Congress should not make it easier for predatory lenders to take advantage of vulnerable manufactured home buyers.
THE government can’t keep people from making poor financial decisions. But it can at least put parameters around companies to ensure they don’t take advantage of vulnerable consumers.
A recent investigative report in The Seattle Times exposed abusive practices in the manufactured-homes industry that were employed by subsidiaries of Wall Street darling Berkshire Hathaway.
The project, a collaboration between Mike Baker of The Times and Daniel Wagner of the Center for Public Integrity, discovered a disturbing series of bad deals. In one instance, a lender gave a 20-year, $60,000 loan to a North Carolina woman who had a poor credit score, no down payment and only $700 of consistent monthly income. Her payment was $673 per month.
A lender deliberately trapping borrowers in loans they have small chance of repaying is unconscionable. Some lenders make most of their money on the initial loan, not in its repayment.
Regulations from the Dodd-Frank Act that went into effect in early 2014 tightened requirements and restrictions on “high-cost” loans. For example, if the interest rate and fees on loans reach a certain level, lenders have to verify a borrower’s ability to repay loans and disclose consequences of default and loan terms. Also, some borrowers have to attend pre-loan counseling.
The new rules also prevent manufactured-home salespeople from steering buyers toward particular loans, which avoids any conflicts of interest. Instead of offering a variety of lenders, the investigation found that sellers pushed borrowers toward Berkshire Hathaway lenders, setting the stage for abusive lending practices.
The industry is now fighting to reverse the new rules and make it easier to charge higher interest rates and fees. Congress should resist and, in fact, tighten regulations so that more borrowers are better informed of the costs and risks of high-interest loans.
One particularly wrongheaded — but bipartisan — proposal passed the U.S. House Tuesday. It is the Preserving Access to Manufactured Housing Act of 2015. HR 650 would raise the threshold for which loans are considered “high cost,” from 8.5 percent above the average rate to 10 percent above the average rate. President Obama has threatened to veto it if it passes both houses.
The change may seem minor, but the higher threshold would mean the lender has to do less work and disclose less information to borrowers. The majority of loans on manufactured homes carry high interest rates, especially compared with a typical mortgage.
Manufactured homes represent only 7 percent of Washington’s housing stock and 6 percent nationwide. But they can be a viable, affordable alternative for low-income and elderly people. In 2012, 72 percent of all new homes that sold for $125,000 or less were manufactured, according to the Manufactured Home Institute.
The idea of lenders targeting vulnerable consumers who need basic shelter is reminiscent of the subprime lending scandal. Financial companies making risky loans under suspect circumstances has pushed this country into a recession numerous times, most recently after the 2008 mortgage crisis.
Manufactured homebuyers should understand the risks of taking on high-interest loans on assets that tend to depreciate more like a car than a conventional house. At the same time, the Senate should reject HR 650 and refuse to roll back existing consumer protections before they’ve had much time to work.