Leaders at Rocket Mortgage announced a conventional loan option this month for people who are interested in purchasing or refinancing a manufactured home.
Manufactured homes are built at indoor homebuilding facilities in accordance with the U.S. Department of Housing and Urban Development Manufactured Home Standards. They are then delivered to the land where the owner will live.
A recent report from the Manufactured Housing Institute shows manufactured homes are about a third of the cost, on average, of site-built homes. The Institute also stated that 22 million Americans currently live in manufactured homes and this building type accounts for 9 percent of new home construction.
Bill Banfield, EVP of Capital Markets at Rocket Mortgage, sat down for an interview with The Mortgage Note Editor Kimberley Haas to explain how financing manufactured homes works.
Haas: So Bill, first of all, tell our audience, because I don’t think the average person really even knew that maybe mortgage companies prior to this didn’t finance manufactured housing. Tell us part of the reason why and then why you decided to jump into the market now.
Banfield: Sure. Well, I think the number one reason that some lenders don’t participate in this space is that manufactured homes come with a couple of challenges.
The most notable is that oftentimes it’s classified as chattel. It’s not classified as real estate until there’s a title transfer that happens.
State-by-state rules will differ, but let’s say at the Department of Motor Vehicles, there’s a transfer from chattel to real property. And at that point, the property becomes eligible for more traditional financing and better terms.
But that process, because it’s different from state to state, can present some challenges. So that combined with smaller loan sizes often makes it a little tougher for lenders to participate.
Haas: So how did a manufactured home come to be classified as chattel to begin with? I don’t understand.
Banfield: Well, when it’s built offsite and it’s transported it is classified as chattel. So it’s not actually considered real property until it’s affixed at the site and the title is transferred at the Department of Motor Vehicles or whatever the state office would impose.
Haas: How is Rocket Mortgage working around this when it comes to providing those mortgages for people that want to have the homes built offsite?
Banfield: Earlier this year, we said, “Look, we wanna step back into this,” and the number one thing we focused on is how do we get great client service and make sure that we can handle the titling processes in the appropriate way to meet the standards of Fannie Mae and Freddie Mac.
And so we entered into that, started working on it. I mean, it’s amazing the amount of lead flow that we get that is for manufactured homes.
As we built that out, got a little more robust, that’s when we officially made the announcement that we were back into it.
In this market right now with home prices going up and up, trying to create innovative options to help people afford homes, and to a certain extent by providing access to credit, you’re helping people access additional types of homes. That was kind of our philosophy behind it.
Haas: What has the response been so far since you made your announcement?
Banfield: Well, you know, I just think it’s important to understand that not everybody’s buying the $370,000, $450,000 home, and there’s a wide spectrum of homes that are out there.
And look, it’s been surprising to us how much lead flow we get to from clients looking to refinance or to buy homes in this space, specifically manufactured homes. So it’s been very good so far.
Haas: What is the typical mortgage going to look like for some of these manufactured homes? I mean, is there a price range? Is there a price cap? I know there’s a certain amount of money that the buyers have to put down.
Banfield: What we launched was the Fannie Mae and Freddie Mac options available for these clients.
We’re seeing loan sizes that are just under $200,000, so about $185,000 on average. They’re available on a purchase with 5% down.
Haas: Prior to you joining us on the line we were talking a little bit about how there’s a lot of pressure on builders because there is such a housing shortage, a housing crisis, really, some people will describe it as. Do you think that this will help to alleviate some of those concerns that people have from local leaders right on up through the top officials in Washington?
Banfield: Well, I don’t think this topic of manufactured homes is gonna be the tip of the spear.
You’ve got a massive supply and demand imbalance right now, and while with interest rates going up and home sales declining slightly, what’s interesting is to watch inventory levels and what’s happening there. And right now they’ve been flat month over month on existing home sales.
Building new homes helps even in the multi-family space. And so I think part of the way you look at it is that there’s this massive ecosystem of where people live, how they want to live, and manufactured homes is a part of that.
To be able to help provide financing there, again, you’re providing liquidity, you’re helping people get lower payments, and I think it helps, but there’s a lot of different factors that go into everything happening with our housing supply right now.
Haas: Oh, of course. I’m sure that this could be, though, a helpful solution in some communities. Now, when you think about this program, is it something that’s offered in every state? Are you expanding it? What stage are you in with it?
Banfield: We went live nationwide and, interestingly, we’re seeing California is on top of the list and when you think about home prices in California, it’s no surprise that some home buyers are selecting manufactured homes in that area.
It’s going to depend really on the population and where manufactured homes are more common. But, you know, the building standards now for manufactured homes, especially newer ones, are surprisingly good.
And I would challenge that some people would walk into these and not understand, “Is it a manufactured home, a modular, or a single-family?” I mean, some of them are of that quality.
Haas: Okay. And what makes you say that?
Banfield: I think it’s the feel of the home, I think that has come a long way. Sometimes when people think of what manufactured looks like, they’re reflecting back on probably things that they saw from decades ago. And the higher standards of building right now make them feel just of a higher quality and closer to a single family.
Haas: All right. Now, when you talk to somebody about this, and maybe you’re at a cocktail party or you just ran into a buddy on the golf course, what do you say and how does that make you feel to be able to offer financing to people who get these manufactured homes? Who can’t afford, like you said, the $450,000 home?
Banfield: I just think it’s about choice. Whether you want to live in a single-family home, a duplex, or a manufactured home, there’s an array. It’s a big country with an enormous amount of people and their financial situations are all different.
Bob Walters, CEO of Rocket Mortgage, said in a statement that it is their hope that through this new option more Americans can realize their dream of homeownership.
“After revolutionizing the home loan experience for traditional site-built homes, we are proud to bring the technology and expert guidance Rocket is known for to those who are purchasing manufactured homes,” Walters said.
Walters said in the past year, there was roughly $12 billion in sales of manufactured homes.
Rocket Mortgage’s new manufactured home financing can be used for the purchase of a primary residence with as little as 5% down or a second home with at least 10%. Cash-out refinances are available on a primary residence and rate-and-term refinances are available on either a primary or second home.
Other credit, asset, income, and debt requirements are consistent with conventional loan guidelines, according to a press release.
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