Federal Reserve Board Examines Modernization Ways Community Reinvestment Act (CRA), a law passed by Congress in 1977 to encourage banks to invest in the communities in which they operate, especially in low- and middle-income areas. Advice proposed update, released in late 2020, takes positive steps to expand lending to low-income communities, but does not discuss loans for industrial homes, often referred to as mobile homes and the largest source of unsubsidized affordable housing in the United States.
Much has changed since the CRA was adopted nearly 45 years ago, such as ubiquitous internet banking, the rise in non-bank options and the closure of local branches, which has caused financial devastation in many low-income and rural areas. As part of its response to a request from the board of directors for comment, the Pew Charitable Trusts in February called to provide clearer guidance on how banks can obtain loans to finance industrial homes through safe and affordable personal property loans, in addition to expanding access to small mortgage (less than $ 150,000).
CRA updates could improve opportunities for people looking for cheaper housing by making it easier to find funding for industrial housing. This could increase competition in a market currently dominated by only a few non-bank lenders, increase the supply of loans at reasonable prices and lower interest rates, which would help keep payments affordable.
Industrial homes are more common in low-income communities
Twenty-two million people live in industrial buildings. Rural Americans are more likely to live in these units. More, almost half of these houses are located in metropolitan areas, and they represent important source inexpensive housing throughout the country.
In 2014 Consumer Financial Protection Bureau found that people living in such homes were more likely to have low incomes, assets, and net wealth than people living in traditional houses built on site. Interestingly, they also have lower debt-to-asset ratios, which may be due to more conservative borrowing behavior or less access to credit for these households. Most of the inhabitants of industrial buildings are white non-Hispanic residents. However, Hispanics, Hispanics and Indigenous peoples – especially reservations– make up a larger proportion of residents living in industrial housing than in houses built on the territory.
Few lenders offer loans to homebuyers
Prefabricated homes can be difficult to finance for two reasons: first, there is a general shortage of small mortgages across the country – even for qualified buyers – and second, personal property loans are offered by relatively few lenders and at higher interest rates. , which reduces availability. Updates to CRA rules could improve access to small mortgages at the national level for both homes built and homes built on site. While industrial home buyers who own their land could finance mortgages, most still use personal property loans; the CRA update could induce banks to increase the supply of both loan options.
Despite the predominance and importance of industrial homes in low-income communities, they have not been explicitly the focus of CRA reviews or part of the majority. bank lending programs… IN Mortgage Bankers Association in a commentary to the Federal Housing Finance Agency (FHFA) in 2017 noted that “the lack of competition in the finished home market results in limited availability of long-term fixed-rate loans at the most competitive interest rates and limited purchasing options. , resale and refinancing [these] characteristics.”
IN FHFA wants to support the secondary market for finished homes. Accordingly, he demanded that Fannie Mae and Freddie Mac, the companies he oversees, purchase mortgages for the construction of finished housing, which will increase the volume of lending. However, personal property loans lack a strong secondary market, which is a major obstacle to the ability of banks to offer such financing. As a result, such loans usually have to be withheld. “on portfolio, ”, Which prevents banks from replenishing funds and reduces the amount of dollars they have available for issuing loans.
Improving access to safe and affordable loans for industrial homes
Revising the CRA’s rules to cover artificial housing loans – while ensuring they are safe and affordable – could increase the availability of finance for this underserved market and provide liquidity to lenders.
In our comments on the Federal Reserve proposal, Pew noted that banks are currently downgraded due to predatory lending in this market. This should continue, but there is an important opportunity for the board of directors to encourage banks to offer safe and affordable personal property loans to finance the purchase of prefabricated homes. Specifically, the board may consider three ways to improve access to credit for industrial homes:
- Include safe and affordable personal property loans for industrial housing in the list of CRA eligible activities so that banks can be sure of getting credit for these loans.
- Allow banks to obtain CRA loan to purchase qualified personal property loans from lenders, which will allow more loans to be issued.
- Encourage qualified personal property loans by providing CRA credit based on the number, not the amount, of loans in the area. This can encourage lenders to provide more loans rather than just bigger ones, and this is especially important because these houses are often cheap.
Pew examines issues related to industrial housing lending to identify barriers or harms associated with various financing mechanisms. The ultimate goal is to find opportunities to expand the availability of safe and affordable credit.
Nick Burke is the director and Rachel Siegel is the Pew Charitable Trusts Consumer and Housing Finance Research Fellow.