Mobile Home Loans

How to Avoid Disaster with Mobile Home Loans

Manufactured housing could be a 10,000 square foot luxury home.

But, more commonly it is what is to referred to as mobile or modular homes. Although, these homes can sometimes be very luxurious too, they are often sold to low income customers as affordable housing.

But it appears that it is anything but affordable. Due to dishonest practices on behalf of modular home sellers and their lenders, 100’s of thousands of people have found themselves in a true financial hell.

It starts with the sales process itself. Rarely are their any “sticker prices” on these homes. Shoppers have to rely on the salesman to steer them to homes they can afford. Then the potential buyer usually finances through the dealership, where all sorts of conflicts of interest arise.

Mobile home loans usually require a 5% down payment. However, the Consumer Union, publisher of Consumer Reports magazine, found in a recent study that 24% of buyers overpaid more than 5% on their modular home. So many new buyers are already starting off with negative equity. They owe more than the home, the collateral for the loan, is worth.

Many buyers do not have stellar credit reports, so they fall into sub prime territory and wind up paying between 9.5% and 12.25% on variable loans, with large swings. And, in most instances these are personal loans, not real estate mortgages. The difference is huge, as you will soon see.

Then sellers and lenders tack on all sorts of extra fees and, in many cases, don’t even deliver the home that was ordered. Finally there are a lots of complaints about shoddy construction.

Many buyers claim that they don’t even know what they will have to pay until after they sign the papers and then it is substantially higher than what had been represented.

Things have gotten so bad that there have been between 90,000 and 100,000 foreclosures a year for at least the last three years, well above normal averages. The national default rate on mobile home loans is 12%. There is such a glut of repossessed homes that they sell for less than one third of the price of a new one of the same make and model.

Several major modular home lenders have gone bankrupt and others have withdrawn from the market. Smart financiers, like Warren Buffett, are moving in for a quick buck, but that doesn’t help the thousands whose lives have been ruined.

The main problem is that a lot of modular home buyers are not well educated or wealthy. A real estate transaction entails the protection of the Federal Real Estate Settlement Procedures Act (RESPA), which requires lenders to disclose all fees and costs before closing. A real estate transaction also usually requires the services of an attorney or escrow agent who would offer protection to the buyer.

Modular home buyers are going through a transaction more like buying a car or TV. There are no appraisals or inspections. The house is just delivered to its resting place.

Unless the buyer goes to a independent lender, who will require, at the least, a copy of the dealer’s invoice and maybe even an appraisal, so to be able to judge the value of the collateral, it is hard for a modular home buyer to even find out the true cost of the home.

If the buyer does finance through the dealer, on average they pay about 10% more than the house is worth, creating even more negative equity.

Because the house is considered personal property in most states, it can be repossessed, sometimes even with the owner and his possessions inside. If the home is in a trailer park, you can be evicted for non-payment of rent for the lot, which makes it even easier for the lender to repossess.

In some states there is no homestead exemption for modular homes. The homestead provision would stay and possibly prevent repossession in bankruptcy cases.

Because most people have a personal loan, not a real estate mortgage, lenders don’t have to go through the more formal legal steps required to obtain a foreclosure in at least half the states.

Once the modular home is repossessed, it will be sold at auction. Because of the glut of used homes on the market, it will bring in little money, especially if it was not well kept. In many states, the lender then has the right to obtain a deficiency judgment.

If you owed $20,000 on the house and it sells for $5,000 at auction, the lender will sue for the difference and if successful, will be able to seize other goods or garnish wages. Deficiency judgments are rarely allowed on true real estate mortgages.

Several years ago, the Texas Attorney General studied the situation and concluded that manufactured homes should not be considered a "reasonable alternative for low-income home buyers" without market reforms designed to protect consumers from fraud and predatory loans that strip equity.

The modular home industry is in a deep recession right now. Along with the glut of used homes, they are having trouble working off their inventories of new ones. Along the way it has picked up a horrible name for itself and many people rightly associate dealers with rip off artists and crooks.

With interest rates as low as they are, lower income buyers can afford real houses, at least for the time being.

Manufacturers and dealers are used to this boom – bust cycle and are confident things will be back to normal pretty soon.

If you are interested in a modular home, shop around a lot. Go to three or more dealers and get firm quotes. You'll save thousands of dollars for the effort.

Do not finance with dealer. Find a bank or other independent lender who will work with you. Not only will your rates be lower, but you will have an ally to help you insure you’re not overpaying.

Tie the house to land and try to get a true mortgage. FHA, VA and RHS federally guaranteed mortgages are available for mobile home buyers.

Don’t accept a Land/Home loan, where only the land has a mortgage. You want mortgage protection on both the land and the house.

Finally, if you are in a modular home with a personal loan, do not ignore any legal notices you may receive if you fall behind on your payments. Things can happen pretty quickly.

If you can’t afford a lawyer, run to the nearest Legal Aid Office and get them to represent you for free. Bring every piece of paper you have pertaining to the loan. There might be a limit to what they can accomplish on your behalf, but they will be sure that you will not be totally railroaded.

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