Chattel Financing: Probably the hottest topic at the Congress, several workshops and panel discussions dealt with the future of Chattel lending, the costs and risks associated with it, and the availability of money from Wallstreet needed to continue offering Chattel financing. The panel consisted of Don Glisson, Jr. from Triad Financial Services in Jacksonville, Florida, Ron Klein from Origen Financial in Dallas, Texas, and Len Zych from Chase Manufactured Housing in Cleveland, Ohio. The bottom line is that manufactured housing-backed bonds are performing at an alarmingly poorer rate than Home Equity Loan-backed bonds or High Loan To Value Site Built Home Loan-backed bonds. With a current national Annual Constant Default Rate (CDR) of 6.76% (site built is 1.8%), and a loss severity of 79.5%, investors interested in purchasing bonds are not likely to choose manufactured housing bonds versus other, less risky investments. Therefore, to offset the risk the rates must be higher, which is why we currently have such high Chattel loan interest rates. This trend will continue, and new lenders will not likely enter this portion of our industry until repossessions slow down and the loss severity improves. The good news is that industry experts agree the repossession inventory is slowly being absorbed and the worst is probably behind us.

New Home Production: The annual demand for manufactured housing stays pretty constant at 250,000 units per year. With production reaching the 380,000 level in the late 90's and financing recklessly loose, we had a glut of inventory coupled with record sales that created a false economy in our industry. Current production levels are below 150,000 annualized units, a 40+ year low. This is good news, because as demand remains at 250,000 annual units, the difference between production and demand is being absorbed by repo sales, which clearly proves that the repossession inventory is being purchased by consumers and demand will EVENTUALLY exceed supply. Probably not for another year or two, but it will happen, and that is definitely a signal of LIGHT AT THE END OF THE TUNNEL!

Resolving Repossession Problems in Land Lease Communities and "Parks": A very interesting panel discussion took place on this subject, with representatives from Conseco (Vice President Randy Shannon) and 21st Mortgage (Richard Ray, co-Chairman), a bay-area property manager (Fran Hirsch), and a couple of community owners, including John Fernie from Chateau Communities. The goal of the workshop: "COMMUNITY OWNERS AND LENDERS SHOULD BE WORKING TOGETHER TO REMARKET AND REFURBISH REPOSSESSIONS WITHOUT REMOVING THEM FROM COMMUNITIES, AND TO PREVENT REPOSSESSIONS IN THE FUTURE BY IMPROVING COMMUNICATION BETWEEN OWNERS AND LENDERS". Lenders and community owners are still way apart when it comes to a meeting of the minds on how to deal with the glut of repossessions, but one thing is clear...they all agree that we need to work together to solve this problem. Randy Shannon from Conseco feels that, since Chattel financing was the key to bringing prosperity to community owners, those owners must participate in the liquidation of this inventory, including operating sales centers within the communities for the sole purpose of selling these homes, training onsite managers on home sales, sharing the costs of reconditioning and marketing, and receiving partial or full rent abatement from community owners in exchange for leaving the home in the community for resale. It is his contention that it is much cheaper to remove the home rather than leave it there, if no abatement is offered. His statement "we spent $20 Million in the first 9 months of 2002 on park rent and we won't repeat that mistake in 2003" brought a variety of reactions from the crowd, as you can imagine.

At Commonwealth we oversee home sales operations in some communities, our onsite managers promote home sales, and communities participate in the marketing of repossessed homes. Rental abatement is quite another issue, with varying degrees of participation, depending on the actual community owners beliefs and objectives. The contentious tone of this discussion was very apparent to everyone in attendance, and there were few resolutions offered. The clear message was that lenders expect (actually, demand) that community owners become actively involved and invested in the liquidation of this inventory if community owners ever expect new Chattel lenders to eenter this arena. I agree, and encourage any community owner faced with a repossession or abandonment problem in his or her community to get their manufactured housing dealers license and expect to be in the home sales business for the next year or two, at the very least.

Many national manufacturers are concentrating on expanding their Modular Home production divisions. Modulars are treated by lenders, building officials and appraisers as site built homes and don't attract many of the discriminatory practices or pre-conceived image problems that manufactured housing does. While this product still represents a very small part of our industry, many regional manufacturers, like Guerdon Enterprises in Boise are seeing a dramatic shift towards Modulars. Some industry experts feel that Modular housing is the wave of the future for the manufactured housing industry. One such expert reminded us that "manufactured" is a process, not a product. Food for thought.

Breathing New Life into Older Manufactured Home Communities: This was a very informative workshop, dealing with what community owners can do to revitalize their older properties. Ideas included improving the overall appearance of the community, fresh new signage and entrance landscaping, improving resident relations with focus groups, resident involvement in the planning process, financial assistance for residents such as low or no interest loans to residents who need to remodel or upgrade their homes exterior, and implementing new covenants and architectural guidelines for current and future residents. I could write a whole newsletter on this subject, but suffice it to say that many community owners need to take a serious look at their communities from a future residents point of view and develop a revitalization plan for their aging or deteriorating community.

Sorry for such a long update, but there's a lot to share from this Congress. Look for another update in a few days with additional observations and news from this event. In closing, I commend MHI for such an informative and helpful Congress & Expo. It contained more useful information and provided more ideas and solutions to our current industry-wide challenges than any meeting or convention I've ever attended.

Greg Harmon - President
Commonwealth Real Estate Services
E-mail: greg@cwres.com
Telephone 503.244.2300 Ext. 101