Tight lending squeezes manufactured housing.

By Alison Rice

While the stick builders rack up the earnings, their manufactured housing counterparts are suffering.

"We're in a self-induced recession in the middle of a housing boom," says Larry Keener, CEO of Palm Harbor Homes, an Addison, Texas-based manufactured home company that in July reported its first quarterly loss in 13 years. Palm Harbor isn't alone: Manufactured home giant Champion Enterprises of Auburn Hills, Mich., also reported a losing quarter. Shipments are sliding too, from last year's 193,000 to a projected 180,000 for 2002, according to the Manufactured Housing Institute (MHI) in Arlington, Va.

Why? Financing. Reforms designed to improve the industry's lending practices have been more challenging than anticipated. In Texas, a new state law requires conventional real estate financing (i.e., mortgages) for HUD-code homes placed on owned land versus within a manufactured home community. "It's a much more complex process," says Keener, both for the buyer and Palm Harbor. "A lot of our buyers are looking for instant housing, and there's no such thing as an instant mortgage."

Meanwhile, in response to delinquency and repossessions, lenders have tightened the rules for the chattel, or personal property, financing traditionally used for HUD-code home purchases. "In the late '90s, the chattel standards were too lax," says James Clifton, vice president of economics and housing finance for MHI. "But they've probably become too tight this year."

Things may only get worse. Conseco, parent company of Conseco Finance, appears to be heading for bankruptcy, a move that could affect the financing company's access to capital. And rumors have begun circling around Deutsche Financial Services, which if bought, may exit the floor plan business as well, leaving precious few sources of inventory financing for dealers.