Bad Credit Mortgage Refinance Minnesota

The Manufactured Housing Credit Disaster
By John G. Stoss, Fri Dec 9th

If you bought and financed a manufactured home (the new term formobile home) between 1995 and 2003, you are probably well awareof how easy it was to get your loan. During this period of time,manufactured housing lenders essentially lent money to anyonewho asked for it, regardless of their credit or ability to paytheir mortgage payments.

Of course there were a few responsible lenders, but the bignames in manufactured housing were lending money like there wasno tomorrow. Not only were they writing "bad paper" to lend tothose with poor credit or otherwise couldn't afford it, but theywere also allowing the manufactured home dealers to chargeoverly inflated prices for the homes they sold. For example, ahome with a factory invoice of $20,000 was selling for as muchas $45,000. I'd say that's a pretty huge markup.

On top of all this, the lenders were charging exorbitantinterest rates to help compensate for all the poor credit loansthey were underwriting. It was not uncommon for a single-widemanufactured home load to be written at 17% for a 20 year term.Sure, the bad-credit car lenders charge similar interest rates,but that's on a car, which is a much smaller-ticket item than ahome, and in that case you're looking at 5 year loans, not 20year mortgages.

So to recap the situation; you've got people with whocan't afford a home, you've got homes being sold for much morethan they're worth, and you've got ridiculously high mortgagerates. Already this is a recipe for disaster, but there are evenmore elements to this great scandal that we haven't evenmentioned yet!

On top of this already dangerous market condition, we add thefact that manufactured homes depreciate. That's right, incontrast to conventional real estate, these homes actually godown in value each year. The reason is that they are not realestate--that is to say there is no property tied to them. Thereare actually some that are tied to property (called land-homes),but in this case we're talking about the vast majority ofmanufactured homes that end up in mobile home parks (akamanufactured home communities).

OK, now you've got a home that's depreciating sitting in amobile home park (probably on the bad side of town), and thehome owner must pay RENT to the mobile home park owner eachmonth for their home to sit in the community. Yes, and evenwhile the home is ever decreasing in value, the lot rentcontinues to rise each year just like the housing and apartmentrental markets.

Now that we've got an understanding of the elements at play inthis situation, let me paint the picture for you. The year is1999 and you've got someone with a poor credit history who isunable to qualify for a conventional mortgage, so they go totheir local manufactured homedealer and easily qualify to purchase a new manufactured home.They choose a nice singlewide for $45,000, and since they havepoor credit, the lender charges 16.75% interest on the 20 yearloan (also called a chattel mortgage). They put the home in alocal mobile home park where the lot rent is a reasonable$250/month. Their house payment is $651, and their monthlyinsurance is $50 which is added to their mortgage payment.They're paying $950 to live in a single wide in a trailer park,but that's OK with them because at least they "own" their homeinstead of renting an apartment.

Now let's fast forward four years later to 2003. They've madeall their payments on time, but since the interest rate is sohigh the principal balance of the home is still $43,415.86 (yesthat's the actual amortized balance at the end of year four ofthe loan). Their lot rent is not $325, and their insurance is$60. So they're paying $1035/month to live in a single wide in atrailer park. At this point, their credit has improved as aresult of making their payments on time. They realize that theycould be making a conventional mortgage payment and owning theirown home for the same amount of money, so they decide to selltheir mobile home so they can buy a real house. They do whatabout half of the residents in their mobile home park havealready done, and put a sign in the window, expecting to attracta   [This article related to Bad Credit Mortgage Refinance Minnesota continues below...]

To their shock, they learn that their home currently has a bluebook value of $21,000. That means if they sold the home for bookvalue, they'd have to come up with $22,000 of their own cashjust to pay off the balance at closing. They certainly don'thave that much in savings, and the entire ordeal has left themdisgruntled and unhappy to be in the home any longer. So they dowhat many of their neighbors have already done: walk away andlet the bank have it back. They've had bad credit before, so theyfigure what the heck--we'll be in the same place we were inbefore we bought the home. It will be a repo on their creditreport for at least seven years, but they'd rather have thatthan stay in the mobile home park a day longer.

The bank repossesses the home, and adds it to their list ofrepos for sale. Since about 10,000 of this family's peers aroundthe country decided to do the same thing, the market isoversaturated with repos. The lenders have written so much badpaper at this point that they're literally hiding stacks ofloans in vaults, for fear of their investors finding out andtheir stock plunging. Eventually there became no way to disguisethe situation, and the major manufactured housing lendinginstitutions went bankrupt. In order to fulfill court orders topay off as much of their debt as possible, they are forced toliquidate all repo inventory as quickly as possible. By the endof 2003 there are so many repo's on the market that thatsinglewide with a $21,000 book value is liquidated for $7,000 tothe highest bidder.

Now a couple of years past the industry's meltdown, things havestabilized a little, as the remaining lenders have tightenedtheir credit standards for the most part, and reduced themaximum prices that can be charged for new homes. However, thereare still many problems within the industry, mobile home parkswill continue to raise their rents, and manufactured homes willcontinue to depreciate. Hopefully this overview has given you abetter understanding of the manufactured housing creditdisaster.

About the author:John is a former mobile home dealer who saw the industry gothrough turmoil & watched his customers suffer the consequences.Today he educates people about the risks of manufactured housing& points them to sound real estate investments. He has a websiteat www.american-lender.com which provides free mortgage advice for Americans with credit problems.