REPORT AND ANALYSIS

IN THIS REPORT:                                                 FEBRUARY 5, 2020

• PRESIDENTS’ ORDERS SUPPORT MHARR ON “GUIDANCE” LETTERS
• MHARR WINS FIRST ROUND OF HUD FOIA APPEAL ON MHCC  
• MHARR CONTINUES TO EXPOSE FANNIE AND FREDDIE SCHEMES
• MHARR SEEKS DECISIVE ACTION BY WHITE HOUSE COUNCIL
• MHCC SUBCOMMITTEE RECOMMENDS ON-SITE CHANGES
• 2020 HALL OF FAME CLASS OMITS HUD CODE MANUFACTURERS
• DOE ISSUES NEW “PROCESS” RULE FOR CERTAIN ENERGY STANDARDS

EXECUTIVE ORDERS SUPPORT MHARR POSITION ON “GUIDANCE” LETTERS 

Two Executive Orders (EOs) issued by President Trump strongly support MHARR’s long standing position that the HUD manufactured housing program may not impose binding new regulatory mandates on manufacturers (or other regulated parties) through “guidance letters” or “interpretations” issued without prior Manufactured Housing Consensus Committee (MHCC) review and notice and comment rulemaking as required by law. The two Orders, EO 13891 (“Promoting the Rule of Law Through Improved Agency Guidance Documents”) and EO 13892 (“Promoting the Rule of Law Through Transparency and Fairness in Civil Administrative Enforcement and Adjudication”), are designed to eliminate the abuse of non-published, sub-regulatory “guidance” memoranda and similar pronouncements, issued without notice and comment rulemaking, to change the obligations and responsibilities of regulated parties or to establish completely new defacto  regulations.

Federal manufactured housing law — and especially the Manufactured Housing Improvement Act of 2000 — has alwaysbeen clear that HUD cannot use such sub-regulatory procedures. HUD, however, and all too often with the tacit approval of some in the industry, has long sought to evade and circumvent these requirements. The program, as a result, has spent much of the past 20 years operating in direct violation of the clear language of the law while giving short-shrift to the MHCC, all to the detriment of the industry – and particularly its smaller businesses – and the millions of Americans in need of affordable, non-subsidized home ownership.

Now, though, these abuses have been expressly rejected by the Trump Administration, while the validity of MHARR’s longstanding objections and opposition to them have been made absolutely clear. EO 13891 thus provides: “[I]t is the policy of the Executive Branch … to require that agencies treat guidance documents as non-binding both in law and in practice….  Agencies may impose legally binding requirements on the public only through regulations … and only after appropriate process….” (Emphasis added).  EO 13892 further states: “Guidance documents may not be used to impose new standards of conduct on persons outside the Executive Branch except as expressly authorized by law…. The agency may not treat noncompliance with a standard of conduct announced solely in a guidance document as itself a violation of applicable statutes or regulations.” (Emphasis added).

EOs 13891 and 13892 thus confirm that the 2000 reform law means what it says about prior MHCC review and notice and comment rulemaking for all HUD actions specified in sections 604(a) (i.e., standards) and 604(b) (i.e., enforcement regulations, Interpretive Bulletins and changes to policies, procedures and practices affecting the standards, enforcement and monitoring). Retrospectively, this means that all HUD manufactured housing program “guidance” documents and similar “operating procedures” adopted since the effective date of the 2000 reform law without Manufactured Housing Consensus Committee (MHCC) review and notice and comment rulemaking as required by that law, are “non-binding” and thus unenforceable. Prospectively, it means that HUD (during the Trump Administration) may not impose any new binding requirements through the manufactured housing program via “guidance” documents or other pronouncements which have not been considered and recommended by the MHCC and published for notice and comment. Both of these impacts are more fully examined in the January 2020 issue of “MHARR – Issues and Perspectives.”

MHARR, meanwhile, in comments to HUD, the White House Council on Eliminating Regulatory Barriers to Affordable Housing and the MHCC, has made it clear that the policy enunciated in these EOs is binding on all HUD actions relating to the federal manufactured housing program and that strong remedial action is necessary to eliminate both the ongoing negative impacts of previous unlawful HUD pseudo-regulatory actions and to prevent any such unlawful actions in the future.  This is particularly important in light of moves by the HUD manufactured housing program, under its current career administrator, to gradually weaken the MHCC and slant its procedures in order to prevent full participation and input by all interested parties.  (See, article below).

MHARR WINS FIRST ROUND OF HUD FOIA APPEAL ON MHCC

MHARR has won the opening round of an administrative appeal over a HUD decision refusing to disclose information related to the selection of members to serve on the Manufactured Housing Consensus Committee.

In a Freedom of Information Act (FOIA) request filed in January 2016, MHARR had sought the disclosure of all applications for appointment to the statutory MHCC – regardless of whether the applicant was actually appointed by HUD – filed since January 2008. The purpose of this request was to: (1) determine whether all MHCC appointees had been selected by HUD in accordance with all applicable requirements and criteria of the Manufactured Housing Improvement Act of 2000; and (2) to determine whether there is evidence of past or present discrimination by HUD, or potential HUD bias, against any individual(s), group, class, or interest in the selection (or non-selection) of MHCC members. This information and its related assessment is of crucial importance not only given the central role of the MHCC in the HUD regulatory process, but its weakening and manipulation by HUD, and is entirely consistent with the policies of President Trump regarding potential abuses of federal regulatory power and related processes.

In a September 2019 response to this request, HUD disclosed the nomination applications submitted by individuals previously appointed to the MHCC, but refused to produce applications submitted by persons not yet appointed to the MHCC, citing FOIA Exemption 6, protecting personal privacy interests.

In its administrative appeal, MHARR asserted that non-appointed nominees have no reasonable expectation of privacy in their nomination forms that is legitimately distinguishable from those who have been appointed to the MHCC, and that all such applications must be disclosed in order to determine if HUD, in the MHCC selection process, is excluding certain parties and/or interests from full representation, or is discriminating or otherwise playing favorites in its selection process. The significance and relevance of this inquiry has only grown in light of recent actions by the HUD program to unduly and improperly restrict the participation rights of non-MHCC members in MHCC debates and in the MHCC’s consideration of proposals that are of vital interest to both the industry and consumers. Such increasing efforts to silence participation by interested parties and exclude historically relevant information regarding, among other things, regulatory cost versus consumer benefit information, is reminiscent of similar activity by the Department in connection with the failed and bankrupt “Manufactured Housing Advisory Council,” which Congress, in the 2000 reform law, terminated in favor of a fully-functional and fully-accountable MHCC. Any step backward in that direction is wholly unacceptable to MHARR and will be targeted for appropriate action.

In a decision issued January 29, 2020, HUD’s Office of Ethics, Appeals and Personnel Law ruled that FOIA “Exemption 6 does not support the withholding of the entire applications of those applicants not selected.” As a result, that office remanded MHARR’s request to HUD’s FOIA office for “reprocessing in accordance with [its] appeal determination.” Consistent with this action, MHARR will now seek a full response to this inquiry and will take further steps as necessary to ensure that HUD fully complies.

MHARR CONTINUES TO PRESS FANNIE AND FREDDIE ON DTS

MHARR, at a February 4, 2020 meeting with Federal Housing Finance Agency (FHFA) Director Mark Calabria and other senior officials, called for an end to more than a decade of delays, diversions, outright defiance and other false starts that have left the vast bulk of the mainstream HUD Code manufactured housing consumer finance market completely unserved by both Fannie Mae and Freddie Mac, notwithstanding the congressional mandate of the Duty to Serve Underserved Markets (DTS) provision of the Housing and Economic Recovery Act of 2008 (HERA).

The meeting, which included representatives of organizations that had offered testimony regarding DTS and the manufactured housing consumer finance market at a series of FHFA-DTS “listening sessions” in late 2019, specifically addressed DTS in relation to the large segment of the HUD Code manufactured housing market – nearly 80% according to U.S. Census Bureau statistics – that relies on and utilizes home-only “chattel” or personal property financing.

Despite the fact that personal property loans represent the vast majority of mainstream HUD Code manufactured housing consumer loans and offer moderate and lower-income American families access to the industry’s most affordable homes, neither Fannie Mae nor Freddie Mac has provided any securitization or secondary market support for such loans since DTS was enacted over a decade ago.

Instead, the GSEs – with the implicit approval of FHFA — have engaged in an ongoing charade of “information gathering” and “research,” while concrete action to implement DTS for mainstream HUD Code chattel loans has been non-existent. This inaction, while claiming a lack of specific data, effectively forces mainstream HUD Code consumers to seek loans (predominantly) through industry-dominant portfolio lenders that charge higher-cost interest rates than would be the case in a fully-competitive market. This, in turn, undermines any incentive whatsoever for those lenders to share that loan performance and other information with Fannie Mae or Freddie Mac, as a fully-supported and competitive manufactured housing consumer financing market would result in lower interest rates. Meanwhile, the GSEs, with the assistance of the Manufactured Housing Institute (MHI) and the industry’s largest corporate conglomerates, have sought to divert the focus of DTS from mainstream, inherently affordable manufactured housing to a so-called “new class” or “new generation” of manufactured housing (titled as real estate) which is significantly less affordable than mainstream HUD Code manufactured housing.

In response to questions posed by FHFA, MHARR stressed that DTS-based support for mainstream HUD Code manufactured housing chattel loans is absolutely crucial to: (1) the success of DTS as envisioned by Congress; (2) to ensuring that the affordable housing needs of millions of moderate and lower-income Americans are fully-met; and (3) to the future growth, expansion and evolution of the manufactured housing industry. Conversely, MHARR pointed out that without market-significant DTS support for mainstream HUD Code home personal property loans (as has been consistently sought and urged by MHARR), consumers have been forced to pay higher-cost interest rates due to lack of competition, while the market for new HUD Code manufactured homes, as shown by HUD data contracted by 2% in 2019, even as the broader housing market, surged to its highest level of new home starts since 2006.

Meanwhile, MHARR aggressively refuted a baseless allegation by a representative of the National Association of Home Builders (NAHB) that the federal manufactured housing construction and safety standards are somehow deficient as compared with site-building construction codes. This begs the question, however, of why NAHB, a collective organization of manufactured housing industry competitors, that has benefitted lavishly from the support provided through multiple Fannie and Freddie programs and activities, was even invited to – or allowed to attend – a meeting that was expressly focused on HUD Code manufactured home lending under DTS and, more particularly, HUD Code manufactured home personal property consumer lending under DTS.  It is particularly egregious that FHFA, while Fannie and Freddie are engaged in an effort to hijack and divert DTS away from affordable, mainstream manufactured housing, would entertain the involvement of industry competitors seeking to maliciously attack the federal standards and the truly affordable, high-quality homes produced thereunder.

Ultimately, MHARR urged FHFA to fulfill its regulatory obligation to ensure that Fannie Mae and Freddie Mac fullycomply with all aspects of the DTS law, and if it feels unable to do so, to join with MHARR and others in the growing demand for congressional oversight to put DTS back on track.

MHARR CALLS FOR DECISIVE WHITE HOUSE COUNCIL REFORMS

MHARR, in comments filed on January 9, 2020, has called for decisive action by the White House Council on Eliminating Regulatory Barriers to Affordable Housing (Council) to remove existing and worsening barriers to the availability and utilization of affordable HUD Code manufactured housing. The Council, created by Executive Order 13878 (June 25, 2019) and chaired by HUD Secretary Ben Carson, has been directed by President Trump to “reduce” and “remove” overly burdensome regulatory barriers at the federal, state and local level “that artificially raise the cost of housing” and “cause [a] lack of housing supply.” (Emphasis added). The Council thus represents an unparalleled opportunity for the industry to address – and seek the resolution of – multiple issues that have needlessly stunted its growth, expansion and evolution as a premier source of affordable, unsubsidized homeownership.

MHARR’s comments ask the Council to take specific remedial action in four principal areas: (1) the full and final implementation of all federal manufactured housing program reforms mandated by the Manufactured Housing Improvement Act of 2000; (2) implementation of the 2000 reform law’s enhanced federal preemption provision to invalidate local (or state) zoning or land use laws that discriminatorily exclude or unreasonably restrict the use and/or placement of HUD Code manufactured homes; (3) the rejection of excessive, unnecessary and discriminatory federal manufactured housing energy requirements; and (4) the full, market-significant implementation of the “Duty to Serve Underserved Markets” for all types of manufactured home consumer loans, including the personal property loans that account for nearly 80% of all manufactured home purchases. As the comments explain, each of these matters involve either government action or inaction that severely discriminates against the lower and moderate-income American families that rely the most on affordable HUD Code manufactured housing and smaller, independent industry businesses.

In particular, MHARR’s comments stress that unlike other types of homes, mainstream HUD Code manufactured housing is uniquely within the scope and mission of the White House Council insofar as: (1) it is already the nation’s mostaffordable type of housing; (2) it is specifically recognized as affordable housing by federal law; (3) federal law is already designed and structured to maintain its inherent affordability; and (4) its production and utilization is directly and comprehensively regulated by the federal government, which is uniquely situated – and directed by federal law — to ensure its continuing affordability.

Because of these factors — and unlike any other type of housing – HUD, and the federal government, more broadly, already have all of the statutory authority they need to “reduce” and ultimately “remove” the regulatory barriers addressed by MHARR which have unnecessarily limited the availability and utilization of inherently affordable manufactured homes by millions of Americans. Thus, the removal of these barriers is not a matter of generating or enacting new laws or regulations with all of the uncertainties and time delays associated with such processes.  Instead, as the comments stress, it is simply a matter of implementing – in a full, robust and timely manner – the good laws that the industry has alreadysecured.  A copy of MHARR’s comprehensive comments has already been distributed to industry members and the public.

MHCC ADVANCES ON-SITE CONSTRUCTION CHANGES

Consistent with MHARR’s longstanding call for fundamental reforms to the needlessly complex, burdensome and costly “on-site construction” rule adopted by HUD in September 2015, the Manufactured Housing Consensus Committee’s Regulatory Enforcement Subcommittee, during a January 14, 2020 conference call, recommended extensive revisions to that rule and forwarded those recommendations to the full MHCC for further action.

Completing a process that began during the MHCC’s October 2019 meeting in Washington, D.C., the Regulatory Enforcement Subcommittee’s proposed modifications would simplify and streamline certain aspects of the September 2015 HUD rule. That unnecessarily costly rule, as has been consistently stressed by MHARR, has massively expanded and needlessly complicated an earlier MHCC-proposed on-site rule designed to provide a more flexible and less-costly alternative to the cumbersome and time-consuming “Alternative Construction” (AC) process for the completion of conforming manufactured homes at the site of installation.

A key motivation for that original MHCC proposal was a desire to facilitate open and robust free-market competition to unlock an important new market segment for manufactured housing, while allowing consumers to take full advantage of all the unique attributes and benefits of HUD Code manufactured housing. Following extensive, thorough and painstaking debate, a consensus MHCC recommendation was submitted to HUD, finally leading to a proposed on-site construction rule, published in June 2010.  The MHCC recommendation, however, upon reaching HUD, was transformed into a distorted, convoluted caricature of pointless paperwork, needless record-keeping, red-tape and duplicative, costly, multi-layered “inspections,” including at least 18 new and separate regulatory mandates and related costs that had not been calculated or even considered by HUD, in direct violation of applicable law. Those additional mandates, though, undermined the site-completion market and pushed manufacturers into the more costly modular housing market in order to meet the needs of consumers seeking certain site-completed amenities.

While the newly-proposed on-site revisions would help ameliorate some of those regulatory burdens and related costs if adopted by HUD, they would still leave in place the 100% final inspection requirement mandated by HUD in its 2015 final rule.  As was stressed by MHARR during the initial MHCC rule development process, however, 100% inspections are not necessary to ensure full compliance – which could just as easily be determined through audit-type inspections of a certain percentage of homes — and entails needless expense and delay for consumers.  Consequently, as MHARR’s representative indicated at the conclusion of the Subcommittee debate, MHARR will continue to pursue an on-site process which utilizes such audit-type inspections, rather than 100% “blanket” inspections.

2020 HALL OF FAME CLASS OMITS HUD CODE MANUFACTURERS

The 2020 inductees announced recently by the RV/MH Hall of Fame in Elkhart, Indiana, include manufactured housing community operators and association executives, but curiously, not even a single HUD Code manufacturer. Insofar as every aspect of the “manufactured housing” industry is derivative of the home itself, this is akin to a sports Hall of Fame inducting a class that did not include a single player.

Given that: (1) manufacturers represent the essential core of the industry; (2) there are innumerable candidates from the manufacturing sector who are highly-qualified for induction into the Hall of Fame; and (3) indeed, certain manufacturers have previously been nominated — but not selected for induction based on unknown factors and considerations – is it the view of the Hall Foundation that no manufacturers merited entry into the Hall this year?

Whether this is intentional or an oversight, neither bodes well for either the industry or the Hall.  Indeed, in a process that is completely non-transparent, there would appear to be legitimate questions with respect to the selection process.  Given the importance of the Hall of Fame and the stature of the Foundation, it is incumbent on the Foundation to provide a clear, legitimate and public explanation of this critical omission.

MHARR, for some time now, has sought to explore these questions and concerns in a quiet and cooperative manner with Hall officials, but real answers have not been forthcoming. For the sake of all concerned, the Hall Foundation should err on the side of transparency and legitimacy.

DOE ISSUES “PROCESS” RULE FOR CERTAIN ENERGY STANDARDS

The U.S. Department of Energy (DOE), on January 15, 2020, announced the publication of its new “process” rule for the adoption and modification of energy standards and related test procedures for “consumer products” and “commercial/industrial equipment.”

Because: (1) it was not clear at the inception of this rulemaking process whether these new procedures would be applicable to potential DOE energy standards for manufactured homes; and (2) because MHARR wished to utilize this rulemaking to re-assert and re-emphasize the fundamental illegitimacy of DOE’s fatally-defective “negotiated rulemaking” for those federal manufactured housing energy standards; and (3) because MHARR wished to encourage DOE to provide comparable procedures and protections to any further activity to develop such standards for HUD Code manufactured homes, MHARR filed comments with DOE on May 6, 2019  to address various aspects of the process rule.

Consistent with these objectives, MHARR asserted: (1) that while the process rule did not specifically reference standards development for manufactured homes, its procedural protections could nevertheless apply to the development and revision of those standards; and (2) the fact that the procedural protections provided by the revised process rule were notaccorded the industry and consumers in the DOE manufactured housing negotiated rulemaking, constitutes yet another basis for the withdrawal of any DOE manufactured housing standards derived from the inherently tainted “negotiated rulemaking” process. MHARR, accordingly, viewed these comments as “a shot across the bow” of DOE, regarding its fundamentally tainted manufactured housing rulemaking.

MHARR, through its comments, thus sought to create a record to establish: (1) whether or not DOE construed the appliance standards process and the manufactured housing standards process as being related and equally subject to the new process rule; (2) whether DOE would formally apply the new process rule reforms to the manufactured housing standards development process; and (3) whether DOE would informally acknowledge the fatal defects inherent in the manufactured housing standards development process and the need for comparable protections within the manufactured housing rulemaking.

In the final January 15, 2020 “process” rule, DOE specifically acknowledges these concerns, and while it states that the “process” rule and the EISA-based manufactured housing energy standards rulemakings arise under different statutory authorities, the rule leaves little doubt that DOE “appreciates” the need for similar procedural protections under the EISA manufactured housing energy rulemaking. MHARR’s comments, therefore, have helped draw a parallel between the need for new and more effective procedural protections for regulated parties as provided by the “process” rule, and the need for comparable protections for regulated parties under the manufactured housing standards development process.

MHARR is a Washington D.C.-based national trade association representing the views and interests of independent producers of federally-regulated manufactured housing.

The “MHARR Washington Update” is available for re-publication in full or in part, (without alteration or substantive modification) without further permission and with proper attribution to MHARR.