According to a new report from the Consumer Financial Protection Bureau (CFPB), most home loan manufacturing applications are denied and, despite the low interest rates, very few manufactured home loans have been refinanced.
The agency found that less than a third of prefab loan (MHL) applications are approved, compared to a 70% approval rate among homeowners seeking a loan for a locally built home. While prefabricated homes make up only a small fraction of the total supply, it’s one of the most affordable types of housing for low-income consumers, accounting for 13% of inventory in small towns and rural America.
However, the low cost of purchased home loans are often associated with higher interest rates than traditional products and limited refinancing options. Around 42% of MHLs are “Chattel” loans that are home but not land collateralized. The CFPB also found that these types of loans are also less protected and owners are more likely to see their home depreciate in value.
According to the study, the five largest lenders account for more than 40% of the loans for the purchase of prefabricated houses and almost 75% of the loans for furniture. Hispanic, Black and African American, Native American and Alaskan-born, and elderly borrowers are more likely than other consumers to take out protection loans. Black and African American borrowers are the only racial group that is underrepresented in prefabricated house lending compared to construction site loans. However, they are overrepresented in lending compared to construction site loans.
“This report shows the power of advanced data collection on the Home Mortgage Disclosure Act to understand the home ownership path for some of our most vulnerable families, including Black, Indigenous, Hispanic, and rural, low-income and ethnic families of all races Said Dave Uejio, acting director of the CFPB. “Much more work needs to be done to understand the opportunities available to these families and how best to ensure that prefabricated home ownership is a pathway to financial stability for the rural and low-income families who are living depend on it. “