FHA Official Predicts ‘Significant Acceleration’ in Manufactured Housing Under New Rules

Recent reforms to federal rules for manufactured homes could spur a boom in the sector and boost the supply of affordable starter homes, a top housing official says.

Matt Jones, an official in the U.S. Department of Housing and Urban Development and President Donald Trump's nominee to serve as FHA commissioner, said that a seemingly small change in the recently passed 21st Century Road to Housing Act could have a big impact on manufactured housing.

The law removes a federal requirement that manufactured housing include a permanent steel chassis to transport the home. Following the change, Jones says, many modular homes may qualify as manufactured housing under the federal HUD code, which preempts local building codes.

"A lot of today's modular builders will be able to claim code preemption, and as a result, we expect a lot of the state requirements will then be forced to update their state-level code to align with the federal standard," he said on Tuesday at the Mortgage Bankers Association's annual conference in Chicago. "What this means is we think there will be a significant acceleration of factory-built, non-site-built housing."

Factory-build homes are often much cheaper and more efficient to build than traditional homes, but industry analysts say that onerous financing and zoning rules, as well as stigmas surrounding "trailer homes," have stifled widespread adoption.

Jones, who is currently HUD's deputy assistant secretary for single-family housing, argues that the manufactured housing sector has evolved radically, and that modern factory-built homes are a far cry from the double-wide trailers of yesteryear.

"It's remarkable," he said. "I think for most people, they wouldn't even be able to tell the difference between a site-built home and factory-built home."

Separate from the new federal law, HUD rulemaking had eliminated the permanent chassis requirement for the upper levels of multistory manufactured homes, allowing upper floors to be shipped to the homesite and be stacked like Lego blocks.

Earlier this month, the new approach was demonstrated in a display on the National Mall during HUD's annual Innovative Housing Showcase.

"I think, just, aesthetic appeal is going to really improve. It won't happen overnight. There's going to be retooling of the factories," said Jones. "A lot of it's about destigmatization, but it certainly helps to have the actual product that's coming to market look so much like any other home."

Jones noted that, following the changes in the Road Act, the lines between manufactured and modular housing may begin to blur. This may allow builders to take advantage of the HUD code preemption for manufactured homes, while accessing the broader buyer financing options available for modular.

As well, earlier this month HUD unveiled an action plan to accelerate manufactured housing building. The agency wants to update energy efficiency standards as well as design and construction codes.

Speaking at the same event in Chicago, Ginnie Mae President Joseph M. Gormley, another Trump appointee, says there is growing support in the secondary mortgage market for loans secured by manufactured homes.

"From the financing and investment side, one of the things we have found is investors are actually willing to pay up for manufactured housing loans, because they tend to have a longer duration," he said. "So we've been working to provide additional disclosures around the type of construction."

Gormley said that Ginnie Mae plans to add a "modular" category on disclosure forms, so investors can see the modular share of mortgage loan bundles known as mortgage-backed securities.

"There's a lot of interest from investors about that," he added.

MBA economists see rising loans for manufactured homes

Separate data presented by the MBA's economic research team shows that loan originations for manufactured homes have been rising in recent years.

The manufactured share of total originations has remained above 3.5% for each of the past three years, a level not seen in records going back to 2008, according to a briefing from MBA Deputy Chief Economist Joel Kan.

"The affordable stock is still running low," Kan said. "There is an opportunity for manufactured homes, and obviously with some improvements in the quality of manufactured homes, to step in to replenish and add to some of the affordable housing stock that's out there."

Kan added that MBA would be initiating tracking and forecasting of loans in the manufactured housing space, bringing new trend data and visibility to the sector.

However, the economist noted that one stumbling block might be state-level distinctions between what kind of home qualifies for a mortgage versus a personal property loan, also known as a chattel loan.

Still, he called the removal of the chassis requirement "a step in the right direction," adding that the manufactured space has "lots of potential" following the recent reforms.