A Title I loan is a FHA-insured home improvement loan which can be used several purposes: for the alteration, repair, or improvement of an existing single family structure; preservation of an historic residential structure listed or eligible to be listed on the National Register of Historic places; or alteration, repair or improvement of an existing manufactured home (HUD Code) and/or mobile home classified as personal property or real estate.  

It is not to be confused with the more familiar FHA Title II home financing program which is used for conventional homes, and for HUD code homes on fee simple homesites in a land-home package.  Limited lenders are currently participating in the program, but all that may change, and not too soon for an industry who’s pending demise has been largely in part to the lack of viable home financing options at reasonable terms.

A manufactured home (HUD Code) to be financed may be placed on a homesite in a Land Lease Community (LLCommunity) or may be placed on a fee simple homesite or in a condominium or cooperative (shares ownership by residents) community. 

A Title I loan can also be used to finance the purchase of a new or used manufactured home on an installment contract. Loans for purchase of a manufactured home are available up to $69,679 for the home only (on an approved leased homesite) and $92,904 for the home and lot combined (both these are indexed yearly). 

A minimum credit score of 500 is needed for a 5.0% down payment, although lenders are free to establish higher scores if necessary to secure better loan performance.  Scores under 500 require a minimum 10% down payment.  Loan amortization may be for up to 20 years for home only or 25 years in land-home combination.  Interest rates and credit terms are determined by each lender, and are not set by FHA.  Maximum loan limits are determined by a fixed formula based on actual home and installation costs for new homes, and by a formal appraisal from an appraiser who is qualified to use the national NADA appraisal system or the equivalent.

The release of the long awaited  FHA Title I Mortgagee Letter, designed to complete the implementation of the Title I program improvements approved by Congress in the Housing and Economic Recovery Act of 2008 (HERA), was announced by Federal Housing Commissioner David Stevens at the June 2, 2010 manufactured housing industry finance summit meeting. The Mortgagee Letter, to be issued on June 2, 2010, will, according to HUD, pave the way for the development of guidelines by GNMA for the securitization of manufactured housing obligations and the qualification of finance institutions to provide FHA-insured Title I loans.

The June 2, 2010 Mortgagee Letter clarifies and amends portions of a prior Title 1 Mortgagee Letter issued by FHA on April 14, 2009.   That document began the process for implementing the Title I HERA reforms authorized by Congress and signed into law by President Bush in July 2008, including higher transaction limits, but did not address all of the issues raised by that legislation, which effectively allowed GNMA to continue its moratorium on the securitization of manufactured housing obligations and the qualification of new Title I lenders.

While information from FHA in late 2009 indicated that GNMA would require time-consuming follow-up rulemaking by FHA on the remaining HERA-based issues as a pre-condition to action that would ultimately lift the GNMA manufactured housing moratorium, it now appears, from comments at the finance summit meeting by HUD, FHA and GNMA officials, that GNMA is willing to set new Title I guidelines and begin the process for the qualification of lenders, based upon the two FHA Title I Mortgagee Letters.

Is this the final step?

Nope, but we are moving along towards it.  GNMA’s eliminating of the moratorium on new lenders may be the last.  Let’s hope it doesn’t take as long for GNMA to complete their review as it did for the original legislation to be fully implemented (from President Bush’s signing in July 2008 to June 2010 an incredibly long period of 23 months)

What’s next?

Perhaps some serious consideration by community owenrs, investors, retailers, and other entrepreneurs in expanding existing LLCommunities, and building some new ones in markets where housing prices still un-reachable by many, the market demand is high, job growth is positive, median household incomes are equal to or above those required to purchase new and used homes, and manufactured home living is socially acceptable (don’t forget this one). 

Where are they? 

A future article will provide some insights into methods for narrowing down markets where the development of new communities may be indicated.

Using this newly revised home financing program for HUD code homes in LLCommunities in conjunction with the FHA 207m Loan Guarantee program for rehab of existing communities and development of new ones, we may see some new life breathed into our languishing manufactured housing industry.

Or am I just dreaming?

At the present time, there are only two reported lenders who are approved by GNMA for the purchase of FHA Title I home loans, and are active in the marketplace. With the June 2, 2010 final rulemaking letter, it is anticipated after reveiw, GNMA will lift the moratorium and many more lenders will apply for and be granted approvals.  When this happens, it is expected that the number of FHA Title I lenders will increase dramatically, and loan rates and terms will be much more competitive than provided for by current lenders.

Some of the less obvious, but important features of the newly revised program are the continuing availability of used home financing by new home buyers, and the ability for lenders and community owners to re-finance some of their self financed home inventories which have been used over the last 8 to 10 years to fill their vacant homesites.

With an adequate source of resale financing by new home buyers under the revised FHA Title I program, lowering used home pricing to offset bad financing underwriting rules which have been one of the only sources of financing a used home sale, will be decreased and so called “used home depreciation” may be an item from the past.

Note: Much of the credit for behind the scenes encouragment for this action goes to several state associations, and our national MHI with the strong technical support of MHARR under Danny Ghorbani. 

That’s all I’m saying.

Edward Hicks is a nationally known community development consultant,  licensed R.E. Broker, and Mortgage Broker located in the Tampa Bay Florida area.  He has over 45 years experience as a m/h retailer, manufacturer, community developer, and is a specialist in assisting developers with the use of the FHA 207m and 221(d)4 loan guarantee programs, for community acquisition and rehabilitation and new development.  He may be reached at (813) 661-5901 or by e-mail at Easteddie@aol.com