I don't know about South Florida, but Orlando doesn't sound too hot. Maybe we should add Conseco, Fleetwood and Champion to the list-note also the mention of our friends in Charlotte.
Repossessions Bog Down U.S. Mobile-Home Industry
By Will Edwards
Ocoee, Florida, Aug. 29 (Bloomberg) -- Beau Jarrell doesn't have to live in the Wild West to see his share of ghost towns. Where are they? Florida's trailer parks.
Jarrell, president of All Pro Recovery Inc. in Ocoee, has visited about 200 mobile homes this year to post 72-hour repossession notices on delinquent debtors' doors for such lender customers as Bank of America Corp. and Bank One Corp.
The difference between this year and Jarrell's past experience is that now residents aren't paying up, or even sticking around to give Jarrell any lip when he comes back to change the locks.
``Chances are that if you put notice on the door it's already cleaned out by the time you get back,'' said Jarrell, who estimates that only about 10 of the 200 debtors have settled their bills.
The weak economy is reaching the mobile-home industry, as risky loans extended in the mid-1990s come home to roost. Mortgage delinquencies for all housing rose to a nine-year high in 2000, while those related to mobile homes soared to their highest levels in at least 25 years.
About 2 percent of all outstanding mobile-home loans are in repossession proceedings, according to Jim Clifton, vice president of economics and housing finance at the Manufactured Housing Institute. A ``more palatable'' rate is 1 percent to 1.5 percent, he said.
Those repossessed homes, running as high as 100,000 at an annual rate, are being resold and competing with new models. That's damping earnings at makers of manufactured homes, such as Fleetwood Enterprises Inc., Clayton Homes Inc. and Champion Enterprises Inc.
Stocks of those companies are now soaring on promises by them that they've reached bottom and are due for a pickup in demand. Champion's shares, for example, have more than tripled this year after losing two-thirds of their value in 2000.
Rising Unemployment
Some economists aren't convinced. They argue that as long as unemployment is on the rise, blue-collar workers are at risk of losing their jobs, and their mobile homes.
``You're going to see more delinquencies and bankruptcies,'' said Gary Shoesmith, director of the Center for Economic Studies at Wake Forest University's Babcock Graduate School of Management. ``It will get worse before it gets better.''
In the early 1900s, Sears, Roebuck & Co. made a promise to each of the buyers of its $1,000 kit homes: ``Our Guaranty Protects You.''
The problem was, not much was done to shield Sears. When loan delinquencies mounted after the stock-market crash of 1929, the company took a few years to count its losses before selling the business in 1935.
What Collateral?
Fast forward to the 1990s, when a flood of companies entered the market for today's equivalent of the Sears kits, mobile homes, or manufactured houses. Lenders were willing to make loans to riskier borrowers because they were able to earn 4 percentage points more than they would on a typical mortgage. Their collateral? The robust economy.
That's all changed now that growth has slowed to a crawl. Gross domestic product, the total of all goods and services produced in the U.S., increased at an estimated 0.2 percent annual pace in the second quarter, the slowest rate in more than eight years, the Commerce Department announced today.
Some marginal debtors have quit paying, either because they've lost their jobs or they're earning less.
The slump has taught hard lessons. Conseco Inc. earlier this month reported a second-quarter loss of $30.3 million as the delinquency rate on mobile-home loans rose for its finance unit. Charlotte's Bank of America is taking a $1.25 billion charge against earnings, in part because it's left the business of offering sub-prime loans, or those made to borrowers with bad credit histories.
Rejected Applications
It's gotten to the point in the last two years that when a customer drops an application on the desk of Clay Polston, general manager at Fleetwood Home Center in Marietta, Georgia, he's more certain than not that it will be rejected.
``Customer applications that were approved a couple years ago, well, no way they're getting approved now,'' Polston said.
Now, Polston and other mobile-home sellers are trying to steer customers toward buying their own land to go with the home. While borrowers typically increase the overall cost of the sale by switching from a personal-property loan to a land-home mortgage, their interest rate drops from as high as 14 percent to 8 percent, and they can apply for assistance from the Federal Housing Administration, Polston said.
It's a strategy that's gaining momentum. While only 9 percent of new manufactured homes were financed with real-estate mortgages in 1994, that number climbed to 22 percent last year, according to the Manufactured Home Institute.
Less Likely to Flee
In acquiring their own property, owners of mobile homes are also less likely to flee when times get tough and more likely to search harder for ways to make good on their mortgage payments, Polston said. It helps, too, that manufacturers have started making more expensive homes, like two-story versions, that aim at wealthier Americans.
Now there's not much for the makers of manufactured homes to do but sit back and wait for these strategies to pay off and for buyers to get through the current stock of repossessed homes, analysts said.
Sales declines have begun to ease. Shipments of new mobile homes from January through June fell 35 percent, down from a 42 percent decline in January, according to the Manufactured Home Institute, which is forecasting an increase in fourth-quarter shipments.
Still, some industry watchers aren't so sure.
Last month, Greenpoint Financial Corp., a specialty housing finance company, reported that second-quarter delinquencies were little changed compared with the first quarter instead of declining as expected, Credit Suisse First Boston analyst Ivy L. Zelman wrote in a July research report. Greenpoint went on to forecast that delinquencies would be little changed to slightly higher over the next 24 months.
``The implication is that some lenders have not cleaned up their books to adequately reflect the current slowdown or in anticipation that the slowdown may last longer than expected,'' Zelman wrote.
All Pro Recovery's Jarrell probably wouldn't complain if the slowdown didn't end soon. He makes $300 each time he changes a mobile home's locks and is averaging 40 car repossessions a day. All that adds up to a banner year. |
