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What is a Chattel Mortgage loan for a manufactured home?


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Unless the manufactured home you buy is on land you own, you cannot get a traditional mortgage.

Instead, you can only qualify for a chattel loan, which is at a much higher rate.

Chattel loans are typically 15 or 20 years whereas mortgages can be for 30 or even 40 years.

Chattel loans are much more expensive -- 300 or more basis points higher than a mortgage.

So you'd much rather get a mortgage than a chattel loan if you qualify for one.

Personal property loans, known as chattel loans, have much higher interest rates than mortgages. 

To some owners of manufactured homes, refinancing chattel loans into mortgages could reduce monthly housing expenses.

To qualify for refinancing a chattel loan as a mortgage:

  • The home must be on a permanent foundation that meets standards set by the Department of Housing and Urban Development.
  • The manufactured home must be titled as real estate rather than as personal property.
  • The homeowner has to own the land that the manufactured home is on. An important exception to this rule is explained below.

Source: http://www.bankrate.com/finance/refinance/refinancing-mobile-home-loan.aspx

A Chinese man walks into a bank in New York City and asks for the loan officer. He tells the loan officer that he is going to China on business for two weeks and needs to borrow $5,000.

The bank officer tells him that the bank will need some form of security for the loan, so the Chinese man hands over the keys of his new Ferrari parked on the street in front of the bank. He produces the title and everything checks out.

The loan officer agrees to accept the car as collateral for the loan.

The bank’s president and its officers all enjoy a good laugh at the Chinese man for using a $250,000 Ferrari as collateral against a $5,000 loan. An employee of the bank then drives the Ferrari into the bank’s underground garage and parks it there.

Two weeks later, the Chinese man returns, repays the $5,000 and the interest, which comes to $15.41. The loan officer says, “Sir, we are very happy to have had your business, and this transaction has worked out very nicely, but we are a little puzzled. While you were away, we checked you out and found that you are a multi-millionaire. What puzzles us is, why would you bother to borrow $5,000?”

The Chinese man replies: “Where else in New York City can I park my car for two weeks for only $15.41 and expect it to be there when I return?”

Ha! That is a good story. It shows that there's a benefit to being creative with loans sometimes. :)

More about chattel loans from the article atop this page:

A chattel mortgage, also known as a secured transaction, is a loan that can be obtained from a bank or financial institution using some sort of movable personal property—possessions other than land, buildings or any permanent fixture—as security.

...

Obtaining a Chattel Mortgage

Anyone can obtain a chattel mortgage by pledging personal movable property. To be considered movable, the item cannot cause any change or damage to a freehold real estate property, such as a building or land owned by the borrower.

Under a chattel mortgage, the purchaser borrows funds from the lender to buy a movable property. The lender then secures the loan with a mortgage over the chattel. Legal ownership of the chattel is transferred to the lender at the time of purchase, and the mortgage is removed once the loan has been repaid.

...

Mobile Homeowners, Businesses Use Chattel Mortgages

A chattel mortgage stipulates that the assets held as security for the loan cannot be permanently tied to land owned by the borrower. This is why chattel mortgages are often used for mobile homes.

...

Advantages of a Chattel Mortgage to the Lender

One advantage of a chattel mortgage  is the movable security can be seized and sold quickly. This means that if a deal falls through, the lender can be compensated rather quickly, which protects the lender from incurring additional expense. The movable property should return enough money to cover the outstanding indebtedness, including both the balance remaining and any fees and charges incurred during the foreclosure process.

The Consumer Finance Protection Bureau found that a majority of Manufactured-Housing borrowers have expensive loans.

  • Majority of manufactured housing loans considered higher priced: In 2012, about 68 percent of all manufactured-housing purchase loans were considered “higher-priced mortgage loans,” compared with only 3 percent of site-built home loans. Mortgages are considered higher-priced under certain consumer protection laws if they have an annual percentage rate higher than a benchmark rate that is based on average interest rates, fees, and other terms on mortgages offered to highly qualified borrowers. Many of these higher-priced mortgage loans financing manufactured housing were chattel loans.
  • Two out of three manufactured-home owners eligible for mortgages finance with more expensive personal property loans instead: Manufactured-home owners that own the land their home sits on are eligible to take out mortgages to finance the purchase of their manufactured home. Of those homeowners, the Bureau estimates about two-thirds financed their homes with chattel loans, which are more likely than mortgages to have high interest rates.
  • Personal property loan borrowers have fewer consumer protections than mortgage borrowers: While chattel loans have lower origination costs and quick closing timelines, they also have significantly fewer consumer protections than mortgage loans. For example, only mortgage borrowers are protected by provisions of the Real Estate Settlement Procedures Act that give borrowers the right to certain disclosures when applying for and closing on a loan.

In addition to providing a more comprehensive understanding of manufactured housing financing, the report also examines the consumers in this market. The report found that the manufactured-housing sector plays a critical role in the affordable housing market. Other key findings of this report include:

  • One out of seven homes outside of a metropolitan area is a manufactured home: Manufactured homes account for only about 6 percent of all occupied U.S. housing. Outside metropolitan areas, however, one out of every seven homes is a manufactured home. These homes are more prevalent in the southeastern and western states. South Carolina has the highest prevalence of manufactured housing in the country, followed by New Mexico.
  • Manufactured-home owners are more likely to be older: Nearly one out of five families that live in manufactured homes do not have children in the home and are headed by someone aged 55 or older—compared with less than 15 percent of families that live in site-built homes.
  • Manufactured-home owners are more likely to have lower net worth: Bureau research has found that manufactured home residents tend to have lower net worth than other families. The 2004–2010 Surveys of Consumer Finances indicate that the median net worth among households that lived in manufactured housing was just about one-quarter the median net worth of families living in all other types of housing.

The full report on manufactured housing can be found at: 

http://consumerfinance.gov/reports/manufactured-housing-consumer-finance-in-the-u-s/

Source: 

http://www.consumerfinance.gov/newsroom/cfpb-finds-majority-of-manufactured-housing-borrowers-have-expensive-loans/

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