The Coming HPML Appraisal Train

“I hear that train a comin’…” in the days leading up to July 18 I find myself hearing Johnny Cash’s lyrics in my head more and more.

Often in early silent movies the villain tied a damsel to the train tracks, a train barreled down towards her, and her fate rested in the hero’s hands.

That’s us…there bound to the track.

The way we do business is the damsel in distress. The train coming on July 18 is the new manufactured home appraisal requirements. When the final federal rules were issued the regulators gave our industry 18 months until the train got to where they had tied us to the track. Immediately the industry started looking for our hero.

But first, let’s talk about the train.

The new requirements coming this summer deal with manufactured home lenders providing consumers information on the home’s value three days prior to closing. If the home being sold with financing is a personal property deal, then there are three options on what can be provided to the customer – factory invoice, independent cost service unit cost, or a value determined by an individual with no financial interest in the property or credit transaction who has training in valuing manufactured homes.*

The focus of the industry over the past year has centered on options two and three. This is because the idea of disclosing the invoice is not an appealing option for retailers. Not to mention it is unprecedented in a retail sales transaction to mandate or expect a retailer to disclose the cost they pay the wholesaler. The grocery store doesn’t tell us what it costs them to buy a gallon of milk, Best Buy doesn’t tell us how much it costs them to buy a washer/dryer, and pull out that phone in your pocket. Do you see the government telling Apple to disclose on every iPhone they sell what their costs are to make it? I don’t think Apple is building their phones in China because they are benevolently trying to help the employment situation at Foxconn. But nonetheless disclosing the manufacturer’s invoice is an “option,” but far from a good one.

The third option when interpreted as an onsite appraisal is a complete head scratcher at this point. Sometime in the future perhaps appraisal organizations will develop competencies, training, and certification in the area of manufactured housing. To do this work they would need some new source of market sales. The data source relied upon by traditional appraisers, the Multiple Listing Service (MLS), does not capture new home sales off retail lots or sales in communities. Even if traditional appraisers were to enter this space in the future there is still a concern on the price point for such an appraisal service. Having to pay $500 - $750 for an appraisal on a $50,000 house will carry a significant cost burden. As of this coming July, with the exception of DataComp discussed in detail below, no other traditional third-party appraiser option for personal property home sales is expected to be ready.

Like I said, this required the industry to try and figure out how to get out of this mess. We needed some heroes. The Lone Ranger, Tonto, Roy Rodgers, Woody from Toy Story, really anyone who might have a pair of scissors to cut us free.

With the tracks under us already vibrating the industry turned to two companies that might be able to provide solutions moving forward. The two companies are NADA and DataComp. The companies have been coordinating with the industry’s major lenders and manufacturers to obtain the data they believe they need to build their solutions.

While both are working to provide a viable option, the approach of each company is unique. NADA is a cost basis valuation system that builds on and greatly expands their previous system. DataComp is a sales comparison system dependent on robust transactional data to accurately provide a valuation.

Both attempts require extensive industry cooperation. DataComp needs as many sales transactions as it can get and is asking for sales data from the entire industry in addition to the major lenders. For their system to work in your specific selling area it is critical they have robust sales data or else you might have valuations come in lower than the market truly bears simply because they did not have enough comps. Thus, it is in everyone’s self-interest to submit their sales to DataComp. DataComp has created an online portal at www.mhicas.org where retailers can create accounts and then submit electronically their sales.

NADA needs information from factories. It needs not only make and model, but all options and upgrades so that when a home is built out using their cost based system it will accurately reflect the home being sold down to the types of cabinets, bathroom fixture options, and flooring used. To this end it is in every manufacturers’ interest to participate with NADA. If your homes and options are not in their system a lender that decides to use NADA will not be able to generate an accurate cost estimate.

Both companies are currently in their testing stages, and both are rapidly working to have a solution ready for lenders by this summer.

Recall this valuation disclosure is a requirement on lenders. However, the nature of the sales transaction will certainly be impacted in some fashion with the disclosure. The goal is to have multiple solutions available to lenders that each produce home valuations that reflect what homes are actually sold for in our competitive marketplace.

The time for complaining and arguing whether or not such a new requirement makes sense or should be new policy is over. When the rules were proposed tremendous effort was made to convey that the proposed changes were ill suited for the manufactured housing industry. We pointed out that in a dealership based sales environment where buyers shop among competitors many times located in close proximity to each other, there is a natural competitive market driving checks on pricing. We did this two years ago, and the government rejected the argument. Now is the time to once again prove our resiliency and forge ahead. We will adapt; we will evolve.

As the train gets closer over the next few months we will continue to provide updates on the progress of DataComp and NADA. We remain optimistic that we will quickly adapt to these new changes as we have to so many others recently.

But like being rescued from a train in the nick-of-time, there is no doubt we will forever be impacted by such an event. Let’s just hope we are standing next to the track come August and not underneath some rather large and heavy metal wheels.

*Excepted from the new appraisal disclosure requirement are homes less than $25,000 as well as loans on homes that satisfy the qualified mortgage standard, including the small creditor qualified mortgage standard.