Nearly 22 million Americans live in manufactured homes, and about a third of those homes are in manufactured home communities (MHCs), colloquially referred to as “mobile home parks.” Although residents of these communities typically own their homes, they rarely own the land under the home, instead renting their “pad” from the community itself.

Because moving a manufactured home can be expensive (ranging from $5,000 to $15,000 or more), MHC residents generally must pay whatever land lease is demanded. Not surprisingly, there are many reports of steep land rent hikes in MHCs.

For manufactured home residents, who tend to have lower incomes and live disproportionately in rural areas, this price gouging can create a significant burden. Tenant protections implemented by Fannie Mae and Freddie Mac (the government-sponsored enterprises, or GSEs) could alleviate this risk. About 5 percent of Fannie Mae’s multifamily mortgage portfolio consists of MHC mortgages to investors, comprising more than $20 billion. To protect tenants, the GSEs can require MHC investor borrowers to allow for longer leases, antigouging provisions, and moving-cost defrayment.

Further, the GSEs do not currently guarantee the loans necessary for residents of MHCs to buy a manufactured housing unit, called “chattel” loans or “home only” loans. These loans are available only from a limited set of lenders, are more expensive, and have few borrower protections. The GSEs could enable the development of the manufactured housing market and fulfill their Duty to Serve mission by purchasing these chattel loans, which would become safer with the MHC investor requirements we propose.

GSEs can require rent protections to prevent pad lease price gouging

Estimates show that private equity investors already use GSE multifamily mortgages to finance as much as half of their MHC purchases. But these favorable financing rates currently lack sufficient obligations for the MHC owner. The GSEs could require MHC owners who receive GSE-backed financing to offer long-term pad leases (anything in the 5-to-10-year range could be feasible), which would limit maximum annual lease increases. 

The GSEs already require renewable leases in their pad lease protections (PDF), but this requirement is meaningless if the landlord can include an exorbitant rent increase as part of the renewal offer. For antigouging rent protections, the GSEs could require MHC owners to specify a schedule of rent increases. Each annual increase could be capped at inflation from the previous year plus 5 percent (a rate consistent with a recent California law) or at a higher, simpler threshold (e.g., 10 percent annually).

The US Department of Housing and Urban Development’s Title I program provides a precedent with its initial lease term requirement of three years. The Federal Housing Finance Agency (FHFA), which regulates and runs the GSEs, could go beyond this guidepost to better meet its explicit Duty to Serve (PDF) mandate from Congress. These protections could be enacted alongside other tenant protections that we recommend for all GSEs-backed multifamily properties.

An alternative option to longer-term contracts is simply enacting rent control on pad leases. In general, we believe rent control exacerbates the housing supply crisis, but MHCs are a unique case because the manufactured home the pad tenant owns is virtually unmovable. Manufactured housing in general would benefit from easing restrictive zoning and other local supply-side regulations.

The GSEs can protect manufactured home owners from being forced to move

Even with a long-term lease or rent control, MHC investors can take advantage of manufactured home owners by underinvesting in maintenance, evicting under false pretenses, or raising rents astronomically when leases do come up for renewal. To lower this incentive, the GSEs could require that the MHC must pay at least some of the move-out cost as long as the manufactured home is actually transported out of the community. As a concrete example, the MHC could be required to pay the lower of $5,000 or the documented move-out cost.

Such a requirement would better align the incentives of MHCs with their residents because the MHCs want their residents to stay for as long as possible, all else equal. But MHCs might raise pad leases overall to recoup potential move-out costs throughout the lease, but the effect is likely to be small, as most manufactured homes are never moved. In the worst-case scenario, MHCs would have an incentive to offer some compensation for owners to sell the home to the MHC.

Given that this payment won’t cover the entire cost of moving the unit, we believe tenants will not game this provision. Also, we believe tenants should receive this payment regardless of the reason for moving the unit, as long as they provide timely notice. The FHFA might receive comments that will warrant carve-outs (cases in which the tenant does not receive such a payment, despite moving), but we have not come up with good justifications for any such carve-outs. 

The GSEs could bring standardization and lower costs to the chattel loan market

Our two proposed manufactured home tenant protections (long-term leases and moving cost payments) should eliminate some of the risk for the GSEs in serving this mortgage market. If the GSEs enter the market, they can further standardize the product and lower the costs.

According to recent mortgage data analysis, chattel loans had interest rate spreads 3.6 percentage points higher than site-built mortgages in 2019. Data also showed these loans had 23-year terms and a median loan amount of $60,000. Requiring longer-term leases would allow for safer underwriting and would lower default risk, in turn reducing interest rates. Standardization and additional consumer protections could also allow for lower interest rates for manufactured home borrowers and for considerably shorter terms with the same monthly payment.

If the GSEs were to participate in this market, they could increase cash flow and residual income underwriting. Chattel loan borrowers generally have low credit scores, and borrowers could benefit from incorporating on-time rental payments, residual income, and account inflows and outflows to boost their scores. Anecdotally, the larger chattel lenders already use similar data for underwriting. The GSEs could use cheaper appraisal methods for such loans, similar to what Kelley Blue Book uses for car appraisals.

In 2022, 56,000 new chattel loans were originated. If the GSEs enter the market, they could set a goal of 5,000 chattel loans per GSE by 2027, increasing to 10,000 by 2030. Based on their current single-family market share, the GSEs could jointly originate 20,000 loans a year, assuming the market remains at its current size. This estimate does not even account for potential market expansion after standardization. The FHFA can also design guardrails around these loan offerings to avoid predatory terms (similar to some retail installment sales contracts).

By adding new tenant protections and increasing standardization in the manufactured housing market, the GSEs can play a key role in solving the affordable housing supply crisis.