MHC's: Why is park owned home income not underwritten by Freddie & Fannie?
I get that only land is the collateral for MHC's and homes are not part of the collateral so income from homes are not underwritten but my question is more about why do the Agencies not want parks with majority park owned homes in the 1st place? What is about homes that make them undesirable to the point that Agencies not want it as part of the collateral? In a foreclosure, if it's majority park owned homes in a park are part of the collateral, dont they have some value? They can be sold right? Appreciate the help, thank you!
From my recollection, it’s mainly two-fold. First, park-owned homes tend to be lower-quality assets with limited residual value. I think we generally assumed $10k or less of value per POH. Second, even if the delinquency rate is similar between tenant-owned and park-owned homes (and I believe it’s often higher for POH tenants), the financial impact is effectively doubled since you’re losing both the lot rent and the home rent.
Ultimately, it comes down to a risk-averse stance from the agencies. I’ve also thought I heard that Fannie has started allowing loans on communities with a limited percentage of POH's, under 20% or so. Is that not happening?
If a borrower defaults they are going to take their POHs with them and move them to another park they own. MHCs tend to have sticky occupancy since most folks can't afford to move their home, but if you have a high percentage of POHs and they all get pulled you end up with an empty park. Also the homes are not part of the collateral, they aren't REMIC compliant assets since they can be moved. Therefore the POHs are generally owned by a borrower affiliate and not the borrower.
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