with the expertise and interest may not be available locally in rural areas. Nevertheless, collective ownership of mobile home parks is a strategy that could be used more often to enhance stability of living there.

Another increasing trend is in the development of manufactured housing subdivisions, which are like conventional subdivisions except that all the houses are manufactured housing set on permanent foundations. The subdivisions can be planned unit developments with smaller lot sizes offset by larger common areas. Manufactured housing subdivisions as an approach to low-income housing have been used more in metropolitan areas, but the approach has utility in nonmetropolitan areas as well. If multi-section houses are used, the resulting subdivision may not be readily distinguishable from other modest subdivisions. Modular housing units are also used in this way. If the subdivision is large enough, lower prices can be achieved through quantity purchase and installation of either modular or manufactured homes. 

CONSUMER SATISFACTION WITH MANUFACTURED HOUSING

Although the manufactured housing industry has tried to upgrade its image, manufactured houses are widely viewed as less desirable than conventional homes. Effects of this perception can be seen in widespread use of zoning to limit placement of individual mobile homes or manufactured units and mobile home parks. Community concern may be based partly on dislike of the distinctive trailer-like appearance of old-style manufactured housing. It may also be based on dislike of low-income households and fear that concentration of them in mobile home parks will bring problems to the neighborhood and lower adjacent property values. Some rural and nonmetropolitan areas have had fewer legal barriers to manufactured housing than urban areas.

AHS data shows, nevertheless, that nonmetro mobile home residents were nearly as satisfied with their homes and neighborhoods as nonmetro residents of other housing. As Table 12 reports, the AHS asked householders to rank their overall opinion of their house as a place to live on a scale of 1 to 10; householders in mobile homes as well as in other units generally expressed a high opinion of their housing.

Table 12. Overall Opinion of Housing Structure (percent of respondents)

Self-Ranking of Housing	Nonmetro Households in Mobile Homes	Nonmetro Households in Non-Mobile Units	Central City Households in Mobile Homes	Suburban Households in Mobile Homes
8 - 10	68 %	75 %	64 %	65 %
4 - 7	29 %	23 %	33 %	32 %
1 - 3	3 %	1 %	3 %	3 %

Nonmetro residents in all types of housing were generally satisfied with their neighborhoods as well. A somewhat higher proportion of nonmetro mobile home residents (44 percent) rated their neighborhood a 10 than did nonmetro residents in other units (43 percent). Nonmetro residents were more likely to rate their neighborhoods highly than were households in central cities or suburbs (see Table 13).

When householders in all types of housing who moved during the past year were asked by the AHS about why they chose their present home, they most often gave financial reasons. Almost half (46 percent) of the nonmetropolitan mobile home residents gave financial reasons for their choice of their current home, compared to about 10 percent who mentioned design and layout of rooms and 6 percent who mentioned quality of construction. Fewer nonmetro non-mobile home households (37 percent) listed financial reasons for their choice of their present home (see Appendix D, Table 4 for more details).

Table 13. Overall Opinion of Neighborhood (percent of respondents)

In choosing their neighborhood, though, about one in three recently moved non-mobile home household listed their house as the most important consideration. Residents of mobile homes, in contrast, more often cited other reasons for selecting their neighborhood. Also, a sizable proportion (about one-third) of the nonmetro mobile home households selected their current neighborhood to be near friends or relatives (see Appendix D, Table 5 for more details).

Another study found that persons living in the Southern region of the United States preferred conventional homes, but were often willing to consider manufactured homes. Researchers in Southern universities found that, when asked about perceptions of alternative housing, four out of every five respondents said that they would consider buying a conventional home if they were moving. About 25 percent would consider renting an apartment, while about 20 percent would consider purchasing a manufactured home. When respondents were asked to rank seven types of dwellings, however, their opinions of manufactured homes seemed more favorable: manufactured homes were their second highest preference, after conventional homes, but before apartments. Comfort and convenience (including room arrangement and thermal comfort) were most often indicated as features liked, followed closely by cost (including initial financing and resale costs). Least liked features were safety (security and structural quality), small size, and quality of construction.⁴⁹ 

Another aspect of satisfaction with a new home, of course, is the availability of repairs for defects and construction problems. The National Commission on Manufactured Housing considered issues involving complaints by manufactured home purchasers, so those need not be reiterated here. Residents' ability to obtain satisfaction varies among states, manufacturers, and retailers. Some manufacturers and retailers are less than responsive to consumer complaints, and some states have less than ideal consumer protection laws. Other manufacturers have worked to develop a quality product and reputation, and other states have put warranty protections and even statewide recovery funds in place.⁵⁰

RECOMMENDATIONS FOR FURTHER RESEARCH

Manufactured housing and mobile homes are used extensively in nonmetropolitan and rural areas, but manufactured/mobile housing should not necessarily be viewed as "the solution" to the need for decent, affordable housing in these areas. Establishing real, long-term housing options for lower-income rural residents would require improving further the quality and durability of new manufactured/mobile homes, repairing existing manufactured/mobile homes as necessary, expanding the range of financing sources for both types of housing, and making site-built homes more affordable. Affordability may be enhanced by the use of modular components in site-built homes, combining the best aspects of both manufactured and site-built housing to reduce costs while maintaining the quality, safety, and value associated with site-built homes. Government housing policy can also influence housing affordability and financing (through incentives for private lenders, subsidies, guarantees, and influence in the secondary market), quality (through regulations such as the HUD Code), and location (through zoning and land use laws). In addition, housing policy can provide for or encourage consumer education. 

Increasing the quality and affordability of all types of housing also requires sensitivity to differences among types of manufactured/mobile homes and among the needs of their occupants. If the oldest manufactured/mobile homes are indeed occupied by the poorest households, quality improvements in new manufactured homes will not improve those families' housing conditions unless new homes are made affordable for them, or assistance in repairing and maintaining those old homes is provided. 

Before conclusions can be drawn about the role of manufactured/mobile housing in improving housing conditions for rural residents, it would be helpful to know more about many aspects of manufactured/mobile housing. Existing data provides almost no information about such matters as long-term costs, the existence of real options for purchasers, and characteristics of occupants of particular types and ages of homes. More knowledge, including the following, is needed. 

• There is a limited amount of data on manufactured/mobile homes in both the AHS and Census. More information on manufactured/mobile housing should be collected and reported by type of unit (e.g., pre-1976 factory-built home, post-1976 HUD Code manufactured home, and travel trailer) and by type of land tenure (e.g., owned land, land rented from relatives, land rented from others). It would be useful, then, to be able to compare the quality and housing cost of different types of units and the characteristics of households living in them. 
• Data gathered by HUD and State Administrative Agencies as part of the regulatory process should be recorded in ways that allow for assessment by region, state, and metro/nonmetro location, as well as by date of manufacture of the unit. 
• A study should be undertaken to compare the lifetime costs of purchasing a manufactured home to the costs of other housing options. Even if the monthly cost of owning a manufactured home is lower than that of owning or renting a comparably sized, comparably equipped unit, that advantage might be outweighed by higher maintenance costs, lower resale value, shorter lifespan, and the like. Such a study must consider costs for different geographic areas separately; differences between metro and nonmetro areas or urban and rural places may affect the factors that determine costs. 
• The quality and cost of modular homes and panelized homes should be compared to those of manufactured homes. It would be useful to know, for example, whether the durability and resale value of manufactured homes could be improved while maintaining the cost savings obtained by factory construction. 
• The reasons for the apparent quality problems of HUD Code manufactured homes should be identified so that solutions can be found. 
• Factors affecting the useful life of manufactured housing should be identified. While the industry has calculated the expected life of all manufactured housing, it is not clear whether the expected life of individual homes can be affected by factors within the control of the owner, such as placement on a permanent foundation. 
• Fire and storm damage to manufactured housing should continue to be monitored and HUD Code standards adjusted accordingly. The efficacy of new wind and thermal standards should be assessed.

Some useful information currently exists, but is not well enough known by manufactured/mobile home residents or purchasers.

• Information should be publicized to educate manufactured/mobile home residents about financing options, especially mortgage financing of manufactured/mobile homes placed on permanent foundations. 
• Information should be publicized to educate manufactured/mobile home residents who live in parks about ways of curtailing possible abuses by park owners. 
  
  

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