With interest rates and home prices still stubbornly high and consumer sentiment low, credit unions are considering myriad ways to help would-be homeowners achieve their dreams.
Manufactured homes are gaining ground as an option for affordable housing. Although prices have risen in recent years, so, too, has the quality of manufactured homes. Despite lingering stereotypes, some credit unions consider manufactured housing a solid fit for specific borrowers and markets.
“We’re in a rural area, and it’s a good niche product for us,” says Vicki Gobble, chief financial officer at Appalachian Community Federal Credit Union ($183.7M, Kingsport, TN), which has offered manufactured home loans for decades. “Not a lot of institutions in our area will do these. For a rural area, it’s an affordable housing product that helps our members get into a home they otherwise wouldn’t be able to.”
Partnerships with local manufactured home dealers have helped ACFCU gain a foothold in this space. Such relationships are key to the credit union’s success. Gobble says other lenders could pursue similar partnerships but question the value of such properties compared to traditional homes rather than the ability of borrowers to repay.
“I think it’s more of a perception of the collateral itself,” the CFO says.
Don’t stop here. Lower prices and better amenities are making pre-built homes an appealing option for credit unions looking to bolster their balance sheet and borrowers stymied by the affordable housing crisis. Read more in “Manufactured Homes Help Close The Housing Affordability Gap.”
Relationships And Realty
Appalachian Community does not advertise its manufactured home loan directly to members but works with manufacturers and local real estate companies to keep the pipeline flowing. In this way, it is similar to indirect lending.
For credit unions considering this space, Gobble says dealer relationships are key. The credit union must have a solid relationship with the dealer to ensure it’s providing the same level of service members would expect to receive at the credit union.
“It’s important to partner with a reputable company,” Gobble says. “Don’t just partner with an individual contractor.”
When it comes to making the loan, the credit union runs its manufactured home loans through the mortgage department rather than through the consumer side of the shop, and Gobble says they perform well thanks both to strong member relationships and rigorous underwriting. The credit union requires that borrowers own the land — a purchase can be added to the deal as a land/home package with the vendor — and that the home sit on a permanent foundation.
The CFO is confident that the persistent high price of stick-built homes means the opportunity in manufactured housing isn’t going away anytime soon.
“We’re not in an area where prices are going to drop,” she says. “This isn’t an area they’ve overbuilt.”
The key, she says, is to change consumers’ pre-existing perceptions of manufactured homes.
“Getting people to understand how it’s built will help them get past that hump of the perception of the value,” she says.
Balance Sheet Capacity
On the opposite end of the continent, TAPCO Credit Union ($719.3, Fircrest, WA) also makes manufactured home loans, but they constitute less than 10% of its overall portfolio says Jeremy Mandery, chief retail and lending officer.
According to Mandery, only a few applications come in per month, but when they do, TAPCO is ready.
“We want to support affordable housing, especially those homes that are less expensive than the median price in our area,” he says. “We’re trying to provide financing that’s reasonable, that makes sense, and that generates a return for our membership.”
The credit union hasn’t formed any partnerships with manufacturing companies, so prospective buyers won’t see TAPCO advertising on sales lots, but Mandery is quick to note that’s because it simply doesn’t have the space on the balance sheet to do so.
“We haven’t established any relationships with manufacturers at this point as we don’t have the balance sheet space needed for this type of commitment,” he says. “If you’re going to go to a manufacturer and be tied up, you want the ability to write whatever they’re going to bring you.”
The Washington-based cooperative provides purchase and home equity loans for manufactured homes, although it only runs purchases through the mortgage side of the shop. If a consumer already owns the property and is looking to tap into equity, the consumer underwriters handle it.
Pricing is also equivalent to rates for stick-built homes.
“We charge the same interest rate whether you have a $1.5 million stick-built home on the water or a $250,000 manufactured home on the smallest piece of property in the metro area,” Mandery says. “We try to be as inclusive in our lending practices as we can.”
To keep an eye on the market, Mandery monitors the space through loan sales and participations to gain a sense of average loan-to-values, property ages, strong markets, risk levels, and more. He also monitors loss rates and often caps LTV at 80% rather than the 90% or higher it might lend on a stick-built home. But when it comes to underwriting, it approaches the process no differently than it would any other house.
“We’re not in the business of foreclosing on properties, so we try to take a person-centric review from an underwriting criteria,” Mandery says. “Are they a good credit risk? Do we think we’ll get paid back? Does the property have anything to do with that? If we think it will work, we try to write the loan.”
Although TAPCO is still testing the waters of manufactured home lending, Mandery says there’s plenty of room to grow.
“I think it’s a growth space simply because the housing market in many locations is just unattainable for people under 35 and making less than $150,000 a year,” Mandery says. “There’s going to be dramatically more demand for it, which leads to an opportunity for credit unions like ours to be back in the first-time homebuyer space again, whereas today it’s just very difficult to be.”
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