By Iris Richmond. Prompted by tight borrowing conditions for manufactured-home buyers, manufacturers are shifting away from the industry's traditional chattel lending to real estate lending. In June, Palm Harbor Homes, a modular-home company in Addison, Texas, formed a limited partnership with BSM Financial L.P., a Dallas-based mortgage bank. By providing conventional mortgages through its dealer base, Palm Harbor expects to gain some financing leverage, particularly in Texas, where a new law requires that sales of manufactured homes be conducted as real estate transactions.

Meanwhile, in August, Champion Enterprises in Auburn Hills, Mich., announced a joint venture with National City Mortgage, a subsidiary of Cleveland-based National City Corp. The deal will enable Champion, the country's leading manufactured-home builder with 36,851 homes shipped in 2001, to make real estate financing available to its customers under the HomePride name. The financial partnership is the first of many that Champion intends to form, says Colleen Bauman, VP of investor relations.

"There's been a trend toward companies establishing their own lending arms rather than be susceptible to the loss of additional chattel lenders in the industry," says John Diffendal, an equity analyst at BB&T Capital Markets, located in Nashville, Tenn.

A glance at Clayton Homes, which shipped 19,200 manufactured homes last year, validates the initiatives of Palm Harbor and Champion. For more than 30 years, Clayton has had its own lending arm. Unlike the losses reported by Champion and Palm Harbor in the June 2002 quarter, Clayton, based in Maryville, Tenn., reported a 32-percent earnings-per-share increase, which Diffendal says shows the value of having such an operation in place.

Published in BIG BUILDER Magazine, October 2002