Fannie Mae To Increase Manufactured-Home Financing

Washington, DC, Feb. 10--Fannie Mae, responding to pressure from Congress, is preparing to increase its financing of manufactured housing, despite the heavy losses it has suffered in that sector during the past year. The government-sponsored mortgage-finance company is due to announce Tuesday a plan to work with eight mortgage lenders, including Washingtom Mutual Inc, and General Motors Corp.'s GMAC unit, to offer easier terms on loans for manufactured housing, which includes mobile homes and other factory-built housing. The lenders would offer loans requiring down payments as low as 5% of the home price. Fannie Mae would then buy those mortgages or repackage them as securities, giving the lenders money to make further loans. The move marks a shift in strategy by Fannie Mae. Last summer, alarmed by a high level of defaults on manufactured-housing loans, the company tightened its standards, saying that it would accept loans of 20 or more years only if the buyer had put down at least 10%. That compares with zero down payments on some manufactured-housing mortgages in the 1990s. The nation's makers of manufactured housing are struggling to emerge from a slump that followed a boom in the mid- to late-1990s. Shipments of new homes hit a peak of 373,000 in 1998. But lenders began offering very easy terms on the loans, often to people who couldn't afford the homes. Defaults soared, and repossessions of manufactured homes jumped to about 100,000 a year. Those "repo" homes created a glut of available units. Shipments of new homes last year totaled about 130,000, less than half of the peak. Fannie Mae, which sees manufactured housing as a way to meet its government requirements to provide financing for low-income people, loaded up on the mortgages just before the market turned wobbly. The bulk of Fannie's purchases in this area were from Conseco Inc., which bundled the mortgages into securities for sale to Fannie Mae and other investors. Conseco filed for bankruptcy-court protection in 2002, and credit agencies have slashed the ratings on the Conseco mortgage securities. These troubles prompted many lenders to pull back, making it hard for many low-income people to get mortgages. Fannie Mae owns or has provided guarantees on about $8.8 billion of manufactured-housing securities. The company so far has made $206 million of write-downs in the value of those securities. While investors worried that Fannie had been reckless in financing manufactured housing, the company's decision to tighten lending standards last year alarmed makers of the homes and politicians who represent the 22 million Americans who live in them. Reps. Barney Frank (D., Mass.), Bennie Thompson (D., Miss.) and Bob Ney (R., Ohio), among others, wrote letters to Fannie Mae demanding a resumption of more attractive terms. Fannie officials say they can relax the terms for loans made by Washington Mutual, GMAC and other institutions that have demonstrated prudence in screening borrowers and making sure homes aren't overpriced. There are signs that the market is healing. Lenders were encouraged last year when Berkshire Hathaway Inc., the Omaha, NE, company run by investor Warren Buffett, acquired Clayton Homes Corp., a maker of manufactured housing. Chris Gilson, an executive vice president at GMAC, said his company has been considering whether to build up a business in manufactured-housing lending for years and recently decided the time was right because the industry is "at or near the bottom." He predicted that annual shipments will rebound to a "sustainable" level of 220,000 to 240,000 a year. Unlike most of the housing industry, manufactured housing may benefit from the rise in interest rates expected later this year, Gilson said. Mortgages have been so cheap in the past couple of years that many low-income people could afford fancier, "site-built" homes. If rates rise substantially, such buyers may return to manufactured homes.

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