Ranking Member Maxine Waters and Rep. Keith Ellison Voice their Opposition to H.R. 650 at Financial Services Committee Markup
On Wednesday, H.R. 650, the "Preserving Access to Manufactured Housing" Act, was the subject of intense debate during markup before the House Financial Services Committee. Prosperity Now, along with the National Manufactured Home Owners Association and other leading consumer groups, has opposed the bill since its introduction in two previous Congresses. H.R. 650's proponents argue that the bill is consumer-friendly, but in reality is extremely harmful to consumers and undermines Dodd-Frank.
During markup, Ranking Member Maxine Waters (D-CA) offered a strong call for treating low-income consumers fairly, stating that high interest rates for manufactured home loans are problematic. She put it best in her remarks on the bill when she said, "I believe that we should not simply say that … charging higher rates and higher prices is in the best interest of the people who need the goods and services, and that they should be grateful" to receive any loan at all. Prosperity Now wholeheartedly agrees that providing access to safe, affordable, high-quality loans is the best way to serve low- and moderate-income homebuyers. Representative Keith Ellison (D-MN) also championed owners of manufactured homes and defended these homeowners' right to receive safe and affordable loans.
Several of the bill's supporters argued in the markup that H.R. 650 would not remove consumer protections for buyers of manufactured homes. However, the bill would actually raise the thresholds at which Home Ownership and Equity Protection Act (HOEPA) safeguards are extended to manufactured home loans. Instead of setting HOEPA triggers at 10% APR, as several legislators suggested, it would set the interest rate trigger at 10 points above the prime APR. Currently, chattel loans with balances of less than $50,000 can have interest rates of up to 8.5 percentage points above the prime rate before triggering HOEPA. Under H.R. 650, chattel loans of less than $75,000 (which make up over half of chattel loans made each year) could be subject to interest rates of up to 10 percentage points above the prime interest rate before triggering HOEPA. Based on today's prime rate of 3.25% APR, a $65,000 chattel loan with an interest rate of 13% APR would not come with HOEPA protections, despite its high cost.
In addition to interest rates, H.R. 650 would also raise the HOEPA thresholds for points and fees charged on manufactured home loans. Under current law, small balance chattel loans of less than $50,000 can have points and fees up to 3% of the loan principal, or $1,000, whichever is less, before triggering HOEPA. Under H.R. 650, chattel loans of less than $75,000 could have points and fees of up to 5% of the loan principal, or $3000, whichever is greater, before triggering HOEPA. So, under H.R. 650, a $65,000 loan with points and fees of 5% would not come with HOEPA protections, even though the points and fees increase the loan by $3,250.
The final danger posed by H.R. 650 is loan steering. The bill would widen a loophole in Dodd-Frank that exempts manufactured housing retailers from being covered under the definition of loan originators, even when they provide some assistance to customers applying for loans. The existing exemption is sufficient to ensure that retailers who are not helping buyers select specific lenders, complete applications or negotiate credit terms are not regulated as if they provide those services. It is essential to maintain the current definition of loan originators because otherwise, many retailers would not be covered by Consumer Financial Protection Bureau's (CFPB) protections against loan steering.
Furthermore, industry lobbyists have not made public any data which support their claim that current HOEPA thresholds do not work for manufactured home loans. During markup, Representative Ellison stated that industry executives declined his official request for data, though Representative Stephen Fincher (R-TN) disputed the remark. While it is unclear what data legislators have access to, the CFPB has made clear that it found confidential data provided by the industry to be insufficient grounds to revise its rules.
When we look at publicly available information about the health of the chattel market, it is clear that the new lending rules have not led to restriction of credit. For example, recent analysis cites that there is "greater availability of chattel mortgages" in the current market. Other data show that in 2014, sales of manufactured homes increased by 6.8% over 2013. Without data to support industry's claims, Congress should not roll back consumer protections on high cost manufactured home loans. Prosperity Now thanks Ranking Member Waters and Representative Ellison for taking a stand against a bill that Georgetown Law professor Adam Levitin describes as "a license for abusive lending." Prosperity Now will continue to work with partners in opposing the Preserving Access to Manufactured Housing Act.