MReport September 2018

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52 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST ORIGINATION Chattel Loans vs. Mortgage Loans for Manufactured Housing Researchers found that buyers' pursuit of mortgage loans would save them money and increase purchases. W hile most manufactured- housing customers obtain chattel loans—personal-property loans— potential and significant cost savings are available for them in the mortgage loan market, according to a report the Urban Institute issued. In fact, in their report, research - ers at Urban Institute suggested that costly chattel loans could be partially responsible for the decline in this affordable housing sector in recent years. Addressing the high cost of financing for this affordable hous- ing sector could help ease the current affordable housing supply shortage, the researchers said. Manufactured housing was significantly more popular in the past. From 1977 to 1995, records show 240,000 manufactured-home shipments per year. But in 2017, only 93,000 manufactured homes were shipped. The Urban Institute estimated an average rate spread of 5.61 percent for loans from manufac- tured housing lenders, well over four times the rate at general lend- ers, which the institute estimated at 1.20 percent. "At a minimum, we conclude the difference between chattel and nonchattel lending is 4.41 percent - age points," the researchers stated. On an $80,000 20-year chattel loan, this would translate to a savings of $2,600 per year, accord - ing to the researchers. However, the researchers noted, "this does not mean everyone who takes out a chattel loan could save 4.41 percent in interest by switching to a mortgage." Borrowers' credit scores, incomes, closing costs, and land ownership can also impact the equation. The report noted that bor - rowers who obtain chattel loans may have lower credit scores and lower incomes on average. The median income for a manufac - tured-housing lender customer was $45,000, while the median income for a general lender customer is $51,000. Also, closing costs were likely to be more expensive on a mort - gage loan than a chattel loan. "Even so, the cost differential between chattel and mortgage financing is significant," the re - searchers maintained. Another factor to consider is that not all chattel borrowers have the option of obtaining a mort - gage loan. Chattel loans function as personal-property loans where the home is considered personal property. This allows borrowers who own their homes but not the land on which it sits to obtain financing. For a mortgage loan, the borrower must own both the house and the land. However, "Data show that most manufactured homeowners taking out chattel loans might have been eligible for a mortgage," stated the report. A couple of major convenience factors can lead borrowers to choose a chattel loan, perhaps even without considering a mortgage loan. The first is that manufactured homes are titled as personal property, regardless of whether the owner owns the land on which the property sits. To obtain a mortgage loan, the borrower would have to wade through a potentially complicated process of transferring the prop - erty to "real property." The second is that often chattel lenders offer loans at the same site where the homes are sold. Customers may purchase their homes and obtain their loans at a one-stop shop in one day. While conceding that not every borrower able to obtain a chattel loan would qualify or opt for a mortgage loan, the researchers maintained that significant savings were possible for some customers. They suggested policymakers encourage borrowers to consider a mortgage and to look into simpli - fying the process of switching over a title for a manufactured home. "The reduced costs and greater protections could stimulate de- mand for manufactured housing and hence, the production of these homes, adding units to the scarce supply of affordable hous- ing," the report concluded.

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