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Manufactured Housing Lending in Communities

Manufactured Housing Lending in Communities

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Manufactured Housing Lending in Communities

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  1. Manufactured Housing Lending in Communities Marty Lavin, Tim Williams, Jeff Mouat

  2. The Industry Pullbacks • High volume periods, then peaks followed by a crash • During crash better lending and better types of loans • more loans with real estate • more loans on private property • many fewer loans in communities result • much higher credit with better execution

  3. Funding Sources • 1960’s and 1970’s – till ’73 • Virtually every bank involved (52% of all new housing starts) • Then crash, and GECC and S & L’s till late 1980’s • Then crash, and ABS markets start in 1987 • Crash and no new source in sight for money • Who will be next? (125,000 annual shipments now)

  4. Will GSE’s Become a Source? • Tremendous liquidity and clout • Know how to really study problem • Very adverse to losses, already lost their naivete, and won’t reenter without changes • (Conseco bonds handled that)

  5. ABS and the Markets • Tremendous losses • Now know the facts and learning more • Less risk adverse than GSE’s, but will want similar protections, still perceive many problems • Probably will partner with GSE’s, which would provide substantial increased liquidity • Both have lost their MH naivete

  6. How does this Affect Community Lending? • Home depreciation greatest in communities • Highest percentage of total repos are in communities and greatest severity • Lenders and community owners have not always been friends in downturns or defaults • Today lenders highly wary of in-community loans • I estimate 100,000 – 125,000 homes of in-community chattel loans not being done at present

  7. Depreciation in Communities is the Enemy • High gross – low volume sales model industry standard • Comunities as a housing option in given markets • Leasehold rents pricing policies in communities • Know the rules for pricing your rents • what is your competition? Apts and other housing, other community rents • mortgage payment needs, or replacement costs may be inadequate measures for community owners • vacancies mean something

  8. Measures Industry Lenders Push and Need to Stem Depreciation • CAS – Community Attribute System • Invoice database, IBTS • MHI database • Shorter repayment term. • Reduced gross profit at sale • Better installation performance • Better and longer home warranties * • Greater resident lease protection • MSRP • Forming much better resale network • TIPS • LBP • MARI • Community Owners/Lenders Agreement

  9. 21st Mortgage Programs and Comments – Tim Williams

  10. Origen Financial Programs and Comments – Jeff Mouat

  11. Q & A

  12. Company History • 9/1995 - 21st begin with 4 employees • 9/1998 - Tighter underwriting EVA • 6/2000 - Buyout AHS/CMH 50% investor • 12/2001 - Buy Assoc. portfolio • 9/2003 - BRK buys Clayton • 12/2003 - Clayton buys 21st mortgage

  13. Manufactured Home Lenders of the 90’s Why did they quit? • Access • Associates • BankAmerica • Belgravia • Bombardier • Burgin • Chase • CIT • Conseco • Deutsche • Dynex • Greenpoint • MCI • IndyMac • Southtrust • United Companies

  14. What didn’t they understand? Differentiation among score ranges Importance of Equity Repossession loss curve Significance of home location

  15. 95% LTV Repossession History

  16. 95% LTV Repo Frequency by Scores Range

  17. 95% LTV Repo frequency of Loans Outstanding

  18. 95% LTV by Score Range, Ignore prepayment

  19. 95% LTV by Score Range After Prepayment

  20. 90% LTV Repo Frequency of Loans Outstanding

  21. Repossession Rate by Credit Score and Down Payment

  22. Private property loans score 600-650

  23. Communities loans score 600 – 650

  24. Reason for poor performance • Community incentives reduce equity • Premature decline in housing Value • Value determined by total housing cost • Home payment + site rent • Relative to alternatives • Alternatives = Apartments, site built and other communities

  25. Value deterioration • Assume site rent at inception = $300 • $35,000 home 5% down = $385 • Total housing payment = $685 • Alternative site built @ 6% = $114,000

  26. Assume $100 site rent increase Home value goes down From $35000 to $25,885 Alternative site built increase to $131,000

  27. Customer Alternatives • Can’t sell? • Pay higher rent on home with $10,000 less value • Pride of ownership declines • Real depreciation becomes evident • Customers are trapped • Only exit is Repossession

  28. Lender Solution • Limit exposure to only high equity customers and best credit customers • Customize plans for certain communities • Differentiation among communities

  29. 2004 MHI Lender of the Year

  30. Origen Financial LLC • Completed $64MM IPO in May ’04 • Completed $150MM 144A equity raise and converted to a Mortgage REIT in October ’03; followed by an additional $10MM private placement in Feb ’04 • Maintained servicing portfolio of approx. $1.3B, while originating almost $410MM since January • Selected as 1 of 9 lenders from Fannie Mae MH Initiative • Received the MHI 2004 Lender of Year Award

  31. What We Originate • Home Only (93.64%) • Land Home (6.36%) • Comparable Appraisal (16.63%) • Buy For Program (6.04%) • Secondary Homes (2.78%)

  32. Portfolio Changes

  33. Community Approval Program • Collateral Review Specialists approve where the community in which Origen borrowers place their homes • Pass/Fail Community Approval Program: allows homes to be financed via the advance method in the approved communities • Comparable appraisals will not be allowed in pass/fail communities unless that community has also been specifically approved for the Comparable Appraisal Program

  34. Community Approval Program Criteria for Pass/Fail Community Approval Program: Allows homes to be financed via the advance method in approved communities: • Must have a completed Community Fact Sheet • Must submit a copy of lease agreement • Must submit a copy of community’s business license • Must have paved street and public access • Must have full-time management • All utilities must be publicly provided • Satisfactory Dun & Bradstreet report on community • Must have a minimum of 25 spaces • Community must have at least a 15-year lease (property)

  35. Comparable Appraisal Community Program It is necessary to finance the “location” not the “amenities” • The program uses comparable appraisals to determine property values • A vacancy rate less than or equal to 5% • Positive resale activity • Must sign MHI Community Agreement • Must have on site management

  36. Differentiation Amongst Communities • Community Attribute System • Attributes have a 1 to 5 weight • Separated Into Three Major Categories • Management/ Infrastructure/ Economic Attributes • Community Features/ Amenity Attributes • Home Activity/ Resale Market Attributes

  37. Management/ Infrastructure/ Economic Attributes • Lot Lease History • Vacancy Rate • Rent Control • Local Attributes (schools, shopping, location, etc…) • County Unemployment • Comparable Apartments

  38. Community Features/ Amenity Attributes • Community Appearance • Age of Homes • Types of homes • Community Amenities

  39. Home Activity/ Resale Market Attributes • Average Selling Price (new and used) • Frequency of Repossessions • Days on Market • Resale Market

  40. Top 10 - Total Score

  41. Top 10 - Feasibility

  42. Top 10 – Attributes Impact

  43. MHI Community Agreement • Agreement between Community Owner and Lender that explains who is responsible for what in the event of a repossession

  44. MHI Agreement Highlights • Lender doesn’t pay back lot rent • Lender is allowed 12 months to resale home in community without paying rent if the community has a vacancy greater than 5% • Lender must bring home up to community standards within 60 days • If home is to be sold wholesale, Lender shall negotiate exclusively with Community Operator for the sale of the Home for 30 days

  45. Thank You!