AUSTIN, TX -- In the latest manifestation of predatory lending, the beleaguered manufactured home and loan industries are targets of thousands of complaints alleging product bait and switch, loan application fraud, price gouging and other allegations that the industries are out to separate housing consumers from their money.
"The system is full of traps for the buyer and needs to be overhauled to create an even playing field for consumers," said Kevin Jewell, policy associate with the Southwest Regional Office of Consumers Union.
"When it comes to buying a manufactured home, the promise and the reality of the transaction are often quite different," Jewell added.
Among more than 400 complaints filed with Texas' attorney general and the state's Office of Consumer Credit Commissioner, the publisher of Consumer Reports, Consumers Union found:
Some 46 percent of the cases involved allegations of dealer fraud or misrepresentation. The final deal often looked different from the one consumers thought they had made in several ways.
The dealer switched the promised manufactured home with a different make or model year.
Sales people tried to falsify loan application information, including falsifying the down payment amount or taking money a consumer borrowed
as a down payment.
The actual price of the home increased from the original quote to the final loan. The terms or conditions of the manufactured home sale worsened, including additional costs for items consumers thought they had already covered, additional loan fees and higher interest rates.
Dealers refused to give buyers copies of loan contracts and other financial documents.
Approximately 19 percent of the complaints charged dealers refused to return money after a consumer decided to walk away from a deal, even when the consumer requested the refund long before the manufactured home was built or delivered.
CU says the problems found in the study are symptomatic of a national trend to stave off large lending losses in manufactured housing. Industry analysts predict repossessions will continue to rise as tens of thousands of families lose their homes and credit over the next several months.
The study also is similar to others reporting a host of truth-in-lending problems in the broader home lending industry, which are creating similar outcomes.
"Many of these complaints illustrate the reasons why manufactured home loan default rates have risen sharply. Many consumers could not afford the credit deal they were offered, or got a home that was probably worth substantially less than they paid. Others reported loans packed with insurance, financed "points" and other charges that left them with negative equity for the first several years after their purchase," Consumers Union reported.
Rob Schneider, senior staff attorney for Consumers Union, said one of every four new housing units in Texas today is manufactured housing making the problem prime for legislative reform. Consumers Union recommended tougher regulations, including:
Facilitating shopping by posting prices and notices of consumers' full refund rights, and by eliminating credit scoring models that penalize rate shopping.
Provide a 5-day "cooling off" period after full disclosure of final loan terms with cancellation rights that include a full refund.
Provide standard contracts with standard Spanish translation.
Prohibit financed points if points and fees together will add more than 3 percent to the home price.
Prohibit lenders from releasing funds to the dealer or manufacturer until installation and warranty repairs are complete, except under certain circumstances.
Require independent inspections and appraisals of every home prior to release of loan funds.
Inspect every owner-paid home installation, rather than the 25 percent currently inspected.
Replace the "phone audit" by the lender with an actual on-site visit by the lender when repairs, installation and warranty documents are complete.
Later this year, Consumers Union will issue a larger report based on a sampling of nearly 13,000 complaints filed with the Texas Department of Housing and Community Affairs over a five-year period. Complaints target installation, warranty, advertising and refund woes.
Unfortunately, CU's industry recommendations may or may not become reality. Even if they do, it won't happen overnight and it's up to consumers to take steps not to get taken.
Consumer Reports offers the following advice.
Before shopping, obtain your credit report from the three major credit bureaus, Equifax, Experian and TransUnion. If your credit score is low, visit a credit counselor and find ways to improve your credit profile. If your score is good, use it as a negotiating tool when you shop for a manufactured home. Do not ask each dealer to run your credit, but ask them to give you a home price and estimate of the loan terms based on the credit information you supply them.
Select a home location first. Before you select a home, decide whether you want to rent or own your land, and find a lot. If you own the land and place the home on a permanent foundation, you may have better financing options.
Shop around for park space, insurance, finance and utility services. Dealers may offer to act as your dealer, real estate broker, insurance broker, and mortgage company, but he or she may not be able to offer you the best deal on each individual service.
Resist high pressure sales tactics. Say "No" to sales techniques that entice you to "sign today." Reputable dealers will still want to sell you a home next week.
Visit several or more dealerships. Don't fall in love with one home or one dealer. Ask friends, family members, co-workers and others you trust, who've also recently had a satisfactory manufactured home buying experience, to recommend a dealer.
Buy a home based on its actual price -- a price that fits your budget. Don't buy based solely on the monthly payment offered by the dealer, even it it appears affordable. Keep your loan term as short as is affordable to you.
Be a tough negotiator. Don't let the dealer coax you into naming a price or a monthly payment you'd be willing to pay. Have them cite you a cash price, and negotiate from there. Don't put money down until you have the loan documents in front of you. Beware of "package" deals that often add overpriced items to your loan.
Don't assume financing terms and conditions can be changed in the future. When it's time to sit down with the dealer to sign the purchase contract, carefully review the documents, making sure the numbers (home price, APR, payment, points, charges, etc.) all are listed as you believe they should be. If they are not, don't be afraid to walk away from the deal or come back when the papers are in order. Never sign documents you do not fully understand.
Consider seeking help from housing finance counselors, often available from your local community organization or social services agency.
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Broderick Perkins parlayed a career in old-school journalism into a
contemporary digital news service that really hits home.
The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services.
The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home.
Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News.
Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake.
He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications.
In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.
Broderick Perkins parlayed a career in old-school journalism into a
contemporary digital news service that really hits home.