|
Subprime May Cause Manufactured Housing Comeback
By Alton Gary Simpson
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.
"We believe current disruptions in the subprime lending market will help the manufactured housing industry to recover," said Mr. Thompson. "The longer the withdrawal of liquidity in subprime lending persists, the greater the likelihood of a recovery in manufactured housing." Among the factors working in the industry's favor are shipments remain at historic lows, the inventory of repossessed manufactured homes has been reduced and the underwriting excesses of the late 1990s have been eliminated.
Adding further weight to its argument, the Advantus report noted, "According to one of the manufactured lending lenders we speak to regularly, they are now experiencing increased loan application activity." In addition, the delinquency and cumulative loss levels for deals from 2005 and 2006 are a fraction of what they were earlier in the decade.
More subprime news
| 
