Freddie Mac is diving deeper into
Manufactured-housing communities, or MHCs, are an increasingly popular and lucrative option for commercial
real estate investors and the mortgage brokers who work with them. In order for these properties to be profitable,
however, investors should understand how their tenants finance a home purchase. This is commonly achieved
through a chattel loan, which is a personal-property loan that is not backed by the underlying real estate.
Dennis Smith of Freddie Mac and Corey Aber of Freddie Mac Multifamily spoke with Scotsman Guide about the
trends and challenges they’re seeing within the MHC financing sector.
How is Freddie Mac trying to use manufactured housing to address affordability issues?
Aber: Nearly 90 percent of the rental units that we finance are affordable to low- and moderate-income renters.
… We got into the MHC business in 2014. Since then, through December of 2018, we have provided over $5.2 billion
in financing for 524 communities, and that’s covering nearly 140,000 pad sites. … Owning a manufactured home
and renting space in a community tends to be a bit more affordable on an ongoing basis than renting an apartment
or owning a home and land together.
Smith: Manufactured housing today is a lot different than it was 20 or 30 years ago, and that really needs to
have a paradigm shift as far as the perception. … Maybe [lenders] think about the losses that they took on
[manufactured-housing] properties and how those homes depreciated in value as an asset class. But new research
from the Urban Institute really shows that manufactured homes are appreciating [as well as site-built homes].
We’re trying to tie energy efficiency into manufactured homes. We recently announced that we have launched
a CHOICEHome program, to kind of offer a home in that price range where site-built [homes] left a vacancy, and
help with that affordability inventory crisis that’s out there.
Freddie Mac is in the midst of a chattel-loan pilot project. How is that going and how will it contribute to
Smith: We’ve spent 2018 really trying to gather some data on what a chattel program would look like and what is
currently offered out there by lenders who are putting [these loans] on their portfolio. … We’ve taken that data
and we’ve really looked into modeling and analytics of, “What does that look like?” — and trying to match that up
with, “How does that fit into the secondary market, and what can we look for from a securitization perspective?”
We’re looking forward to the end of the second quarter of this year when we would actually begin to purchase
some chattel loans for the pilot program. … Some of those we may purchase through a bulk initiative and some
we may do through more of a flow basis. That way, we have a view into some seasoned loans as well as into some
newly originated loans in the chattel space.
Do you think resident-owned communities (ROCs) are part of the affordable-housing equation?
Aber: A ROC does not alleviate the need to finance the home as chattel, so an individual homeowner in a ROC
can’t get a loan on a home titled as real property, because the homeowner only owns a share in the co-op that
owns the land.
One of the things worth paying attention to is the difficulty in converting from an investor-owned community
to a resident-owned community. … A community must be put up for sale to begin with. The residents must
want to own the community. They need to have sufficient equity or equity-equivalent financing. Specialized
debt-financing products might be part of the equation as well.
Many states have not adopted Freddie Mac’s Duty to Serve tenant protections. Is this a big problem?
Aber: The presence or absence of the Duty to Serve-specific tenant protections doesn’t really affect the ability
to create MHCs. Each state uses the tenant protections differently, which is one of the main things that we found
in our research paper on the topic. … Not one state has all [regulations] in place but many of them have some.
[We are looking] for ways that we could help a market develop for MHCs that have that specific complement
of Duty to Serve tenant protections, either through state law and regulation, or through a sponsor’s or
owner-operator’s voluntary inclusion of Duty to Serve protections in leases. The research that we did [in 2018]
was our first step in that effort. n
Neil Pierson is editor of Scotsman Guide Commercial Edition.
Reach him at (800) 297-6061 or email@example.com.
Corey Aber leads Freddie Mac Multi-family’s community-mission efforts to
reach new markets, while supporting
affordable housing and underserved
markets nationwide. Aber has been
with Freddie Mac for 14 years and is a
graduate of Brown University, where
he studied history, literature and
architecture history. Reach Aber at
Dennis Smith is an affordable-lending
manager in Freddie Mac’s single-family
affordable-lending and access to
credit division. He manages the
manufactured-housing initiatives that support Freddie Mac’s
underserved-markets plan. He is a
20-year mortgage-industry veteran
with experience in underwriting
and process management, product development, and Community
Reinvestment Act and bond-program
management. Reach Smith at
Director of community mission and impact finance, Freddie Mac Multifamily
Affordable-lending manager, Freddie Mac
By Neil Pierson