One of the big news stories in the mobile home park business today is the renewed interest and support from the U.S. Government. After nearly a half-century of absence, American elected officials are putting pressure on Federal agencies to help with the affordable home crisis in general, and the mobile home park industry in particularly. With proactive products such as new Fannie Mae and Freddie Mac loan programs for parks, a new Section 8 voucher program, and even tax incentives for those who do not re-develop their mobile home park into a different use, Uncle Sam is becoming a fast friend of the industry. And there’s more to come under the new Federal directive called “Duty to Serve”.
Episode 6: The Government's Role in the Future of Mobile Home Parks Transcript
The future: Does it bring back imagery of George Jetson? The government: Does it bring forth imagery of George Orwell? What do you get when you blend those two together? What you get is the future of the government's involvement in the mobile home park sector.
Now, the government is a very active participant in the industry right now, though many people may be unaware of that. We're going to go over all of the different things the government is currently active in or is proposing to be active in in the industry. All of these fall under a certain section of the law which is called duty to serve.
Now, duty to serve is also known as Title 12 of U.S. Code 4565, and I'll read just the first paragraph of what duty to serve is. It's the duty to increase the liquidity of mortgage investments and approve the distribution of investment capital available for mortgage financing for underserved markets. Each enterprise shall provide leadership to the market in developing loan markets and flexible underwriting guidelines to facilitate a secondary market for mortgages for very low, low, and moderate income families with respect to the following underserved guidelines. Of those, the very first one is (a) manufactured housing.
The government, under Title 12, actually has a purpose. It is to support mobile homes and mobile home parks. Just how exactly is the government enacting Title 12? And what does it mean to you as a park owner? Let's start with the mobile home park section of the government's involvement.
First off is agency debt. Fannie May and Freddie Mac now fairly aggressively finance mobile home parks, a market that they really had not done much of in the past. In the olden days, they were trying to do very elaborate refis on very, very expensive properties on insanely low rates and extremely long Amo's, but the problem was virtually no park would qualify, and they knew that, and this allowed them to go years without doing much activity in the market at all.
However, recently, they've realized that that really wasn't helping, so they brought out new loan products very attractive to park owners. These Fannie May and Freddie Mac loan programs are collectively agency debt. Agency debt is very similar to conduit debt: non-recourse, low interest rate, fixed for 10 years typically, non-recourse. It even allows you to resize the loan over time. This debt is very, very attractive, and this is a huge item the government is doing, and they're doing a great job with it. In fact, they keep making it even easier to obtain this debt from any park owners. Why? Because the loans are performing extremely well. Agency debt is something the government is very involved in and, going forward, will be even more involved in.
The next item, related to parks although it really relates to homes too, is HR3700. This is the Section 8 bill that passed last year that will allow Section 8 voucher recipients to use those vouchers to buy mobile homes as well as rent apartments. It's the first time in history that Section 8 has allowed someone to actually own and buy something. The government's hoping it will end this generational rental mentality that many low-income Americans have, and it's great for park owners because what's going to happen effectively is you'll be able to tap into a giant market, millions of households that have never been allowed to buy a mobile home before.
Obviously, it's a huge boon to parks particularly in areas that are in not great economic climates where having Section 8 capability will allow people to finally fill lots that have been vacant for long periods of time. We don't know how the rules will be yet because it has not been enacted. Sadly, it was supposed to be enacted with rules by the middle of this year, but it has been delayed.
Many people think it'll be enacted sometime by the end of this year or next year, but, anyway you cut it, it's a huge item, and the future of that program is very promising because, as you can imagine, owning a mobile home is far less expensive than subsidizing an apartment. Basically, once someone owns the mobile home outright, the payment would drop from probably $700 or $800 a month down to a U.S. average of about $300 a month, which is almost $900 a month less than the government's paying those subsidized apartments for the same product. The other item is, of course, it allows people to finally get out of subsidized housing, for the most part, and actually own something with a much lower payment for the American taxpayers.
The third item that they're doing as far as mobile home parks is they are looking at passing different items. There was an item recently before Congress that's still out there floating around. It was introduced by a Democrat named Ellison. It was going to give you tax credits if you kept your mobile home park in the state of being a mobile home park and did not redevelop it into another use. In fact, what was proposed is you would get a 75 percent tax credit if you keep the park when you sell it as a mobile home park for a specified period of time.
Again, it is only being discussed at this point, but I think you'll see more of that in the future. This first one may not make the cut, but clearly it's a concept that's very beneficial to U.S. citizens and U.S. taxpayers because, if those people get forced out of their mobile home park through redevelopment, they'll probably end up in some social program subsidized by the government. Keeping those parks as parks are very important items. Even though this first round may not pass, the future of that is I believe it will ultimately pass.
The next thing the government is doing as far as supporting mobile home parks is looking at repealing sections of the Safe Act and of the ever-dreaded Dodd Frank. Ever since those were passed, people said, "Gosh. This isn't really working out. You're not really helping anyone. All you're doing is making it harder for people to obtain credit who really need it badly."
Apparently, a lot of Congressmen have known that all along, and, finally, now that we have a new regime in Washington that are stepping forward and saying, "Okay. Enough of the nonsense. Let's move on," so we think the future of that is it will be amended. It'll either be repealed all the way or they're already discussing putting a cap in there, particularly for mobile homes that would allow you to get around much of the Safe Act and Dodd Frank because, let's all face it, it's stupid. It's not helping anybody, and we all know that collectively. In fact, many people are not even sure it was ever legal to begin with because what we do in the mobile home park and mobile home industry is do what are installment sales. They're not mortgages. To label those as disguised mortgages is absolutely absurd.
Another item we're seeing as far as industry involvement in the mobile home park industry that I see only accelerated over time is protection of grandfathered rights. This has not really happened on a federal level yet, but it has been happening over and over again on the state level as far as Supreme Courts ruling in favor of the park owner. These are cases where the state government or the city government says, "Hey. You can't use those few vacant lots in your mobile park home because they haven't had a home on them in years." Of course, that's not true, and that doesn't work under grandfathering. You have rights under grandfathering. It's a federal right of protection of your property.
Just recently, the State of Mississippi Supreme Court ruled that the park owner was in the right and that the city had to back off. If you're interested in that, if you Google up "Mississippi Supreme Court mobile home," you will pop up the case, which is clear for all of the world to see that the government is now standing behind park owners who say, "You can't stop us from operating our business as much as you might like to." It's simply not fair or correct under the rules of grandfathering.
Now, I'm moving on to what the government is doing with homes, because they're doing some neat things with homes, some of which we have already discussed. Number one, obviously, Section 8 again, you can't talk about the industry right now or the future of the industry and the government without mentioning something about HR3700, which will finally allow people to buy mobile homes with their vouchers so they can have a much higher quality of life at a much lower cost.
Now, again, we wish it was already enacted. It will be soon. But I'm going to bet right now that virtually every user of a Section 8 voucher and apartment is going to be more than happy to look at these options of buying a mobile home. Who would not rather live in a structure that is free-standing with no residents knocking on your floors or ceilings, having your own yard, the ability to park by your front door, a sense of community, and to be a home owner? I think it's going to have huge repercussions against the apartment industry. I think they know that, and I think that's why they're delaying enactment as best they can. But, unfortunately, it will ultimately be enacted because it is the law, and I think you will see millions of people bail out of their Section 8 apartments, which are quite dreadful, let's be honest, and move into a mobile home park and a mobile home of their liking which will give them much higher quality of life.
Another item, and this is a big item, in fact, this is probably the biggest item we could talk about as far as the future of the government's involvement in the industry, and that is what Fannie and Freddie are going to do to support mortgages on mobile homes under duty to serve. Now, they're helping park owners right now by doing these agency debt on parks.
But, really, if you read, and you can Google up if you'd like "Title 12 U.S. Code 4565 duty to serve," and you can read in there. It's quite specific. They are supposed to help people get mortgages on mobile homes. They've got to go out there and help people who have low incomes and don't really have great credit and would not typically qualify. They're going to have to find ways to back up those notes just as they do with single-family homes right now. You probably are aware you can go out and buy a single-family home in the U.S. typically with only 3 percent down. Not the case with mobile homes. You are not served in any way currently under most of these mortgage supplements a single-family has.
What does it mean? Well, we don't know. But what we think is going to happen is that the government is ultimately going to offer programs similar to single-family making it possible for first-time home buyers and repeat buyers to actually qualify to buy mobile homes. This has never happened before in American history. Never before has the government actually actively helped the mobile home mortgage market. What would the results be? Well, pretty substantial.
If you'll recall, they did a no income doc 30 year mortgage to support mobile homes under a lender called Greentree as well as CIT back in the very late 90s, '98 and '99. It shot the industry production all the way up to 400,000 units a year. Now, these were not federal programs. There were no subsidies, no support, and it ultimately blew up. Many of those lenders got wiped out, and production of the industry dropped from 400,000 units down to 60,000.
What it shows is that there's a lot of people who are marginal who would definitely want to buy a mobile home if they could only get access to the credit. What we're hoping is that Fannie and Freddie will find an algorithm to make it possible for people to get these mortgages. Now, hopefully, not in a way that they will fail. If they fail, that won't help anybody, so all you'll have is a bunch of homes go in and then be repossessed out. But find a way that we can find a middle ground that people can actually buy something they want to live in and afford to live there with the government helping to support them.
Obviously, that would be a win-win for everyone and, from a park owner perspective, a huge win. Can you imagine if people were able to go out and buy mobile homes at a high velocity and put those in all of those empty spaces in those parks all across America. Obviously, it would be the most banner moment in mobile home park history. We really think that's going to happen. There's been a lot of discussion. I watched a thing just recently on C-SPAN, the government inquiring into affordable housing, and it came up time and time again: Why are we not giving more effort to helping people buy mobile homes?
We do all of these insane supplements. Think about this now. We're doing all of these subsidies to apartments for people to live in where you and I, the U.S. taxpayers are paying roughly 80 percent of the amount of what these folks are charging. Sometimes, the rents are like $1,200 a month. We're paying almost $1,000 a month in perpetuity forever. There's no end to it. It's absolute insanity. Obviously, if the government stands behind mortgages on mobile homes, yes, there will be some defaults. But, my gosh, I think, if we take that $1,000 a month that we're spending on these apartments and put a little of that money towards the mortgage support, it would work out okay in the end.
Again, I think that's a really huge item and something that we're all going to benefit from hugely in the industry going forward. It's probably the biggest news story that's going to happen in the industry in ever, and it's coming up probably pretty soon simply because it makes complete and total sense and it's completely aligned with duty to serve.
Now, here are some other items we're seeing out there that relate to the industry and the government. What is the capital gains tax? We're all aware right now that Trump is working on new tax initiatives. I don't know what they're going to be, but I think the simple fact that capital gains tax remain low and could even get lower is extremely attractive to all park owners. Right now, we live in a time where capital gains is really- I don't think it's ever been lower in recent history than it is now, and that's great for people who own real estate because, again, if you buy it for the long-term, it's awesome having a very, very low tax rate. We think that's a great item.
We also see right now a lot of protection for mobile home parks coming under the concept of fair housing. If you have a mobile home park and the city gives you pushback and says, "Oh, I'm sorry. You can't use your mobile home park anymore under the conditions of what you legally are supposed to," you can now contact the government and say that it is in fact discrimination against lower-income people, and that scares many cities to death. We think that the fair housing protections are a very, very good boon to park owners and in fact will be going forward. I think you're going to see a lot more of that in the future.
I also think that we're going to see a lot more government support of the industry functioning under grandfathering in ways beyond what I had mentioned earlier. The state of Texas came forward recently and basically ended any grandfathering issues statewide in perpetuity by saying that every single mobile park lot out there is free to have a mobile home come and go as much as they take. Take that cities in Texas that don't like mobile home parks or wanted to stop you from using your lots. You can't anymore. Now, Texas says, statewide, "Sorry. You're not going to be able to do it."
We would love to see that happen in more states. We would love to see these protections of park owners' rights ripple forward into other states just as Texas has done giving people the full knowledge that they have the right to operate their park as a free-standing business as long as they would like to.
The parks have a very unusual attribute in grandfathering. We are a grandfathered use. As a result, you can't ever really shut us down because you could have a park that has not a single resident in it. As long as our phone rings, we never shut the use down, which never stops the clock to ending that non-conformity. As states seem to be more aggressive, I mean as the Supreme Court rulings keep coming out, and now you have the state of Texas coming out as an entire state, again, you're going to find a lot more protections and a lot more happy times as a park owner.
Now, what do all of these items mean again? The industry is finally getting support from the United States government. It's getting support from state government. It's getting support from almost everyone: Fannie May, Freddie Mac, Section 8. It's really awesome. Never thought we'd really see this happen. If you could go back to the start of my career 20 years ago, nobody loved us at all. Nobody cared in the least. It was pretty depressing. But, now, suddenly, we're becoming the darling of Washington for the simple reason that they realize that we're totally smart. We make complete sense. We're not subsidized. We, in fact, are really the only way, the only solution, to the affordable housing crisis in the U.S. that does not require any taxpayer dollars.
Again, I urge you to Google up "Title 12 U.S. Code 4565 duty to serve." Learn all about what it means. You're going to see more of that in the media going forward, and you know what? The future of the industry regarding our relationship with the government is extremely bright.
We've had some great relationships in decades past. Remember, the government was very, very supportive of the industry back in the 1960s. They had a federal HUD program to help promote the construction of mobile home parks. Many of the nicest parks that we own and that you see out there as you drive around were parks built during that program back in the 1960s. Remember that also the government was at one time the largest owner of mobile homes in the U.S. They owned almost half a million of them, which they used as base housing and GI housing, right around World War II area.
Basically, the government and the industry have had a great relationship in the past. Then, it kind of fell apart. Now, it's finally being rekindled, and we think that's a terrific thing to have happen. Again, industry and the government and the future, they all go hand in hand. It's not to be feared. It's to be embraced.