Manufactured Housing Manufactured Housing Lending in Lending in

CommunitiesCommunities

Marty Lavin, Tim Williams, Marty Lavin, Tim Williams,

Jeff MouatJeff Mouat

The Industry PullbacksThe Industry Pullbacks

High volume periods, then peaks followed High volume periods, then peaks followed by a crashby a crash

During crash better lending and better During crash better lending and better types of loanstypes of loans

more loans with real estatemore loans with real estate

more loans on private propertymore loans on private property

many fewer loans in communities resultmany fewer loans in communities result

much higher credit with better execution much higher credit with better execution

Funding SourcesFunding Sources

1960’s and 1970’s – till ’731960’s and 1970’s – till ’73

Virtually every bank involved (52% of all new Virtually every bank involved (52% of all new housing starts)housing starts)

Then crash, and GECC and S & L’s till late Then crash, and GECC and S & L’s till late 1980’s1980’s

Then crash, and ABS markets start in 1987Then crash, and ABS markets start in 1987

Crash and no new source in sight for moneyCrash and no new source in sight for money

Who will be next? (125,000 annual shipments Who will be next? (125,000 annual shipments now)now)

Will GSE’s Become a Source?Will GSE’s Become a Source?

Tremendous liquidity and cloutTremendous liquidity and clout

Know how to really study problemKnow how to really study problem

Very adverse to losses, already lost their Very adverse to losses, already lost their naivete, and won’t reenter without naivete, and won’t reenter without changeschanges

(Conseco bonds handled that)(Conseco bonds handled that)

ABS and the MarketsABS and the Markets

Tremendous lossesTremendous lossesNow know the facts and learning moreNow know the facts and learning moreLess risk adverse than GSE’s, but will Less risk adverse than GSE’s, but will want similar protections, still perceive want similar protections, still perceive many problemsmany problemsProbably will partner with GSE’s, which Probably will partner with GSE’s, which would provide substantial increased would provide substantial increased liquidityliquidityBoth have lost their MH naiveteBoth have lost their MH naivete

How does this Affect Community How does this Affect Community Lending?Lending?

Home depreciation greatest in communitiesHome depreciation greatest in communitiesHighest percentage of total repos are in Highest percentage of total repos are in communities and greatest severitycommunities and greatest severityLenders and community owners have not always Lenders and community owners have not always been friends in downturns or defaultsbeen friends in downturns or defaultsToday lenders highly wary of in-community loansToday lenders highly wary of in-community loansI estimate 100,000 – 125,000 homes of in-I estimate 100,000 – 125,000 homes of in-community chattel loans not being done at community chattel loans not being done at presentpresent

Depreciation in Communities Depreciation in Communities is the Enemyis the Enemy

High gross – low volume sales model industry High gross – low volume sales model industry standardstandardComunities as a housing option in given marketsComunities as a housing option in given marketsLeasehold rents pricing policies in communitiesLeasehold rents pricing policies in communitiesKnow the rules for pricing your rentsKnow the rules for pricing your rentswhat is your competition? Apts and other what is your competition? Apts and other housing, other community rentshousing, other community rentsmortgage payment needs, or replacement costs mortgage payment needs, or replacement costs may be inadequate measures for community may be inadequate measures for community ownersownersvacancies mean somethingvacancies mean something

Measures Industry Lenders Push Measures Industry Lenders Push and Need to Stem Depreciationand Need to Stem Depreciation

CAS – Community Attribute SystemCAS – Community Attribute SystemInvoice database, IBTS Invoice database, IBTS MHI database MHI database Shorter repayment term. Shorter repayment term. Reduced gross profit at sale Reduced gross profit at sale Better installation performanceBetter installation performanceBetter and longer home warranties *Better and longer home warranties *Greater resident lease protectionGreater resident lease protectionMSRPMSRPForming much better resale networkForming much better resale networkTIPSTIPSLBPLBPMARIMARICommunity Owners/Lenders AgreementCommunity Owners/Lenders Agreement

21st Mortgage 21st Mortgage Programs and Programs and Comments – Comments – Tim WilliamsTim Williams

Origen Financial Origen Financial Programs and Programs and Comments – Comments – Jeff MouatJeff Mouat

Q & AQ & A

Company HistoryCompany History 9/1995 - 219/1995 - 21stst begin with 4 employees begin with 4 employees

9/1998 - Tighter underwriting EVA9/1998 - Tighter underwriting EVA

6/2000 - Buyout AHS/CMH 50% 6/2000 - Buyout AHS/CMH 50% investorinvestor

12/2001 - Buy Assoc. portfolio12/2001 - Buy Assoc. portfolio

9/2003 - BRK buys Clayton9/2003 - BRK buys Clayton

12/2003 - Clayton buys 2112/2003 - Clayton buys 21stst mortgage mortgage

Why did they quit?Why did they quit?AccessAccessAssociatesAssociatesBankAmericaBankAmericaBelgraviaBelgraviaBombardierBombardierBurginBurginChaseChaseCITCIT

Manufactured Home Lenders of the 90’s

• Conseco• Deutsche • Dynex• Greenpoint• MCI• IndyMac• Southtrust• United Companies

What didn’t they What didn’t they understand?understand?

Differentiation among score Differentiation among score rangesranges

Importance of EquityImportance of Equity

Repossession loss curveRepossession loss curve

Significance of home locationSignificance of home location

95% LTV Repossession 95% LTV Repossession History History

Orig YrOrig Yr LOANSLOANS REPOSREPOS

         YR 1YR 1 YR 2YR 2 YR 3YR 3 YR 4YR 4 YR 5YR 5 YR 6YR 6 YR 7YR 7 YR 8YR 8

19961996 594594 203203 22 3333 3737 5252 1717 1717 2626 1919

19971997 13121312 391391 1515 7878 8181 6363 5050 5555 4949 00

19981998 20832083 605605 3030 155155 8585 100100 134134 101101 00 00

19991999 603603 110110 99 1616 3535 3131 1919 00 00 00

20002000 808808 124124 77 3737 4444 3636 00 00 00 00

20012001 13761376 165165 88 7676 8181 00 00 00 00 00

20022002 11131113 6262 1515 4747 00 00 00 00 00 00

20032003 10861086 1111 1111 00 00 00 00 00 00 00

TotalTotal 89758975 16711671 9797 442442 363363 282282 220220 173173 7575 1919

         89758975 78897889 67766776 54005400 45924592 39893989 19061906 594594

      33.5%33.5% 1.08%1.08% 5.60%5.60% 5.36%5.36% 5.22%5.22% 4.79%4.79% 4.34%4.34% 3.93%3.93% 3.20%3.20%

95% LTV Repo Frequency by 95% LTV Repo Frequency by Scores RangeScores Range

CBSCRCBSCR LOANSLOANS YR 1YR 1 YR 2YR 2 YR 3YR 3 YR 4YR 4 YR 5YR 5 YR 6YR 6 YR 7YR 7 YR 8YR 8 TotalTotal

00 835835 1.56%1.56% 7.91%7.91% 6.59%6.59% 8.24%8.24% 6.80%6.80% 5.85%5.85% 5.38%5.38% 3.45%3.45% 45.76%45.76%

<600<600 10911091 2.11%2.11% 9.59%9.59% 7.00%7.00% 7.16%7.16% 5.60%5.60% 4.30%4.30% 4.61%4.61% 1.96%1.96% 42.33%42.33%

600-650600-650 25462546 1.02%1.02% 6.46%6.46% 6.65%6.65% 5.57%5.57% 4.92%4.92% 5.31%5.31% 4.17%4.17% 3.08%3.08% 37.18%37.18%

651-700651-700 23712371 0.93%0.93% 4.45%4.45% 4.43%4.43% 4.02%4.02% 4.55%4.55% 3.36%3.36% 3.59%3.59% 4.03%4.03% 29.37%29.37%

>700>700 21342134 0.61%0.61% 2.28%2.28% 2.71%2.71% 2.22%2.22% 2.30%2.30% 2.14%2.14% 1.12%1.12% 3.03%3.03% 16.41%16.41%

TotalTotal 89778977 1.08%1.08% 5.60%5.60% 5.36%5.36% 5.22%5.22% 4.79%4.79% 4.34%4.34% 3.93%3.93% 3.20%3.20% 33.50%33.50%

95% LTV Repo frequency of 95% LTV Repo frequency of Loans OutstandingLoans Outstanding

CBSCRCBSCR YR 1YR 1 YR 2YR 2 YR 3YR 3 YR 4YR 4 YR 5YR 5 YR 6YR 6 YR 7YR 7 TotalTotal

00 1.59%1.59% 8.55%8.55% 7.75%7.75% 10.34%10.34% 9.83%9.83% 8.60%8.60% 9.15%9.15% 55.80%55.80%

<600<600 2.15%2.15% 10.44%10.44% 8.08%8.08% 8.98%8.98% 7.98%7.98% 6.16%6.16% 7.39%7.39% 51.17%51.17%

600-650600-650 1.03%1.03% 6.95%6.95% 7.13%7.13% 6.81%6.81% 6.46%6.46% 7.33%7.33% 6.15%6.15% 41.86%41.86%

651-700651-700 0.94%0.94% 4.79%4.79% 4.37%4.37% 4.84%4.84% 5.73%5.73% 4.60%4.60% 4.99%4.99% 30.25%30.25%

>700>700 0.61%0.61% 2.44%2.44% 2.52%2.52% 2.60%2.60% 2.78%2.78% 2.75%2.75% 1.45%1.45% 15.15%15.15%

95% LTV by Score Range, 95% LTV by Score Range, Ignore prepaymentIgnore prepayment

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

1 2 3 4 5 6 7

0

<600

600-650

651-700

>700

95% LTV by Score Range After 95% LTV by Score Range After Prepayment Prepayment

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

1 2 3 4 5 6 7

0

<600

600-650

651-700

>700

90% LTV Repo Frequency of 90% LTV Repo Frequency of Loans OutstandingLoans Outstanding

CBSCRCBSCR LOANSLOANS YR 1YR 1 YR 2YR 2 YR 3YR 3 YR 4YR 4 YR 5YR 5 YR 6YR 6 YR 7YR 7 TotalTotal

00 516516 0.59%0.59% 5.26%5.26% 4.85%4.85% 4.97%4.97% 3.69%3.69% 8.48%8.48% 2.85%2.85% 30.69%30.69%

<600<600 801801 1.14%1.14% 6.13%6.13% 5.43%5.43% 6.15%6.15% 5.83%5.83% 7.33%7.33% 4.95%4.95% 36.94%36.94%

600-650600-650 18541854 0.87%0.87% 4.13%4.13% 3.80%3.80% 6.14%6.14% 4.87%4.87% 3.44%3.44% 4.46%4.46% 27.70%27.70%

651-700651-700 18781878 0.48%0.48% 2.09%2.09% 3.17%3.17% 3.45%3.45% 3.37%3.37% 5.24%5.24% 2.63%2.63% 20.42%20.42%

>700>700 19561956 0.20%0.20% 1.88%1.88% 1.01%1.01% 1.11%1.11% 2.40%2.40% 2.49%2.49% 1.11%1.11% 10.20%10.20%

Repossession Rate by Credit Repossession Rate by Credit Score and Down PaymentScore and Down Payment

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

95% LTV 55.80% 51.17% 41.86% 30.25% 15.15%

90% LTV 30.69% 36.94% 27.70% 20.42% 10.20%

0 <600 600-650 651-700 >700

Private property loans score 600-Private property loans score 600-650 650

5% annual rate

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

1 2 3 4 5 6 7Year

Communities loans score 600 – Communities loans score 600 – 650650

8% Avg. annual rate

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

1 2 3 4 5 6 7Year

Reason for poor performanceReason for poor performance

Community incentives reduce equityCommunity incentives reduce equity

Premature decline in housing ValuePremature decline in housing Value

Value determined by total housing costValue determined by total housing cost– Home payment + site rentHome payment + site rent– Relative to alternativesRelative to alternatives

Alternatives = Apartments, site built and Alternatives = Apartments, site built and other communitiesother communities

Value deteriorationValue deterioration

Assume site rent at inception = $300Assume site rent at inception = $300

$35,000 home 5% down = $385$35,000 home 5% down = $385

Total housing paymentTotal housing payment = $685 = $685

Alternative site built @ 6% = Alternative site built @ 6% = $114,000$114,000

Assume $100 site rent increaseAssume $100 site rent increase

Home value goes down From $35000 to $25,885

Alternative site built increase to $131,000

Customer AlternativesCustomer Alternatives

Can’t sell?Can’t sell?

Pay higher rent on home with $10,000 less Pay higher rent on home with $10,000 less valuevalue– Pride of ownership declinesPride of ownership declines– Real depreciation becomes evidentReal depreciation becomes evident– Customers are trapped Customers are trapped – Only exit is RepossessionOnly exit is Repossession

Lender SolutionLender Solution

Limit exposure to only high equity Limit exposure to only high equity customers and best credit customerscustomers and best credit customers

Customize plans for certain communitiesCustomize plans for certain communities

Differentiation among communitiesDifferentiation among communities

2004 MHI Lender of the Year

Origen Financial LLCOrigen Financial LLC

Completed $64MM IPO in May ’04Completed $64MM IPO in May ’04

Completed $150MM 144A equity raise and converted to Completed $150MM 144A equity raise and converted to a Mortgage REIT in October ’03; followed by an a Mortgage REIT in October ’03; followed by an additionaladditional $10MM private placement in Feb ’04 $10MM private placement in Feb ’04

Maintained servicing portfolio of approx. $1.3B, while Maintained servicing portfolio of approx. $1.3B, while originating almost $410MM since Januaryoriginating almost $410MM since January

Selected as 1 of 9 lenders from Fannie Mae MH InitiativeSelected as 1 of 9 lenders from Fannie Mae MH Initiative

Received the MHI 2004 Lender of Year AwardReceived the MHI 2004 Lender of Year Award

What We OriginateWhat We Originate

Home Only (93.64%)Home Only (93.64%)

Land Home (6.36%)Land Home (6.36%)

Comparable Appraisal (16.63%)Comparable Appraisal (16.63%)

Buy For Program (6.04%)Buy For Program (6.04%)

Secondary Homes (2.78%)Secondary Homes (2.78%)

Portfolio ChangesPortfolio Changes

Portfolio Characteristics:Portfolio Characteristics: 20042004 19991999

LTILTI 1.271.27 1.511.51

Average TermAverage Term 230230 331331

Term < 20 YearsTerm < 20 Years 94%94% 16%16%

New HomesNew Homes 62%62% 89%89%

Land Lease Land Lease 63%63% 25%25%

Community Approval ProgramCommunity Approval Program

Collateral Review Specialists approve where the Collateral Review Specialists approve where the community in which Origen borrowers place their community in which Origen borrowers place their homeshomes

Pass/Fail Community Approval Program: allows Pass/Fail Community Approval Program: allows homes to be financed via the advance method in the homes to be financed via the advance method in the approved communitiesapproved communities

Comparable appraisals will not be allowed in pass/fail Comparable appraisals will not be allowed in pass/fail communities unless that community has also been communities unless that community has also been specifically approved for the Comparable Appraisal specifically approved for the Comparable Appraisal ProgramProgram

Community Approval ProgramCommunity Approval Program

Criteria for Pass/Fail Community Approval ProgramCriteria for Pass/Fail Community Approval Program::

Allows homes to be financed via the advance method in Allows homes to be financed via the advance method in approved communities:approved communities:

Must have a completed Community Fact SheetMust have a completed Community Fact Sheet Must submit a copy of lease agreementMust submit a copy of lease agreement Must submit a copy of community’s business licenseMust submit a copy of community’s business license Must have paved street and public access Must have paved street and public access Must have full-time managementMust have full-time management All utilities must be publicly providedAll utilities must be publicly provided Satisfactory Dun & Bradstreet report on communitySatisfactory Dun & Bradstreet report on community Must have a minimum of 25 spacesMust have a minimum of 25 spaces Community must have at least a 15-year lease (property)Community must have at least a 15-year lease (property)

How a Community Impacts a Home’s Value

Everyone has heard the old saying that the 3 most important factors in real estate are location, location, location. This may oversimplify the truth slightly, but the point is well taken that a home’s value can be strongly influenced by the quality of the housing surrounding it and by the quality and desirability of the neighborhood. When most prospective buyers start looking for a home they will target certain neighborhoods. They choose these neighborhoods for a variety of reasons including housing costs, schools, shopping, employment, parks, safety, and a wide variety of other factors. There is typically a direct correlation between the desirability of the community and the cost of the homes in that community. This same concept holds true in manufactured housing. Certain communities can command higher lot rents and higher sales prices due to a strong demand by homeowners and buyers. This demand is due to features such as the location of the community, attractiveness of homes, landscaping, recreational facilities, pools, clubhouses, playgrounds, daycare, school systems, etc. “Location can have a 24% impact on the value of a manufactured home. The value can drop 14% in an undesirable location, or rise 10% in a superior location.” * Here is an example of a typical double-wide manufactured home:

Superior Community $55,000

Inferior Community $43,000

Average Community $50,000

+ 10%

- 14%

Lenders who finance new and existing manufactured homes should make sure that their maximum advance process takes location into consideration.

* 1998 Datacomp Analysis of Sales Price vs. Community Rating

Comparable Appraisal Community Comparable Appraisal Community ProgramProgram

It is necessary to finance the “location” not the It is necessary to finance the “location” not the “amenities”“amenities”

The program uses comparable appraisals to determine property The program uses comparable appraisals to determine property valuesvaluesA vacancy rate less than or equal to 5%A vacancy rate less than or equal to 5%Positive resale activityPositive resale activityMust sign MHI Community AgreementMust sign MHI Community AgreementMust have on site managementMust have on site management

Differentiation Amongst CommunitiesDifferentiation Amongst Communities

Community Attribute SystemCommunity Attribute SystemAttributes have a 1 to 5 weightAttributes have a 1 to 5 weight

Separated Into Three Major CategoriesSeparated Into Three Major CategoriesManagement/ Infrastructure/ Economic Management/ Infrastructure/ Economic

AttributesAttributesCommunity Features/ Amenity AttributesCommunity Features/ Amenity AttributesHome Activity/ Resale Market AttributesHome Activity/ Resale Market Attributes

Management/ Infrastructure/ Economic Management/ Infrastructure/ Economic AttributesAttributes

Lot Lease HistoryLot Lease History

Vacancy RateVacancy Rate

Rent ControlRent Control

Local Attributes (schools, shopping, location, etc…)Local Attributes (schools, shopping, location, etc…)

County UnemploymentCounty Unemployment

Comparable ApartmentsComparable Apartments

Community Features/ Amenity AttributesCommunity Features/ Amenity Attributes

Community AppearanceCommunity Appearance

Age of HomesAge of Homes

Types of homesTypes of homes

Community AmenitiesCommunity Amenities

Home Activity/ Resale Market AttributesHome Activity/ Resale Market Attributes

Average Selling Price (new and used)Average Selling Price (new and used)

Frequency of RepossessionsFrequency of Repossessions

Days on MarketDays on Market

Resale MarketResale Market

76

78

80

82

84

86

88

90

92

94

Total Score

Appearance

Ind. Homesites

Location of Comm

Resale Values

Ind. Homes

CntyUnemploymentAvg. Selling Price

Orderly ResaleMkt.Area Growth Rate

Type of Streets

Freq. of Repos

TopTop 10 - Total Score 10 - Total Score

Top 10 - FeasibilityTop 10 - Feasibility

4.55

4.6

4.65

4.7

4.75

4.8

4.85

4.9

4.95

5

Total Score

Appearance

Layout

Type of Streets

Amenities

Ind. Homesites

Ind. Homes

Municipal Util.

Type of Parking

# of Sites

Distribution oftype

Top 10 – Attributes ImpactTop 10 – Attributes Impact

3.3

3.4

3.5

3.6

3.7

3.8

3.9

4

4.1

Total Score

Resale Value

Freq. of Repos

Occupancy History

Avg. Selling Price

Orderly Resale Mkt.

Appearance

# of Non-Owned

Factors Control Rent

Ind. Homesites

3yr-5yr Rent History

Days on Market

Compar. Apt. Rents

Avg. Rental History

MHI Community AgreementMHI Community Agreement

Agreement between Community Owner and Lender that Agreement between Community Owner and Lender that explains who is responsible for what in the event of a explains who is responsible for what in the event of a repossessionrepossession

MHI Agreement HighlightsMHI Agreement Highlights

Lender doesn’t pay back lot rentLender doesn’t pay back lot rent

Lender is allowed 12 months to resale home in Lender is allowed 12 months to resale home in community without paying rent if the community has a community without paying rent if the community has a vacancy greater than 5%vacancy greater than 5%

Lender must bring home up to community standards Lender must bring home up to community standards within 60 dayswithin 60 days

If home is to be sold wholesale, Lender shall negotiate If home is to be sold wholesale, Lender shall negotiate exclusively with Community Operator for the sale of the exclusively with Community Operator for the sale of the Home for 30 daysHome for 30 days

Thank You!Thank You!