Americans face significant challenges when it comes to securing housing. Record low supply has driven the ability to purchase a home out of reach for many, and lack of access to safe and affordable financing has made the pathway to homeownership more difficult for prospective homebuyers, especially for Black, Hispanic, and Indigenous families.

Manufactured homes could be part of the solution. These homes are produced on a large scale in factories and cost about half per square foot compared with site-built homes. But Americans seeking to buy these homes often face higher credit standards and denial rates for loans compared with those buying site-built houses. Leading lenders for manufactured homes often keep the loans they make “in portfolio,” as opposed to selling them, a standard practice for site-built mortgages. Such companies then retain all of the financial risk and reward for each loan they make, but they tend to have the highest denial rates compared with lenders that largely sell their loans or use a federally backed program to defray losses if borrowers default.

Analysis by The Pew Charitable Trusts shows that mortgages through federal loan programs improve access to financing to purchase manufactured homes when the homes are owned as real estate—meaning the buyers also purchase or own the land and own them together just like with a site-built home. But more than 75% of new manufactured homes are purchased as personal property for which there is no functioning federal loan program. As a result, buyers have few financing options—just a handful of lenders make the majority of what are known as personal property “chattel” loans, and most loan applications are denied. Instead, those who want to buy but cannot obtain a mortgage or personal property loan are left to purchase their manufactured homes in cash or use riskier alternatives such as rent-to-own. In many instances, they may be shut out of homeownership altogether.

The Federal Housing Administration (FHA) and Ginnie Mae—government agencies that provide mortgage insurance and loan guaranty to help homebuyers to secure financing—issued a joint request for input (RFI) in July. The RFI focused on identifying hurdles to the use of their current Title I Manufactured Housing Program, which insures personal property loans but is virtually unused. In response, The Pew Charitable Trusts on Sept. 26 submitted a comment letter that suggests the government update and align Title I with FHA’s Title II program, which already provides an important source of credit to manufactured home mortgage borrowers. Updates could improve access to safe and affordable financing options for buyers who want to use a personal property loan.

More than half of manufactured home financing applications are denied

Applications for manufactured home financing are denied far more frequently than applications for site-built home financing. In 2021 lenders denied 54% of completed applications for financing—those that included all the information needed for underwriting—to purchase a manufactured home. For site-built home buyers, the rate was just 7%. These rates have remained unchanged from the previous denial rates research, when Pew and the University of North Carolina’s Center for Community Capital (UNC) completed an extensive analysis of 2018-19 manufactured home denial rates. That research demonstrated that manufactured homes are more likely to be purchased using cash than are site-built homes (37% vs. 11%), in part because of lack of financing.

This year, Pew used the same methodology as the earlier Pew-UNC study with updated 2021 national data from the Home Mortgage Disclosure Act (HMDA) database, a national repository of information on mortgages from point of application through origination or denial. For manufactured homes, personal property loans have the highest denial rates at 64%, but even traditional mortgages were denied 40% of the time. (See Figure 1.).

Manufactured home buyers are often held to higher credit standards than mortgage applicants buying a site-built unit. Consumer Financial Protection Bureau (CFPB) analysis of 2019 HMDA and credit score data found that when seeking to finance a manufactured home, buyers with strong credit—especially those applying for a personal property loan—had a higher likelihood of being denied than site-built home purchasers with lower scores.

Denials of conventional loan applications for manufactured homes drive high rates

One of the striking findings from the Pew-UNC research is the difference in denial rates between government-backed loans—that is, financing that has government insurance or backing, such as from the FHA or Department of Veterans Affairs (VA)—and conventional loans, which have no government backing.

The 2021 HMDA data shows a similar pattern. Manufactured home loan applicants fared much better when they had support from the federal government: Lenders denied FHA and VA manufactured home mortgage applications just 14% and 13% of the time, respectively. Conversely, applications for conventional financing—those without government insurances or guaranties—were denied 52% of the time for mortgages and 64% of the time for personal property loans to purchase manufactured housing. In contrast, only 6% of applications for conventional site-built home mortgages were denied. (See Figure 2.)

Reasons for differences in denial rates

The disparities in denial rates occur, at least in part, because conventional mortgages for manufactured homes are underwritten more stringently than FHA mortgages that rely more on credit history than other factors, such as home value. Pew-UNC research shows that manufactured home buyers applying for an FHA Title II mortgage were 16 percentage points less likely to be denied financing than if they had applied for a conventional mortgage. The majority of denials for conventional or personal property loans were because of credit history (59% and 65%, respectively). In comparison, just 23% of FHA denials could be attributed to borrower credit history. This shows that FHA insurance plays an important role in helping borrowers access manufactured home mortgages.

Lenders have suggested to the CFPB that personal property loans are denied so often because many prospective borrowers apply to lenders that do not offer manufactured home financing and are therefore turned down. Pew-UNC research does not support that theory. Conventional personal property loans and mortgages are rarely denied because of home type or quality “collateral” (7% and 1%, respectively). Rather, the data shows that higher credit standards for manufactured home borrowers make conventional mortgages and personal property loans more difficult to obtain than conventional mortgages for site-built homes or federally backed loans for manufactured homes.

FHA provides an important source of financing that could be expanded

In the same way that FHA’s Title II mortgage program helps expand access to manufactured home mortgages, FHA’s Title I program could be leveraged to improve access to personal property loans. Pew’s comment letter noted that the agency has an opportunity to examine the success of the Title II program and use that as a roadmap for improving the Title I program. It also could study current challenges for use by lenders and borrowers and seek to increase coordination of federal manufactured home financing programs. A successfully reworked program could improve Title I’s usefulness for lenders and borrowers and expand the availability of safe, affordable manufactured home loans.

Linlin Liang is a senior associate, Rachel Siegel is a senior officer, and Adam Staveski is a senior associate with The Pew Charitable Trusts’ home financing project