With approximately 20 million Americans living in manufactured homes, it’s vital to examine the difference in financing between site-built and manufactured homes. Much of it boils down to the fact that a manufactured home is considered “personal” property instead of “real” property, since the homeowner typically owns the house, not the land it sits on. Prosperity Now—a nonprofit working to transform the economy into one that works for all people—recently published “Manufactured Homes: A Key Element in Growing Latinx Homeownership.”
In the report, authors Chadwick Reed (MUP ’22) and Doug Ryan examine the implications of this financial distinction—particularly its effects on communities of color.
For Reed, interest in manufactured homes was catalyzed in college, after he began working for a small nonprofit involved with residents of manufactured home parks. Through the Harvard Graduate School of Design’s Community Service Fellowship Program, which supports GSD students to work over the summer with organizations that serve public needs, Reed was connected with Prosperity Now. He explains, “[Manufactured housing] is a fascinating and largely misunderstood sector of affordable housing. It has been the subject of a disproportionately small volume of scholarly inquiry as compared to conventional housing, which is at least partially to blame for some of the dysfunction in the space today.”
Reed and Ryan begin their report by acknowledging that, in the United States, homeownership is a primary means of wealth-building. They explain that while manufactured homes represent 5.4 percent of US homeownership, the housing type makes up approximately 10 percent of Latinx homeownership. “While the decoupling of the home from the underlying land is undeniably valuable in the extent to which it mitigates the initial expense of homeownership, it also represents two major weaknesses for residents,” the report continues. “First, without ownership of the land that their homes occupy, tenant-owners are materially subject to the decisions and actions of an actor whose interests may not align with their own. Second, because mortgages must be secured by land, financing options for land-leasing manufactured home owners are limited to personal property or chattel loans.”
Given the separation of the manufactured home from the land it sits on, the physical assembly of the housing type tends to significantly depreciate in value over time. Unlike with a mortgage, this results in the diminished security of a chattel loan. The truncation of chattel loan terms and the reciprocal increase of interest rates, in a relatively uncompetitive market, follow. Reed and Ryan elaborate, “In 2014, the Consumer Financial Protection Bureau reported that ‘interest rates on chattel loans may be between 50 and 500 basis points more expensive than real property loans.’ To put this figure in context, in 2012, roughly 94% of all manufactured home chattel loans—as compared to just three percent of loans for site-built homes—were categorized as ‘higher-priced mortgage loans’ under criteria set forth by the Home Mortgage Disclosure Act.”
Chattel loans are also regulated differently than mortgages, with considerably less government involvement in the marketplace. Chattel borrowers are ineligible for the foreclosure proceedings that precede repossession for homes purchased with mortgages, which can place them in precarious situations where homes financed with chattel loans can be immediately repossessed should their borrowers enter default.
Relatively speaking, manufactured homes constitute a small proportion of U.S. housing, but that proportion represents nearly 20 million people. If well regulated, manufactured housing could be a boon to U.S. affordable housing.
By examining financing practices that are successors of restrictive covenants and federal redlining, Reed and Ryan mine how these disparate challenges are exacerbated on the basis of color and how they knot into the convoluted American history of race and property. For Latinx communities in particular, diminished access to credit has served as a deterrent to chattel-financing. The report cites, “With a national median of 668, U.S. Latinxs’ credit scores are significantly lower than those of the general population, for which the median score is 706, according to the 2020 National Association of Latinx Real Estate Professionals.” Referencing journalism about discrimination against Latinx people in the mortgage-lending market as well as recent mortgage studies on interest rate disparities between white borrowers and those of color, the report suggests that similar conditions for lending discrimination exist in the chattel market, too.
For Latinx people that do own manufactured homes, it is not uncommon for their parks to be materially worse—in terms of infrastructure and amenities—than parks of comparable lot-rent inhabited by mostly white communities. It is also not uncommon for Latinx communities to be subjected to predatory management practices, akin to those in contract sales, that target non–native English speakers and undocumented homebuyers to exploit potential illiteracy.
In their report, Reed and Ryan offer ways to address the challenges and inequities associated with manufactured housing. “More data collection and research gives way to better regulation, which is critical for the housing type,” Reed reflected in an interview. “Relatively speaking, manufactured homes constitute a small proportion of U.S. housing, but that proportion represents nearly 20 million people. If well regulated, manufactured housing could be a boon to U.S. affordable housing. If poorly regulated, it remains a space where predatory lenders and other bad actors can continue taking advantage of it.”