The House will vote Tuesday to repeal consumer protections for low-income borrowers in rural America who have seen the promise of affordable housing turned into a financial sinkhole by a mobile home industry that makes pre-manufactured houses far more expensive to buy than they need to be.
The bill is part of the GOP majority’s campaign to chisel away at specific pieces of the Dodd-Frank financial regulatory overhaul that became law in 2010 but which left many details to be filled in later by regulators. In this case, it was the Consumer Financial Protection Bureau (CFPB) that did that filling. After long study of both publicly-available data and proprietary information from the industry itself, the CFPB began enforcing new consumer protections for people who borrow money for a manufactured home.
When Rep. Stephen Fincher’s bill to roll back those regulations passes on Tuesday, the rules will have been in force for barely 15 months.
The mobile home financing market is an esoteric landscape for a battle between consumer advocates, regulators, and politicians. Compared to the American Dream trappings that come with traditional homeownership, families in mobile homes don’t have much cultural cache.
“Lots of people deride these homes for their quality, which is unfair these days, or deride the people who live in them as white trash, which is horrifying,” said Doug Ryan, director of the Corporation for Enterprise Development’s Affordable Homeownership Initiatives. That stigma makes it easy to sell Fincher’s deregulatory package for mobile home financing, Ryan said. The public and many lawmakers “say, ‘Who cares how they get financed? They’re bad stuff anyway, and if that’s all you can afford you probably deserve this.’”
Just 6 percent of Americans who live in a house live in one of these pre-fab ones, but they are a vital low-cost housing option in rural communities, where they make up 14 percent of occupied housing. The all-in cost of living for the average manufactured home dweller is a full third below the average for traditional “site-built” homes. There are twelve states where the units make up over a tenth of the market, mostly in the South and West. In South Carolina, 17 percent of all occupied housing is manufactured.
The manufactured home population is whiter, poorer, less educated, and older than the traditional homeowner. The median income of a pre-fab household is just half that of the median family in a site-built house. Many mobile home families are still paying a larger share of their income for housing despite the significant savings in raw dollar terms. That’s a perverse outcome for what should, on paper, be one of the most affordable ways to put a dignified roof overhead. And it’s being driven by the extremely high price that the industry charges for credit.
Fincher’s bill will strip important borrower protections for thousands of families living in pre-fab homes, including prohibitions on predatory loan features and legal recourse for borrowers who get behind on very expensive loans. A recent investigation of multi-billionaire Warren Buffett’s huge influence in the mobile home marketplace detailed the consumer harm and investor riches that comes from a highly-concentrated industry where people who think they’re shopping around for the best deal are only talking to different tentacles of the same corporate squid.
The CFPB’s rules were made long before the Buffett revelations made the news. The agency’s analysis centered on the particular dynamics of borrowing for a home that wasn’t built on the ground where it will be lived in. Because pre-built houses can be treated as simple property rather than real estate if the owner also holds the rights to the land, the houses are often financed outside of the traditional mortgage industry through what are called chattel loans. More than two-thirds of such loans come with subprime rates, and one in six of them charges such high rates and fees that the minimum monthly payment is a full $200 higher than it would be if it were merely subprime.
State and federal protections for homebuyers don’t apply to these simple property loans. A chattel loan can be a lot cheaper on the front-end, because the closing costs are lower than those of a standard mortgage, but they are far more expensive over the life of the loan. The CFPB’s rules seek to restore some of the borrower protections that are lost when buyers choose the more expensive, less protected chattel loans.
Fincher’s legislation would redefine how expensive such a loan has to be to trigger additional Dodd-Frank protections for the borrower, effectively removing those safeguards from a huge swathe of these loans. The industry says that without that change, it is mathematically impossible to lend to a large portion of its would-be customers. But it doesn’t provide public data to substantiate that claim, and critics point out that Buffett’s companies reported a large surge in both profits and in sales figures for 2014.
“The CFPB is a data-driven agency and has declined to further modify the already-flexible rules it has created for manufactured housing loans,” said National Consumer Law Center attorney Alys Cohen. “If there were data to support the industry’s claims” then regulators would have tweaked the rules themselves. And besides, she said, nothing about the rules prohibits these companies from making the extremely high-cost loans that Fincher’s bill would deregulate. “The rules still leave lenders and homeowners with opportunities to create safe loan products that promote homeownership among rural and other low-income homeowners,” she said.
The industry’s interference with an owner’s ability to make a manufactured home into a profitable investment goes beyond the financing rules, too, according to the critics. Because “the bulk of a manufactured home’s appreciation potential comes from the land on which it sits,” the CFPB analysis noted, an expensive loan can make an otherwise reasonable long-term investment into a guaranteed loser.
The industry’s role in impeding homeowners’ ability to make money on their pre-built home goes even deeper than the financing schemes, according to Ryan. “A couple years ago, the head of one of these big mortgage companies told me directly that they discourage families from getting foundations for these homes,” he said. Because it can cost thousands more to put a full basement or poured concrete foundation on a manufactured home, that advice may seem like a friendly pointer to save the customer money. But without a foundation, federal programs that help stimulate mortgage lending in rural communities can’t be used for loans involving the property. “If I have the land, and I have a manufactured home, and I want to package them together and sell them, you’re not going to be able to get a mortgage to buy it from me,” Ryan said. “It’s reduced the financing options, forever. It’s another way that it keeps people captive.”
President Obama pledged to veto Fincher’s bill on Monday night, since it chips away at a brand-new set of consumer protections in one of his administration’s signature legislative successes. But Republicans have already established the playbook here, managing to attach a major rollback of a key Dodd-Frank section to the so-called “cromnibus” budget bill that had to pass in December to avoid a second government shutdown in two years.
That industry-written law seemed dead on arrival when it first came up in committees, as reporters pointed out that it had been hand-crafted by the very megabanks whose misbehavior it was supposed to curb. It is now law, and Republicans celebrated by pointing out that the episode proved Democrats would agree to gut their own financial reforms when backed into a corner.
Ryan worries that if the same happens here, companies will resume preying on low-income rural families. “They’ve been in the shadows, and Dodd-Frank put sunlight on them,” he said. “They’re like vampires in some ways, they don’t like to be exposed.”