Subprime May Cause Manufactured Housing Comeback

According to a report by Advantus Capital Management Inc., the manufactured housing sector may benefit from the implosion of the subprime housing market. In "Manufactured Housing: An Expected Beneficiary from Subprime Mortgage Disruption" by Jon Thompson, Advantus vice president of structured finance, he makes the case that the manufactured housing industry is well poised to take advantage of the troubles afflicting the subprime marketplace. He also pointed out that there are parallels between what happened in the manufactured housing sector almost a decade ago and the current subprime meltdown.

Mr. Thompson related how in the 1990s, the manufactured housing industry enjoyed a boom as lenders began to aggressively utilize the securitization market as a source of liquidity. The Advantus report notes that securitization volume doubled from 1995-1999, growing from approximately $6 billion to $12 billion. According to the report, lenders responded to the decline in demand for manufactured housing at the turn of the 21st century by adopting more aggressive lending practices.

"They relaxed underwriting guidelines and eased loan terms," said Mr. Thompson. "What followed were large-scale borrower defaults and foreclosures, which caused rapid deterioration in the performance of securitizations. This led to a dramatic withdrawal of liquidity from the manufactured housing market." He added that this led to the winnowing of the number of major, active, manufactured housing lenders from 13 in the late 1990s down to three by 2003.

The reports states that during the recent housing boom, the growth in the subprime market cannibalized the manufactured housing sector as borrowers could purchase site-built homes for the same payment or less than a manufactured home. However, with the implosion of the subprime market, manufactured housing may be poised to reverse that trend.

Home Loans

Will I get a loan? how lenders decide

If you want to move house you will need to sit down and plan your financial strategy. If you don't know how much you can spend, here is a quick checklist of how lenders work out whether you'll get a loan and how much you can borrow.

1. Credit history

The way lenders check your credit history varies, says Tyrone Silcott, a mortgage broker with Everett Macleod. 'Some do a credit search and look at any loans you have and whether you've been late with any payments. Others credit score you: if you get the right number of points, you won't have a problem getting a loan but if you don't get enough points you may be referred to head office, or could be refused altogether. Your mortgage broker will be able to tell you which lenders take a very strict view of any late loan payments and which are more flexible.

2. Income

Lenders are more flexible now than a few years ago, due to historically low mortgage rates. But the industry 'standards' are still fairly cautious. Most will lend three-and-a-quarter times your income (for a sole purchaser), or two-and-a-half times joint income or three times the main income and once the second income, for joint borrowers. One or two lenders, such as Standard Life Bank, will lend on affordability - taking into account loans and other commitments, rather than just using income multiples.

3. County court judgments

County court judgments (CCJs), are issued for unpaid debt, and if you've got one against your name, you could find getting a mortgage difficult. CCJs remain on your credit-reference file for six years after they've been issued - so it's worth bearing in mind. If you paid the debt off (called 'satisfying the CCJ') at least a year ago, you should have a good chance of getting a loan from a mainstream lender. If you paid it off more recently you may still get a mortgage, but it is less likely. If the CCJ is still unpaid, you could well be refused a mortgage by high-street lenders.

4. Length of employment/probationary period

The general view is that lenders are becoming more relaxed about how long you've been employed and whether you're still in your probationary period, especially if you've moved to a similar job. John Charcol's Ray Boulger explains: 'If you're in a probationary period, but are doing a job that's very similar to your previous one, lenders may still grant you a mortgage. But if you're doing a completely different job, it will be more difficult.' If you've got a permanent job, as opposed to a contract, you could get a loan after just one month in the job.

5. Electoral roll

If you're not on the electoral roll at your current address, you need to be able to prove your address. It is a legal requirement to give information to the electoral register and many lenders take a dim view of anyone who isn't listed. Some banks and building societies will expect proof of address for the past three years, others simply for the past year. A bank statement or utility bill is usually enough, but even this could be difficult for people such as ex-students with no bills in their names who use their parents' address for bank statements.

6. Value of property

Before you can get a mortgage, the property will have to be valued. The lender needs to be sure it's worth the amount you want to borrow. The higher the loan-to-value ratio, the more critical the survey results - and you may be forced to borrow less than you planned.

7. Construction of property

Some banks or building societies won't lend on certain types of property. For example, if you're buying a flat that's built of concrete, you could run into problems, says Tyrone Silcott. 'Lenders won't lend on what they call non-traditional construction - where walls are built on a solid concrete frame.' These flats were mainly built in the Fifties and Sixties and were often originally council-owned. If you can get a mortgage, you may be limited to about 50% of its value. As ever, there are exceptions, says Ray Boulger. 'The Barbican falls outside most lenders' criteria, but you won't have a problem getting a mortgage because of its location.'

8. Leasehold property

Most lenders wilI look at how much time will be left on the lease when the mortgage term has ended - and will expect between 25 and 50 years. The shorter the lease term, the smaller your choice of lender. However, in central London, where the well-known estates such as Cadogan have short leases, some will lend, although you will probably have to take the mortgage on a shorter term.

9. Know your neighbours

If your dream home is next to commercial property, you could also find your loan turned down. Houses that are next to commercial premises are usually fine, but flats can be a different story, says Ray Boulger. 'If you are buying a flat over a restaurant or dry cleaners, for example, where there is a danger of noise, smell or fire, you may only be able to borrow 75% of the property's value.' He says that a lot of lenders base their decision on location. 'If you're buying a flat above a nice restaurant in central London, some will lend even though it's out-side their normal criteria. The same would not be true if you were looking in a more run-down area.'

10. The magic 75%

If you're finding it difficult to get a mortgage, see if you can borrow less than 75%. It's much easier to get a mortgage for less than 75% of the property's value because it doesn't have to satisfy more stringent criteria. These come into play because leaders have to take out mortgage-indemnity insurance on loans above 75%.