Ginnie Mae I buy a manufactured home?

According to industry sources, one major boost for manufactured homes would be to get in the good graces of secondary financial markets, which headed for the exits after getting hammered in the industry's collapse.

Secondary financial firms—like the ubiquitous Fannie Mae and Freddie Mac—establish loan standards and applicable interest rates at which they will purchase loans from lenders. These loans are then repackaged and sold as securities (usually bonds) to investors, though Fannie and Freddie end up holding many of these securitized loans in their own portfolios.

Securitization does two things. It provides lenders with liquidity by quickly offloading a loan and providing the cash necessary for the next home buyer in line. When repurchased loans are pooled by secondary markets, this then spreads the overall financial risk (just as with insurance), and some of the savings from this "pooled risk" are ultimately passed through to the buyer in the form of lower interest rates.

When it comes to manufactured housing, there are two secondary markets: loans for real property (sold as mortgage-backed securities) and loans for personal property (sold as asset-backed securities). Right now, both appear to have a 10-foot-pole aversion to manufactured housing.

The secondary market for conventional mortgages is dominated by Fannie Mae and Freddie Mac (so-called government-sponsored enterprises, or GSEs). Neither currently has much of a mortgage portfolio for manufactured housing. Sandra Cutts, from Fannie Mae's public affairs office, said via e-mail that Fannie Mae's loan purchases in manufactured housing "have been relatively constant over the past three years, averaging about one-half of 1 percent of our total book of business." Several requests to Freddie Mac for information on the firm's manufactured loan activity went unanswered, though it's believed to be roughly in line with that of Fannie.

Industry sources said Fannie and Freddie had been increasing their presence as the manufactured home industry gained momentum in the 1990s, but then peeled back after suffering losses when the industry started crumbling at the end of the decade. Fannie Mae, for example, changed its underwriting guidelines a few years ago, increasing the required down payment for a manufactured home loan from 5 percent to 10 percent for most lenders, and 5 percent only for the few lenders "that have demonstrated experience in this area."

Fannie and Freddie also have the opportunity to help the manufactured home industry by buying chattel loans and issuing so-called asset-backed securities (which are also used for things like credit card debt, autos and subprime home equity). But Fannie Mae has not invested in these types of bonds since 2000, according to Cutts. Fannie is hardly alone in heading for the manufactured home exit. The entire asset-backed securities market went from a high of about $12 billion in 1999 to less than $1 billion each of the past two years, according to a February market report by Lehman Brothers. It's not likely to get a lot better soon. A January 2005 report on secondary finance markets by Fitch Ratings downgraded manufactured home-backed securities virtually across the board.

Government-insured loans—including popular, low-down-payment loans backed by the Federal Housing and Veterans administrations—can be purchased and securitized by Ginnie Mae, which is part of the Department of Housing and Urban Development and designed to act like a GSE. But there's not much happening there, either, because these government mortgage programs typically have certain requirements (like permanent foundations and siting on real, rather than leased, property) that preclude eligibility for many buyers of manufactured homes.

According to Ginnie's 2003 annual report, the agency issued $216 billion in mortgage-backed securities that year. About 96 percent went for traditional single-family mortgages, $7 billion for multifamily and just $14 million—when rounded, 0 percent—for manufactured housing loans.