Federal Housing Administration: Agency Should Assess the Effects of Proposed Changes to the Manufactured Home Loan Program
GAO-07-879
Published: Aug 24, 2007. Publicly Released: Aug 28, 2007.
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Highlights
Pending legislation to the Federal Housing Administration's (FHA) Title I Manufactured Home Loan program would increase loan limits, insure each loan, incorporate stricter underwriting requirements, and set up-front premiums. GAO was asked to review (1) selected characteristics of manufactured housing and the demographics of the owners; (2) federal and state consumer protections for owners of manufactured homes; and (3) the potential benefits and costs of the proposed changes for borrowers and the federal government. In addressing these objectives, GAO analyzed select Census data; researched federal laws and laws in eight states; interviewed local, state, and federal officials; and analyzed various scenarios that might affect Title I program costs.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Housing and Urban Development | In light of the growth that a revised Title I program could spur and previous experience in the manufactured home loan industry that included a high number of defaults and repossessions, prior to the implementation of a revised program, the Secretary of Housing and Urban Development should direct the Assistant Secretary for Housing and Urban Development--Federal Housing Commissioner to assess the effects of the proposed changes. At a minimum, this action should articulate which borrowers would be served if the program were expanded, including the financial conditions and creditworthiness of the served borrowers. |
Closed – Not Implemented
FHA originally told us that it planned to implement our recommendations once legislation was passed. The Housing reform bill was passed on July 30, 2008 which included changes to FHA's Title I program, but this recommendation was not implemented. FHA officials explained they were unable to articulate which borrowers would be served if the program were expanded, including the financial condition and creditworthiness because they did not have historical data to perform the analysis.
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| Department of Housing and Urban Development | In light of the growth that a revised Title I program could spur and previous experience in the manufactured home loan industry that included a high number of defaults and repossessions, prior to the implementation of a revised program, the Secretary of Housing and Urban Development should direct the Assistant Secretary for Housing and Urban Development--Federal Housing Commissioner to assess the effects of the proposed changes. At a minimum, this action should develop criteria or economic models to assess the potential effect of the proposed changes including risk-based pricing; that is, determine what circumstances or pricing structures would most likely result in a positive or negative subsidy if the proposed changes were enacted. |
Closed – Implemented
According to FHA officials, in August 2007, FHA's Office of Evaluation completed a study of the actual loss recovery rates in the Title I manufactured housing program. Officials explained this was done in order to recalculate the credit subsidy models used for the program instead of relying on previous management assumptions. In addition, officials explained the purpose of the study of actual loss recovery rates would be used to test pricing options, among other things. In fiscal year 2009, officials explained the credit subsidy baseline for the revised Title I manufactured housing program included adjustments made to the historical experience in the Title I program to reflect changes, as revised by the Manufactured Housing Loan Modernization Act of 2008, of the Housing and Economic Recovery Act of 2008. The new credit subsidy calculation was approved by Office of Management and Budget in May 2009. Officials also explained that the analysis was conducted to evaluate the use of risk-based pricing for the Title I program; however, a management decision was made to not incorporate risk-based pricing.
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| Department of Housing and Urban Development | In light of the growth that a revised Title I program could spur and previous experience in the manufactured home loan industry that included a high number of defaults and repossessions, prior to the implementation of a revised program, the Secretary of Housing and Urban Development should direct the Assistant Secretary for Housing and Urban Development--Federal Housing Commissioner to assess the effects of the proposed changes. At a minimum, this action should develop detailed proposed changes to its underwriting requirements that account for unique attributes of manufactured housing and the characteristics of FHA's targeted borrower population. |
Closed – Implemented
According to FHA, in April 2009, it issued revised underwriting guidance based on changes to the FHA Title I Manufactured Home Loan Program, as revised by the Manufactured Housing Loan Modernization Act of 2008, of the Housing and Economic Recovery Act (HERA) of 2008. In June 2010, additional guidance was issued that provided additional clarifications of underwriting verification requirements. Although the revised guidance included a review of credit scores, it did not include any consideration of land type in its underwriting. Officials explained that land ownership type does not affect FHA?s credit policy guideline; however, HERA implemented specific requirements for homes placed on lease land, such as the lease cannot expire before three years after the loan origination date and the lease is required to be renewable in successive one year terms. Additionally, FHA now collects information on land type to determine if the manufactured home is located on owned or leased land.
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| Department of Housing and Urban Development | The Secretary of Housing and Urban Development should direct the Assistant Secretary for Housing and Urban Development--Federal Housing Commissioner to develop an approach for collecting the information needed to manage the program, including the credit scores of borrowers and whether the manufactured homes are on owned or leased land. |
Closed – Implemented
According to FHA, in April 2009, it contracted with a provider to assist FHA in revamping its data system to process loans to incorporate changes from HERA. FHA officials explained they now collect data on credit score and land ownership type.
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