The bailout bill and the housing recovery act have some important implications for the manufactured housing arena.
By Justin F. Carter, Esq.

As seen in Managing REO / SourceMedia, October 15, 2008

Congress and President Bush have passed into law several significant provisions this year in response to the declining housing market. Specifically, the Housing and Economic Recovery Act of 2008 was passed this summer and more recently, the Emergency Economic Stabilization Act of 2008 (the Bailout Bill). While both acts generally aim to boost the struggling U.S. economy and housing market, each act contains several important provisions relating specifically to manufactured housing.

Housing and Economic Recovery Act of 2008
The Housing and Economic Recovery Act of 2008 reformed several FHA insurance programs that HUD administered. It also created an FHA refinancing program to help homeowners avoid foreclosure. Moreover, the law created a new federal regulator, the Federal Housing Finance Agency, which can invest in Fannie Mae and Freddie Mac to help protect against undercapitalization issues. Finally, the law reformed provisions related to manufactured housing including changes to FHA Title I (home only insurance program), FHA Title II(real property insurance program), created new duties for Fannie Mae and Freddie Mac, and added several miscellaneous provisions.

First, regarding FHA Title I, the law increased the home only loan limits from $48,600 to $69,678 and mandated the limit increase annually for inflation. Previously, the loan limits had not changed since 1992 making it difficult for the FHA Title I program to keep pace with the increased production costs of the manufactured housing industry. The law also converted the limited insurance system to a more “loan-byloan” insurance system similar to the system used by the FHA Title II program. The change will allow FHA to insure more modern manufactured homes while improving the insurance coverage for lenders in cases of a loan default. Finally, the law gives HUD authority to increase the initial insurance premium up to 2.25% of the principal with additional authority to charge an annual premium of up to 1% of the remaining principal balance. The law also allows HUD to establish underwriting criteria to ensure the program is financially sound. Both changes will ensure the new program is viable in the future.

Second, FHA Title II provisions changed in two ways that applied specifically to manufactured housing. First, FHA can now insure mortgages for manufactured homes permanently affixed to real property owned or leased under a long-term leasehold arrangement. Previously, the program required the manufactured home to be classified and taxed as real property. Unfortunately, this meant that in the 17 states that taxed manufactured homes affixed to real property as personal property the manufactured home was ineligible for FHA financing. The law removes this limitation making taxation irrelevant to the definition of real estate. Finally, the FHA Title II program had previously disallowed the FHA to insure mortgages on manufactured housing condominiums. The FHA regulations established in the 1960s separately allowed for mortgages on manufactured homes and individual housing units in condominium developments, but never combined. The law now permits FHA to insure manufactured housing units that meet all other FHA standards when the manufactured home is located in a condominium development.

Third, in addition to creating the FHFA as the new regulator and giving the ability to invest in Fannie Mae and Freddie Mac, the law created a new “duty to serve certain underserved markets” for Fannie and Freddie. The law identified manufactured housing as one of the three underserved markets (rural housing and affordable housing preservation as the other two markets). Specifically, the law mandated that Fannie and Freddie provide leadership to the manufactured housing market and facilitate a secondary market for low- and moderate-income homebuyers seeking manufactured home loans.

Fannie and Freddie are also required to develop new manufactured housing loan products with flexible underwriting standards for the servicing market. In 2010, the law requires FHFA to establish guidelines to determine whether Fannie and Freddie have complied with the new duty to serve the manufactured housing market. Thereafter, FHFA will annually evaluate and rate Fannie and Freddie’s compliance and may even require Fannie and Freddie to submit a housing plan to correct noncompliance.

Finally, the law created several general provisions that indirectly affect the manufactured housing market. The law created a first-time homebuyer tax credit that will assist new homebuyers when making a down payment. The credit would provide an interest-free loan up to ten percent of the purchase price not to exceed $7,500. The homebuyer is required to repay the loan to the federal government over a 15-year period in equal installments. The tax credit is available for first-time homebuyers through June 2009 that purchase a principal residence, which can include manufactured homes. The law also created a tax provisions to provide an additional standard deduction for real property taxes to assist homeowners who do not itemize their income tax returns. The standard deduction is $500 (or $1,000 for joint filers) and is only available for the 2008 tax year. The deduction is also applicable for owners of manufactured homes.

Emergency Economic Stabilization Act of 2008
While the Emergency Economic Stabilization Act of 2008 primarily enacted a $700 billion plan for the federal government to buy up troubled securities infected by bad mortgages, it also provided for a few provisions related to manufactured homes. Specifically, the law extended an Energy Star tax credit for manufactured homes that was set to expire at the end of 2008. The law extended the tax credit until the end of 2009. The tax credit allows manufactured home producers to claim a $1,000 federal income tax credit for each home that qualifies for the Energy Star label. In addition, a producer may claim a $2,000 tax credit for each manufactured home that complies with at least 50% of the International Energy Conservation Code requirements. More importantly, the law did not include provisions, which would allow bankruptcy judges to modify loan terms for manufactured homes mortgages.

While the future of the U.S. economy and the manufactured housing market is uncertain, the passage of both laws will help to stabilize manufactured home ownership. By increasing FHA insurance limits and providing incentives for lenders, the federal government has created the groundwork for a healthy manufactured home market in the future.