Consumers face higher interest rates, barriers to further credit when borrowing to buy manufactured homes, report asserts

Consumers borrowing to buy manufactured homes face higher interest rates and, ultimately, barriers to credit through limited refinancing options, the federal consumer financial protection agency contends in a report released Thursday.

The data underlying the report’s conclusions, the agency said, was the result of new information collected beginning in 2018 under the Home Mortgage Disclosure Act (HMDA).

According to the Consumer Financial Protection Bureau (CFPB), loans for manufactured housing – which it calls “one of the most affordable types of housing available to low-income consumers,” making up 13% of the housing stock in small towns and rural areas – are often coupled with higher interest rates and limited opportunity to refinance.

“Consumers who do not own the underlying land are more likely to see their homes depreciate and have fewer protections if they fall behind on payments,” the bureau said in a release. “These factors combined can make this affordable housing a potentially risky avenue for homeownership.”

According to the CFPB, the new data about manufactured housing collected in 2018 under HMDA show:

  • Around 42% of manufactured home purchase loans are “chattel” loans, which are secured by the home but not the land. In general, the bureau asserted, chattel loans have higher interest rates and fewer consumer protections than mortgages. “Consumers may choose to get chattel loans to avoid putting the underlying land at risk if they default on the loan,” the bureau said.
  • Less than 30% of manufactured home loan applications are approved, compared to more than 70% of loan approvals for “site-built” homes, the bureau said. Less than 4% of chattel loan originations were for refinancing, the bureau said.
  • The top five lenders account for more than 40% of manufactured housing purchase loans and nearly 75% of chattel lending, CFPB said. “The four largest originators are specialty lenders that primarily offer chattel loans to manufactured housing owners,” the agency added. “Over time, nonbank lenders have played an increasing role in the manufactured housing lending market, while banks have decreased their activity or exited the market altogether.”
  • Hispanic, Black and African American, American Indian and Alaska Native, and elderly borrowers are more likely than other consumers to take out chattel loans, even after controlling for land ownership, CFPB said.
  • Black and African American borrowers are the only racial group that is underrepresented in manufactured housing lending overall compared to site-built, the bureau said, but overrepresented in chattel lending compared to site-built.

Manufactured Housing Loan Borrowers Face Higher Interest Rates, Risks, and Barriers to Credit, New CFPB Report Finds