The Senate banking relief bill would provide a boost to the manufactured housing industry, and a key House Republican is lobbying to make it bigger.
The Senate-passed legislation would allow manufactured housing retailers that help buyers with financing to avoid some of the post-financial crisis rules on mortgage originations in an attempt to boost lending. Critics say the measure would undermine consumer protections.
Republican Rep. Steven Pearce, who represents a relatively low-income district that makes up the southern half of New Mexico, said he will “insist” on adding more language relating to manufactured housing in the House.
“That’s 50 percent of the houses in the 2nd District of New Mexico,” Pearce said. “So, it’s a huge piece of the problem for us.”
Pearce’s demand is an example of the difficulty that the Senate bill, the biggest change to the 2010 Dodd-Frank law since it was passed, faces in the House.
The legislative package, which passed the upper chamber with 17 Democratic votes,would mostly ease regulations for community and regional banks. Senate Banking Committee Chairman Mike Crapo of Idaho negotiated the bill carefully to ensure support by Democrats wary of being cast as helping Wall Street.
It’s possible Democrats could abandon the legislation if the House adds to it, a prospect that has some bank lobbyists and Republicans worried. Yet, House Financial Services Committe Chairman Jeb Hensarling has demanded that the House add some of its own bipartisan bills, rather than rubber-stamping the Senate version.
The provisions Pearce wants could test Senate Democrats’ support.
The underlying issue has to do with when mortgage rules should apply to manufactured housing.
The industry argues that its members should be treated like real estate agents or homebuilders, free to help buyers find financing.
Consumer advocates, though, say mobile home sellers should be treated more like car dealers — a group they see as historically liable to engage in self-dealing and rip off customers when they apply for financing at the dealership lot.
Following the massive subprime crisis and its widespread mortgage abuses, Dodd-Frank placed new rules on mortgage originators, regulating their licensing, registration, compensation, training, and more.
The Senate bill would widen exceptions for manufactured housing retailers that help arrange financing as long as the retailers disclose if the lender is affiliated with them and they don’t get paid more for the sale than they would have for a sale that did not include a loan.
The existing rule has been “essentially a gag order on the industry,” said Lesli Gooch, the chief lobbyist for the Manufactured Housing Institute. It and other rules have combined to crimp home lending for manufactured houses since going into effect in early 2014, she said.
Consumer advocacy groups argue that buyers are at a disadvantage when they are looking for financing through a retailer and are at risk of being “steered” to a high-cost loan offered by a lender affiliated with the retailer.
Several referred to a 2015 Seattle Times investigation that found examples of consumers taking out high-cost loans to buy mobile homes, without realizing that the home retailer and the lender were both part of Clayton Homes, the largest maker of manufactured housing. Clayton Homes, in turn, is owned by Berkshire Hathaway, the conglomerate controlled by the world’s third-richest man, Warren Buffett.
“While the bill has some minimal protections like a disclosure, in the end, it’ll still be easy for retailers to steer purchasers to their own overpriced loans,” said Alys Cohen, an attorney at the National Consumer Law Center.
Clayton Homes says the bill would increase competition by drawing more companies into the market. “It will help customers choose the best lender for their needs – even when that is not a Clayton-affiliated lender,” the statement said.
The Senate language, though, wouldn’t address what Pearce sees as a big part of the problem in his district: the reluctance of banks and credit unions to finance loans for mobile homes because of the post-crisis rules.
He favors going beyond the Senate bill’s provision, and adding a part of the House legislation relating to manufactured housing access that was left out of the Senate package.
Under Dodd-Frank, home loans with high interest rates or fees paid to the lender are subject to added consumer protection rules.
The problem is that the typical loan for a mobile home is about a third of the size of a loan for a site-built home but not that much cheaper for the lender to draw up. As a result, it’s easy for mobile home loan costs to be expensive enough, relative to the size of the loan, to trigger the higher regulations, scaring off banks.
It’s even easier if fees paid to the mobile home retailer are factored into the cost of a loan. Accordingly, the bill would increase the relevant thresholds for manufactured home loans.
If that bill were enacted, Pearce said, “the institutions who used to lend for these used mobile homes, manufactured housing, the ones that got out of the market, I think will get back into the market.”
Pearce and the industry have lobbied the agency responsible for implementing and enforcing the rules, the new Consumer Financial Protection Bureau, to provide a fix for mobile home loans, but without success.
So, they are trying to change the rule with legislation, which passed the House in December with 27 Democratic votes.
That’s not to say that the additional provisions in the House wouldn’t prove difficult for some of the Democrats who voted for the bill in the Senate.
Doug Ryan, director of affordable home ownership for the nonprofit Prosperity Now, argued that Congress shouldn’t overrule the CFPB and that the legislation wouldn’t help increase bank financing for mobile home loans. “I just disagree with what’s going to happen,” he said. “People will get hurt.”
For Pearce, though, whose district features more manufactured housing than any other, the CFPB’s judgment isn’t enough. “They weren’t able to see and ever process the damage they were doing,” he said.
