November 21, 2016
Despite the continuous efforts made by government agencies, financial institutions and organizations like the MHI, FHFA and CFED to facilitate consumer access to more affordable loan products, loans for smaller homes are still hard to come by. But things are changing rapidly, even as we speak. To address the financial needs of different categories of home buyers, increasing numbers of banks have started to add smaller loans like manufactured home loans to their portfolios.
Assessing the “Big Picture”
Though the U.S. economy continues to expand, the recovery rate is slower than first estimated. The sluggish economic recovery resulting in a lack of financial resources combined with increasing home prices due to persistent inventory shortage has dramatically lowered homeownership rates. In the second quarter of 2016, the U.S. Census Bureau reported the lowest homeownership rate (of just 62.9 percent) since it began tracking this index in 1965.
All these factors have adversely affected the evolution of households, which are currently characterized by a trend toward a smaller living space. As expected, shrinking household size translates into a greater demand for smaller loans.
Understanding Lenders’ Viewpoint
Providing smaller loans at an affordable cost has always been a challenge for financial institutions. The core problem is the cost of originating and servicing a loan, which is much the same irrespective of the loan amount.
However, industry watchers have observed a few recent shifts in the lending industry, as higher numbers of banks have started to offer smaller, more affordable loans, such as manufactured home loans.
Why Do Banks Offer Manufactured Home Loans?
Below are three compelling reasons why banks offer manufactured home loans as part of their portfolios.
- Latent market potential – Focusing on residential lending, more and more banks are currently exploring manufactured home financing. The rationale behind considering this new industry sector is the latent market potential. Given the “current and projected housing needs (...) shaped by rapidly and dramatically shifting demographics,” increasing access to sustainable loans for credit-worthy borrowers underserved by the mainstream lenders has proven to be an effective strategy toward building success in underserved markets, according to HUD. That being said, manufactured home loans present a unique opportunity for banks to become a positive force in the manufactured home lending industry.
- Lower portfolio risks – Portfolio diversification is another reason why banks offer manufactured home loans. In addition to assessing the credit profile of borrowers, ensuring that loan products aren’t too concentrated by customer and industry is another thing a bank can do to reduce loan portfolio risks. As we showed in a previous post, the more diversified the credit exposure of a bank is, the lower the risk of being impacted by certain adverse economic conditions. In a recent article on Banking Exchange, Daniel Rothstein, who specializes in loan portfolio management, enterprise risk management and regulatory relations, has also highlighted the need for banks to continuously diversify their portfolios. According to Rothstein, this can be easily done by adding new “buckets” like manufactured home loans, small business loans, etc. When banks offer manufactured home loans in addition to other loan categories that don’t interrelate with each other, they can more easily weather an economic downturn.
- Comprehensive services – When adding new loan products to their portfolios, most banks need to make available sufficient resources for origination and servicing. But this isn't necessary when opting for the manufactured home loans we provide at Triad Financial Services. Complemented with a deep industry experience, broad process expertise and on-demand financial advice, our manufactured home loan solutions include thorough applicant screening, comprehensive credit and borrowing capacity analysis, loan processing and closing procedures, and improved portfolio risk management.
When it comes to manufactured home financing, Triad Financial Services is one of the few industry leaders with a long history of customer satisfaction in 42 states. To find out why we’ve become the top choice for banks, credit unions and other investors looking for lucrative loan portfolio diversification strategies, please get in touch with our team of financial experts today at (800)-522-2013, Ext-1287.