IN THIS REPORT: JUNE 25, 2018
EXCLUSIVE REPORT & ANALYSIS:
- SAA/PIA MEETING REFLECTS PROGRAM CHANGES
- NEW POST-PRODUCTION ASSOCIATION ANNOUNCED
- MONTGOMERY CONFIRMED AS HUD ASSISTANT SECRETARY
- MHARR CALLS FOR WITHDRAWAL OF HUD MH “GUIDANCE”
- HUD MUST NOT REPEAT PAST MISTAKES ON CONTRACT
- UNRESOLVED DODD-FRANK ISSUE RAISES MORE QUESTIONS
- REACTIVATION OF ENERGY RULE MAY REQUIRE LEGAL ACTION
- HUD LEADERSHIP CHANGES REFLECTED IN SAA/PIA MEETING
Leadership changes within the HUD manufactured housing program — spearheaded by MHARR — were clearly reflected at the most recent HUD-PIA-SAA conference held from June 19-20, 2018 in St. Louis, Missouri. In both tone and substance, the meeting represented a distinct and positive break from previous such conferences during the tenure of former manufactured housing program administrator, Pamela Danner. This change reflects positively on the leadership of both Secretary Carson and HUD Deputy Assistant Secretary Dana Wade, who have taken the first essential steps toward the implementation of long-overdue program reforms in accordance with the Manufactured Housing Improvement Act of 2000 and the regulatory reform policies of the Trump Administration.
To start, the meeting — although convened by HUD — was organized and led by participating State Administrative Agencies (SAAs), including the Missouri SAA (as the host organization), the Arizona SAA and the Oregon SAA, and included multiple presentations by SAA (and PIA) participants. The conference, accordingly, unlike almost every other such meeting in the past, focused more on: (1) the legitimate role and activities of the states within the federal-state partnership which lies at the core of the HUD program; and (2) practical, cost-effectivesolutions to substantive issues encountered in the field, and less on the overgrown, over-extended and unnecessarily costly activities of HUD’s pseudo-regulatory contractor surrogates. Indeed, HUD’s installation contractor was not even present at the meeting and the program “monitoring” contractor, while represented, played virtually no role in either the conduct or substance of the conference.
Consistent with this fundamentally different theme – and contrary to the baseless regulatory approach taken by HUD and its “monitoring” contractor for the past decade, which has thwarted the performance-based ingenuity that lies at the heart of the affordability of manufactured housing — the Oregon SAA unveiled a new in-plant monitoring/inspection plan focused on actual production outcomes (i.e., specific consumer impacts) rather than seeking, critiquing and tweaking manufacturer quality control (QC) procedures and related minutiae that are not even addressed by the Part 3280 HUD standards, but have instead been unlawfully elevated as defactoregulatory mandates by HUD and its contractors through pseudo-regulatory “guidance” memoranda, “field guidance” pronouncements and other similar devices. This new program, instead of attempting to micro-manage producers’ quality control programs (and thereby expand contractor earnings), if replicated elsewhere, would return the enforcement focus of the HUD program to where it should be – i.e., consumer outcomes related to significantPart 3280 issues, rather than subjective, vague and undefined “process” issues under the QC-based monitoring platform utilized by HUD’s entrenched “monitoring” contractor. This would not only be consistent with the original design of the program and the federal-state partnership which lies at its core, but would also be in accordance with the specific recommendations of the National Commission on Manufactured Housing, which led to the enactment of the 2000 reform law.
Similarly, this approach would also be consistent with MHARR’s separate call — in comments to HUD pursuant to Trump Administration Executive Orders 13771 and 13777 and in a separate communication to HUD based on U.S. Justice Department policy rulings — for the repeal of allsuch pseudo-regulatory “guidance” which was not subjected to notice and comment rulemaking as required both by the Manufactured Housing Improvement Act of 2000. (See, article below).
At the same time, though, the positive and fundamentally different theme of the St. Louis meeting underscores a significant “disconnect” within the program that MHARR has continually emphasized and which must be addressed and corrected by the Trump Administration (and Congress). This “disconnect” involves the radically unbalanced funding of the HUD “monitoring” contractor – with funding that has increased by 62% since 2011 despite substantially declines in industry production – as compared with HUD payments to state SAAs, which have seen their functions expand over the same time period, but have not received a base funding increase in over a decade.
Given the crucial role of the federal-state partnership that underlies the HUD program, and the accountability and responsibility that states bring to the program – as contrasted with unaccountable, revenue-driven contractors – it is essential that the role of the states, at a minimum, be maintained and strengthened. While HUD has already proposed changes to the outdated and clearly inadequate SAA funding system that currently exists, those changes must be advanced more rapidly and implemented in conjunction with fundamental changes to the monitoring contract process, not only to make that process more competitive, but also to restrict and limit the monitoring function to its legitimate PIA evaluation role as prescribed by Congress in the 2000 reform law.
MHARR, accordingly, will continue to seek the renewal, revitalization and reinvigoration of the role of the states within the HUD program and the vital federal-state partnership that lies at the core of both the functionality and legitimacy of that program. This includes – but is by no means limited to – seeking and advancing continued state participation in the HUD manufactured housing program and ensuring a level of funding that will allow and promote that participation. It also includes demanding a legitimatenew monitoring contract and a legitimate procurement process for the next monitoring contract that ensures full and fair competition as required by federal law.
STATES ANNOUNCE NEW INDEPENDENT POST-PRODUCTION ASSOCIATION
State associations representing manufactured housing communities – Manufactured Housing Communities of Arizona (MHCA) and the Manufactured Housing Community Owners Association (MHCO) of Nevada – both of which had previously withdrawn from the Manufactured Housing Institute (MHI), have announced the formation of a new, independent post-production manufactured housing association, similar to that suggested by MHARR in a 2017 study and analysis (see, November 15, 2017 MHARR News Release – “MHARR Releases Study Recommending Independent Collective Representation for Post-Production Sector”) to function at the national level.
In its initial communication regarding the new group, MHCA states:
“The MHCA had joined a national association in the hopes that we would get … representation and effectiveness at a national level. The national legislation and rulemaking over the last ten years has proven that we do not have that representation. *** The MHCA has taken the first steps in establishing a new organization to lobby on behalf of community owners and associations representing community owners. The new organization is the National Association of Manufactured Housing Community Owners, Inc. (NAMHCO)….”
The MHCA communication concludes by observing that “we have a problem at the national level,” and invites other post-production groups to become “part of the solution” by joining and supporting the new national association.
While this action (at present including only HUD Code communities) – is both positive and encouraging, the industry’s entirepost-production sector (communities, as well as retailers, developers, finance providers, insurers and others) remains in desperate need of an independent, collective, national association and representation to deal effectivelywith national-level issues that are today either not being addressed at all, are not being addressed effectively, or are, in effect, being held captive to the interests of the industry’s largest corporate conglomerates.
At present, HUD Code manufactured housing is nearly alone, as a major industry, in being without an independent, national, collective post-production association, and this crucial “missing link” needs to be decisively corrected as soon as possible if the industry is to advance and expand to its full economic and market potential. While HUD Code production is gradually recovering and improving from its recent modern-day minimum level, and manufactured homes, in 2018, offer superb quality with unprecedented value for consumers, the industry’s post-production sector has, conversely, regressed, with repeated failures in critical areas such as consumer financing, placement, zoning and installation, among others.
These failures suppress and unnecessarily restrict industry growth as untold thousands of consumers are eliminated from the market due to unnecessarily high interest rates on manufactured homes and particularly manufactured home chattel loans (due to the ongoing refusal by Fannie Mae and Freddie Mac to provide market-significant securitization and secondary market support for such loans). To make matters worse, even for consumers who would be able to obtain such financing, the refusal of local communities to permit the development of new manufactured housing communities, or otherwise permit the placement of manufactured homes in vast areas of the United States, needlessly drives potential homebuyers away from the HUD Code market. As a result, while manufactured homes have progressed substantially, once they leave the factory, the industry (and consumers) are ill-prepared, ill-equipped and ill-served in the field.
This dichotomy, between significant successes in the production realm, as contrasted with significant failures in the post-production realm, not only undermines industry growth and needlessly excludes large numbers of consumers from the HUD Code market, but also harms, as one of its primary victims, the state associations on which post-production industry businesses rely so heavily. While most state associations continue to do excellent work under difficult circumstances, they are unfairly handicapped in many instances, by a lack of centralized policy information, formulation, direction and coordination. This effectively leaves state associations either “on their own” to individually seek relevant factual and policy information from other states, or worse, dependent on MHI and its few industry-dominant corporate conglomerates on matters that rightfully should be discussed, debated, formulated and decided on a collective, independent and collaborative basis. In either case, the collective functionality of the state associations and the post-production sector is not what it should be, or needs to be, in order to successfully advance both the post-production sector and the industry as a whole.
This matter, moreover, has been unnecessarily complicated by the involvement of self-promoting individuals and/or entities that not only have difficulty in grasping the magnitude of the ongoing failures of the post-production sector – and the damage thereby inflicted on the industry and consumers – but also continue to press and advance ostensible remedies (publications, conferences, meetings, etc.) that are overly simplistic, unduly parochial, and simply inadequate to address the much larger and significantly more complex problems underlying this crucial issue.
MHARR, therefore, for reasons that it has previously spelled-out in detail, supports the formation of the new, independent communities association. In addition, MHARR also supports and encourages the expansion and further development of this association going forward.
SENATE CONFIRMS MONTGOMERY AS HUD ASSISTANT SECRETARY
The United States Senate, after a lengthy delay, has finally voted to confirm Brian Montgomery as HUD Assistant Secretary for Housing-Federal Housing Commissioner. The Senate vote brings to an end an eight-month confirmation marathon that began when Mr. Montgomery – who served in the same position in the Administration of President George W. Bush – was nominated by President Trump in September 2017.
While MHARR supported Mr. Montgomery’s confirmation, he returns to HUD at a crucial juncturefor the Department generally and for the HUD manufactured housing program in particular. As industry members are aware, the HUD program is at a potentially groundbreaking turning point. Its former administrator, an Obama Administration holdover, has been re-assigned, and the program itself – including all of its regulations and related pseudo-regulatory actions – are undergoing a “top-to-bottom” review, pursuant to Trump Administration regulatory reform Executive Orders 13771 and 13777.
With the federal program at a potentially historic cross-roads, Mr. Montgomery effectively will have a second opportunity to achieve what he did not do previously – i.e., ensure the full and proper implementation of the Manufactured Housing Improvement Act of 2000 in ways that cannot be immediately undone or ignored by rogue regulators. While Mr. Montgomery had an opportunity to permanently “set in stone” the key reforms of the 2000 law during his earlier tenure at HUD, he failed to do so, instead adopting a passive stance while career regulators undermined key reforms, such as section 604(b)(6)’s requirement for MHCC pre-approval and full rulemaking for all “changes” to policies, practices and procedures relating to inspections and monitoring.
The reform processes underway within the program and within HUD more broadly, provide a long-overdue opportunity to finally undo these and other baseless distortions of the 2000 reform law that occurred under prior career administrators, and return the HUD program to the policy path and direction mandated by Congress in the 2000 reform law. MHARR will carefully monitor Mr. Montgomery’s actions to ensure that such reforms are finally cemented in place.
MHARR CALLS FOR WITHDRAWAL OF HUD “GUIDANCE” DOCUMENTS
MHARR, based on recent rulings by the U.S. Justice Department, has reiterated and amplifiedits call for HUD to immediately withdraw any and all manufactured housing program “guidance” documents that were not: (1) presented to the statutory Manufactured Housing Consensus Committee (MHCC) for prior review and recommendations; and (2) published for notice and comment rulemaking in the Federal Register.
In a recent communication, MHARR calls for fullHUD compliance with the procedural requirements and safeguards of the Manufactured Housing Improvement Act of 2000 – requiring prior consensus committee review and notice and full rulemaking for allnew and modified standards, regulations and Interpretive Bulletins, andchanges to HUD policies, practices and procedures affecting inspections and monitoring — following Justice Department rulings issued on November 16, 2017 and January 25, 2018 asserting that U.S. Attorneys may “no longer use noncompliance with guidance documents as a basis for proving violations of applicable law” in civil lawsuits to enforce federal health and safety laws, such as the National Manufactured Housing Construction and Safety Standards Act of 1974 (as amended) and standards promulgated under that law.
In rejecting enforcement actions based on such unpublished “guidance” documents, the Justice Department maintained that it could not and would not use its “enforcement authority to effectively convert agency guidance documents into binding rules” and that such “guidance documents cannot create binding requirements that do not already exist by statute or regulation.”
HUD, by contrast, has resorted to “guidance” and other pseudo-regulatory pronouncements to skirt rulemaking and other requirements of applicable law for decades. This abusive practice finally led Congress, in the Manufactured Housing Act of 2000, to include a new section 604(b)(6), which – on its face – requires prior MHCC review and rulemaking for virtually any change to existing rules, regulations, interpretations, policies, practices and/or procedures relating to any aspect of enforcement, inspections or monitoring. HUD, however, promptly ignoredthis mandate, issuing an Interpretive Rule in 2010 designed to negate this clear and unequivocal mandate and effectively strip it out of the 2000 reform law.
As MHARR’s communication makes clear, however, the recent rulings by the Trump Administration Justice Department demonstrate and establish (as MHARR has consistently maintained) that the HUD 2010 Interpretive Rule is plainly wrong and invalid, and should be withdrawn, and that any and all HUD manufactured housing program “guidance” documents which purport to establish requirements not otherwise found in the law or properly promulgated standards and regulations, and which have not themselves been subjected to prior MHCC review and full rulemaking, are unenforceable and must be withdrawn.
MHARR, consequently, has asked that such “guidance” documents, as well as HUD’s arbitrary and clearly erroneous 2010 “Interpretive Rule,” be withdrawn as part of HUD’s pending regulatory review process pursuant to Trump Administration Executive Orders 13771 and 13777.
MHARR WARNS HUD ON MONITORING CONTRACT
MHARR has again warned HUD against any type of re-solicitation process for the manufactured housing program monitoring “contract” that does not entail — and does not, in fact, produce— full and fair competition for that contract, as required by both the Manufactured Housing Improvement Act of 2000 and federal contracting law, and a new monitoring contractor for the federal program. For the moment, however, the monitoring contract re-solicitation, originally scheduled to begin in December 2017 (before the re-assignment of former manufactured housing program Administrator Pamela Danner) remains on “hold.”
In meetings and other communications with the new Trump Administration leadership at HUD, MHARR has stressed that much, if not most, of the dysfunctionality and defactolawlessness of the current HUD manufactured housing program derives from – and is driven by — abuses of the “monitoring” function, which have grown and expanded over the 40-year tenure of the current revenue-driven contractor (particularly during the tenure of the reassigned former program Administrator), to essentially encompass the entire program, while pseudo-governmental powers have unlawfully been delegated to the entrenched incumbent contractor. As has been the case for decades, this unlawful, excessive, unnecessary and unaccountable contractor activity (expanding now into the post-production realm), produces few, if any, benefits for consumers, while needlessly driving-up costs for homebuyers, thus depriving untold thousands of Americans of affordable manufactured homes in violation of the fundamental purpose and objectives of the 2000 reform law.
MHARR reiterated and reasserted allof these points in
written comments recently submitted to HUD in connection with its pending “top-to-bottom” manufactured housing program regulatory review, stressing: (1) that the absurd and indefensible 40-year defactosole-source tenure of the existing “monitoring” contractor must be ended; (2) that there must be full and fair competition for the monitoring contract as required by the Manufactured Housing Improvement Act of 2000 and other applicable law; (3) that the impending RFP for the monitoring contract must be structured to ensure such full and fair competition; and (4) that HUD must award the monitoring contract (or any element of a multi-contract monitoring structure), to “separate and independent” contractors as mandated by the 2000 reform law.
Given the extensive history of abuse – both substantive and procedural – of the program “monitoring” function andthe “monitoring” contract procurement process by both the HUD program and its entrenched contractor, MHARR will closely monitor allactivities relating to the next monitoring contract solicitation and, if HUD violates basic norms and statutory requirements once again to effectively “steer” a new contract to the current entrenched contractor, the Association will have no alternative but to take further action.
MAJOR UNRESOLVED DODD-FRANK ISSUE RAISES NEW QUESTIONS
While Congress has enacted legislation to eliminate certain restrictions in the original Dodd-Frank finance reform law which prohibited manufactured housing retailers from assisting consumers in the home financing process unless qualified and licensed as “loan originators,” that legislation nevertheless leaves intact – and unresolved – Dodd-Frank restrictions on manufactured home consumer loan interest rates and the statutory designation of loans that exceed those rates as “high-cost” loans, thus triggering additional requirements and/or risks for those lenders. Both the enactment of that loan originator language, however, and the corresponding absence of any interest rate relief – after a full decade of supposed full-scale engagement by part of the industry, leave many open and highly-significant questions for the industry and particularly its post-production sector.
On the one hand, the ten-year delay in securing relief for retailers that wish to provide financing assistance to potential homebuyers – and then, only by divorcing that provision from the interest relief amendment that was also included in the version of the Dodd-Frank reform bill passed in the House of Representatives – raises obvious questions as to: (1) whether such relief could have been obtained more quickly with separate relief bills; (2) why separate relief bills (i.e., one bill for loan origination and a separate bill for interest rate/high-cost loan relief) were not attempted, sought, or advanced previously; and ultimately (3) whether loan originator relief was purposely held captive to “high-cost” relief and thus delayed for years needlessly for the benefit of the industry’s largest corporate conglomerates.
Similarly, industry experts are beginning to question whether the industry’s largest lenders and largest producers are serious about the full and robust implementation of the “Duty to Serve Underserved Markets” (DTS). Specifically, what conceivable incentive do those industry-dominant lenders, in particular, have to demand market-significant securitization support by Fannie Mae, Freddie Mac and FHFA for manufactured home chattel loans – which would likely erode already high interest rates and simultaneously draw additional competing lenders into the HUD Code market – when those current dominant lenders can still seek statutory Dodd-Frank relief from Congress to continue making high-cost loans (or charge even higher rates) with no additional liability risk?
All of this, once again, underscores the lack of accountability of the current “umbrella” industry representation to rank-and-file post-production sector businesses, and the corresponding need for a national, independent, post-production association to represent those businesses.
REACTIVATION OF DOE ENERGY RULE MAY NECESSITATE LEGAL ACTION
As reported by MHARR on June 11, 2018, the revival of a previously “inactive” energy rule for manufactured homes by the U.S. Department of Energy (DOE) may trigger legal action by MHARR on behalf of smaller HUD Code industry businesses.
As MHARR previously advised the industry, the baseless, contrived and excessively-costly DOE-proposed manufactured housing “energy” rule, developed as part of an illegitimate “negotiated rulemaking” process — as shown by documents released by DOE to MHARR under the Freedom of Information Act — was designated an “inactive” rule by DOE in the Fall 2017 Federal Semi-Annual Regulatory Agenda (SRA). That proposed rule, however, has now re-appeared in the Spring 2018 SRA, with a notation indicating that a “supplemental” Notice of Proposed Rulemaking (NPRM) is being targeted for publication by DOE by August 2018.
While there is no information yet as to what the “supplemental” NPRM may propose — or alter from the initial NPRM published by the Obama Administration in June 2016 — MHARR (unlike MHI, which voted in favor of the proposed rule as part of the illegitimate “negotiated” rulemaking process) has consistentlyand strongly opposed this proposed rule, which would needlessly explode the retail price of manufactured housing — by $6,000.00, or more, for a double-section home). A retail price increase of this magnitude would not only effectively force hundreds-of-thousands of potential lower and moderate-income HUD Code purchasers out of the manufactured housing market, based on research conducted by the National Association of Home Builders (NAHB), but would also be a major setback for retailers, communities, finance companies and other post-production sector industry businesses that are just beginning to recover from record-low industry production levels just a few years ago – demonstrating, yet again, the urgent need for an independent, national, collective post-production association.
Furthermore, the phony DOE “cost-benefit” analysis for the 2016 proposed rule, purportedly showing “benefits” for consumers remaining in the market, has been totally invalidated by subsequent actions of the Trump Administration, including: (1) its express disavowal and repeal of the Obama Administration’s invalid “Social Cost of Carbon” (SCC) construct (used by DOE to inflate the alleged benefits of the 2016 proposed rule); and (2) its withdrawal of the United States from the “Paris Climate Accord,” which formed part of the policy basis for the DOE proposed rule.
Consequently, unless the forthcoming “supplemental” NPRM substantiallymodifies and/or withdraws objectionable, unnecessary, and unnecessarily-costly elements of the initial DOE proposed rule, MHARR may have no alternative but to consider legal action to enjoin the enforcement of any resulting “final” rule. Prior to any such court action, however, MHARR (and the industry) will have a further opportunity to comment and take other administrative action, as warranted, with respect to the “supplemental” energy NPRM.
In addition to the revival of the DOE energy rule, HUD announced three regulatory actions in the Spring 2018 SRA impacting manufactured housing. First, HUD has withdrawn a pending “Third Set” of amended HUD Code standards, including recommended standards concerning “carbon monoxide detection, stairways, fire safety considerations for attached garages and duplexes.” Presumably, this action was undertaken pursuant to HUD’s current “top-to-bottom” review of all existing and pending standards and will be subject to further consideration and action as determined by that review.
Meanwhile, HUD has reactivated – on a long-term basis — two other manufactured housing rulemaking proceedings that had previously been suspended under the Trump Administration’s January 2017 regulatory freeze order. These are: (1) an “interim final rule” to amend HUD’s formaldehyde emissions standards based on the new formaldehyde standards adopted by the U.S. Environmental Protection Agency (EPA); and (2) a final rule on amendments to the HUD Code’s regulatory exemption for recreational vehicles. Both of these actions are slated for action by April 2019 and will be addressed further by MHARR on an administrative basis as warranted.