Why do parks need chattel lender approval?

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This might be a good one for Frank or Ken Rishel:

I have noticed that MH lenders (such as 21st Mortgage, Alliance Credit, Origen, etc), have an approval process for park owner/operators so they can become an “authorized dealer”. Since these lenders also have a direct consumer lending program, why does the park/dealer need to be “lender approved”? In fact, this seems to be contrary to the SAFE Act, Frank Dodd, etc that prohibits dealers from “steering” consumers to a particular lender. My guess is this might be a hold over from the early days when the dealers and lender worked as “partners”, but this is apparently what the new rules are trying to get the industry to stop doing. Doesn’t make sense for the lender to do a credit check on the park owner when the consumer is the one getting the loan.

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Since I know the answer, I should respond.

Prior to PFC (my finance company) being sold, we only did chattel loans in manufactured housing communities. We were very careful about in what communities we did business, regardless of how a borrower came to us - direct or by referral (pre steering rule days). As an example, of the 1400 licensed land lease communities in Illinois, we, (by our choice) only did business in about 300 of them. How we chose those communities was part of our “secret sauce”.

We gathered our information on which to make our decision differently than 21st and others because only top management was involved in making that decision. Others, having a less knowledgeable, and less qualified, field force use other methods.

Here is the bottom line:

Certain communities, because of their management practices caused the risk of borrower non performance to be higher than in other communities. We only made loans in communities where we believed the management practices did not increase our risk.

We also required community agreements from the communities we made loans in. If they would not sign them, we did not make loans in their communities - period. We felt if the community owner was not willing to partner with us to minimize the risk, we wanted no part of them as a lender. On the other hand, when we felt the risks were lower than our average, we charged lower rates in that community than we might in a community down the road, thus indirectly rewarding the community owners whose practices and attitudes lowered our risk. (I’m pretty sure that only Park Lane Financial and Triad have copied that practice, but I might be mistaken.

It isn’t about steering. It does not violate the SAFE Act or Dodd-Frank for a lender to take steps to minimize their risks.

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Did your analysis/acceptance of a Community show any coloration between hands on local owner management and communities where the owners were not local and engaged a resident of the community as the manager.

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Remember what I wrote about “secret sauce”? :wink:

Yes, off site ownership was considered, but in some cases (using the secret sauce) it was a positive and in some cases it was a negative.

Remember that the principals of PFC were all long-time participants in the manufactured housing industry as community owners, retailers, and lenders. Contrast this to Green Tree or Bank America Housing Services, and many others who had no real in-depth industry background other than finance. They never knew what they didn’t know, and maybe didn’t care because of the way they took their bonuses, and they suffered considerably for it.

Here is an example: There was a good sized community owner with 6 retail sales locations besides their community operations near St. Louis, MO but in Illinois. He regularly approached me to approve him to generate paper for us in his communities and other communities his retail lots sold into. I regularly told him we had no interest, just as our Area Representative had been telling him. The St. Louis area Green Tree Regional Office did business with him until they had too many bad loans from him. When St. Louis turned him off, the Des Moines, Iowa office took him on. When they had too many bad loans from him, the Paducah, KY office took him on. When they were flooded and turned him off, guess what? St. Louis picked him up again, and the round robin began again.

We never did business with him and neither did Triad, but many others did. His credit rating and financials were great, but his ethics were not. Granted he had community managers and he was sort of absentee (not really) but all of his sales lots and communities were within a 50 mile radius of his headquarters.

From a lender’s point of view, the more factors we can consider, the deeper we can buy. We might buy in the low 600s in one community, the high 500s in another, and never below 680 in others. Now, larger lenders, lacking the depth of knowledge and dependent on low paid field personnel don’t do that, but smaller and more knowledgeable lenders like Park Lane Financial still do. Triad has changed its business model since the retirement of Don Glisson Sr. so they are less able to do this, but may be doing it on a limited scale in limited areas.

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Ken, this is a great post. Thank you!

I see how the lender is protected against charges of discrimination in the case you describe. What about charges of steering directed at the community which you served? For example, let’s say you agree to lend in my rental-only community and let us assume everyone who passes the rental screening there will qualify under your secret sauce recipe. If I tell my new manager to tell renters that they can apply for financing through your captive finance affiliate, how can I avoid charges of steering?

Brandon@Sandell

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Brandon - That is steering. RCG has held numerous classes sponsored by state associations to train sales personnel on all of new and complicated issues including how to avoid steering or being classified as a “lender” through mistakes in advertising and marketing. Two years ago we held a class the day before the Louisville Show for sales personnel.

The reasons for the all-day classes is that the whole issue of avoiding engaging in MLO activity, advertising that can get a community classified as a lender (even if they make no loans) or get caught steering is a complicated one.

Shorthand - and far from complete - is a community can only avoid steering by allowing any willing lenders to place materials in their sales office without favoritism or comment by sales personnel. The same holds true for websites, and outside banners. This is not everything that must be done, but I would be here for 6 days trying to explain it all because of all the typing.

We are still holding these classes when a state association asks us to.