Manufactured Housing:

Efforts Needed to Enhance Program Effectiveness and Ensure Funding Stability

GAO-14-410: Published: Jul 2, 2014. Publicly Released: Aug 1, 2014.

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What GAO Found

HUD has established a process for updating the preemptive building standardsfor manufactured homes known as the HUD Code but has not fully met key purposes of the 2000 Manufactured Housing Improvement Act (2000 Act). Key purposes of the Act include:
  • Establish a balanced, consensus-based process to update manufactured housing construction and safety standards. HUD has not accepted, rejected, or modified any of the Manufactured Housing Consensus Committee’s recommendations for updating the HUD Code within 1 year of their submission. The 2000 Act requires HUD to act on the committee’s recommended standards within 1 year if they were submitted in the form of a proposed rule with an economic analysis. According to HUD, because the committee did not include economic analyses in the proposals, HUD staff performed this task. They also stated because the proposals lacked the analyses, the Act’s 1-year timeline was not triggered. In some cases, HUD has not decided on recommendations made more than a decade ago and lacks a plan to address the backlog. Meanwhile, some states’ and localities’ residential building codes require standards not in the HUD Code, resulting in post-production upgrades that may increase costs to homeowners. Not updating the HUD Code delays its intended benefit—to improve the quality, durability, safety, and affordability of manufactured homes.
  • Facilitate the availability of affordable manufactured homes. Owners of manufactured homes have lower monthly housing costs than site-built owners and apartment renters, but high financing costs often keep these homes from being even more affordable. HUD’s Federal Housing Administration (FHA) has two insurance programs for manufactured home loans. Although most manufactured homes are titled or owned as personal property, HUD’s programs primarily insure loans on manufactured homes financed as real estate. Additionally, owners of manufactured homes are more likely to have higher-priced financing than owners of site-built homes. The 2000 Act required HUD to review the effectiveness of the FHA programs, but HUD has not developed a plan to do so. Such research would help HUD determine whether and how it might further facilitate the availability of affordable manufactured homes.
The 2000 Act establishes HUD’s authority to collect fees for certification labels on manufactured homes built to the HUD Code. The fees are placed in the Manufactured Housing Fees Trust Fund that provides annual appropriations to fund the expenses of the Manufactured Housing Program. The current fee rate does not produce sufficient collections to fully fund the program’s expenses and must be supplemented by annual appropriations from Treasury’s General Fund. HUD has indicated its intent to raise the label fee, which currently stands at $39. As we provided a draft of this report, HUD issued a proposed rule to increase the label fee, but has not yet completed the rulemaking process. It has also not fully assessed the feasibility and benefits of putting in place other fees authorized by recent appropriation acts, in part, because it has carryover balances from past years. Without more fee revenue, however, the program will continue to require Treasury’s General Fund appropriations.
 

Why GAO Did This Study

Manufactured housing traditionally has been a low-cost option in the U.S. housing market. For nearly 40 years, HUD has provided standards for the manufactured housing industry by developing and updating the HUD Code. The 2000 Act was intended, among other things, to establish a balanced consensus process for updating the standards and regulations for enforcing them and to encourage manufactured housing as an affordable option. GAO was asked to study HUD’s implementation of the 2000 Act.
 
This report addresses, among other things, the extent to which HUD has met key purposes of the 2000 Act and assesses whether user fees cover program costs. GAO interviewed and collected data for 2000-2013 from HUD, other agencies, and industry groups. GAO also visited large and small plants that built manufactured housing to solicit industry perspectives.
 

What GAO Recommends

GAO makes several recommendations, including that HUD develop and implement a plan for updating construction and safety standards in a timely fashion; develop a plan to assess how FHA financing might further manufactured home affordability; complete label fee rule-making; and assess the need for other user fees. Of these, HUD agreed with the first recommendation and partially agreed with the next two because it believes it has already taken actions. HUD stated it would consider the last recommendation. GAO continues to believe these recommendations remain valid as discussed in the report.

For more information, contact Mathew J.Scirè at (202) 512-8678 or sciremj@gao.gov.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In response to this recommendation, as of March 2018, HUD awarded a new administering organization of the Manufactured Housing Consensus Committee (MHCC) in June 2014. Although MHCC has held in-person, teleconference, and subcommittee meetings in 2015 and 2016 and has some planned for 2018, updates to construction and safety standards have continued to not be done in a timely manner. However, HUD officials outlined recent steps to develop a plan to implement more timely changes. First, HUD has included an option in its contract with the administering organization to conduct economic analyses for proposed changes, when deemed helpful by HUD. Second, HUD officials stated they have engaged in efforts to streamline the regulatory process for manufactured home construction and safety standards by exploring the possibility of implementing an expedited approval process within HUD. Third, as part of the overall HUD effort to review regulations, officials stated that they are currently conducting a review of current and planned federal regulations for manufactured housing with the goal to facilitate the affordability of manufactured housing and to promote durable, safe, and cost effective construction techniques for manufactured homes. Fourth, in response to Executive Order 13771 on "Reducing Regulation and Controlling Regulatory Costs,'' and Executive Order 13777 entitled, ''Enforcing the Regulatory Reform Agenda," HUD sought public comment in January 2018 to determine outdated, ineffective, or excessively burdensome regulations related to the manufactured housing program. The comment period ended in February 2018. HUD received approximately 151 comments, which are currently under review. HUD does not anticipate moving forward with any manufactured housing regulations until it completes its review. By taking steps to develop and implement a plan for updating manufactured home construction and safety standards, HUD can begin to address needed updates in a timely manner.

    Recommendation: To better ensure the viability and safety of manufactured housing produced in accordance with the HUD Code, the Secretary of the Department of Housing and Urban Development (HUD) should develop and implement a plan for updating construction and safety standards for manufactured homes on a timely, recurring basis to include: (1) addressing unresolved issues related to defining and developing sufficient economic analyses tied to proposed changes to the construction and safety standards; and (2) ensuring sufficient resources and capacity within HUD and the Manufactured Housing Consensus Committee and its administering organization; or if such a plan cannot be devised and implemented, identify and report to Congress on alternative methods of ensuring the quality, durability, safety, and affordability of manufactured homes, including the possibility of relying more extensively on existing industry standards.

    Agency Affected: Department of Housing and Urban Development

  2. Status: Open

    Comments: According to HUD officials, Ginnie Mae and FHA met to discuss their manufactured housing programs and produced a white paper. Once we receive a copy of the white paper, we will determine if it addresses our recommendation.

    Recommendation: To better ensure the viability and safety of manufactured housing produced in accordance with the HUD Code, the Secretary of the Department of Housing and Urban Development should develop a plan to assess how FHA financing might further promote the affordability of manufactured homes and identify the potential for better securitization of manufactured housing financing.

    Agency Affected: Department of Housing and Urban Development

  3. Status: Closed - Implemented

    Comments: HUD has taken the following steps to address this recommendation. First, the Office of Manufactured Housing Programs maintains that it has significantly increased its diligence in its oversight of inspections and enforcement-related activity. HUD states that its Office of Manufactured Housing Programs has created master logs tracking various inspection and enforcement-related activity and the office has taken follow-up actions to resolve recommendations from completed audits, and ensure documentation of enforcement outcomes. These logs track program actions related to inspection findings, which helps to identify systemic issues and other production-related issues by manufacturers, according to HUD. By taking steps to strengthen the oversight of inspections and enforcement-related activities, HUD is helping to ensure that issues identified during the inspection and enforcement processes are being resolved and that federal construction and safety standards for manufactured homes are uniformly and effectively applied. Second, HUD reported that it accepted and approved a Transition Plan from its monitoring contractor providing inspection services. As we reported in July 2014, HUD's monitoring contractor for the Manufactured Housing Program did not provide a required deliverable, a Transition Plan, for the completed contract period from July 2011 through July 2012. The Transition Plan was intended to provide a plan for transferring all data and property associated with the contract to HUD or to a new contractor should HUD decide to assume the activities of the contract or transfer them to another contractor. After sending a draft of our report to the agency for comment, HUD accepted a Transition Plan from its monitoring contractor in May 2014. Although the plan was provided after the contract period, a completed transition plan helps to strengthen the oversight of inspections and enforcement-related activities by outlining provisions for sufficient staffing, transition of data and records, and transition of contracted services. Third, HUD stated that the Office of Manufactured Housing Programs has developed and implemented a tracking log to collect and evaluate information on the content of complaints received and to ensure prompt follow through to address or resolve the complaint issues. HUD provided copies of these logs. Moreover, HUD explained that less than 10 percent of manufactured home production occurs in the 15 states in which it has jurisdiction, which impacts the complaint volume that HUD receives directly. HUD further explained that 35 states have state-approved administrative entities that are responsible for conducting periodic checks on manufactured home plant records and managing and processing complaints in these states. HUD is only notified of complaints in these states if a serious defect or imminent safety hazard is involved or if manufactured home plants in more than one state are involved. By implementing a systemic complaint log, HUD has taken steps to assess the quality of performance over time, including identifying and correcting deficiencies within established timeframes.

    Recommendation: To better ensure the viability and safety of manufactured housing produced in accordance with the HUD Code, the Secretary of the Department of Housing and Urban Development should strengthen the oversight of inspections and enforcement-related activities by (1) consistently documenting actions taken to resolve recommendations from completed audits and the outcome of such actions, (2) completing a Transition Plan for the monitoring contractor activity, and (3) exploring the feasibility of developing a cost-effective systematic process for collecting and evaluating information on the content of complaints.

    Agency Affected: Department of Housing and Urban Development

  4. Status: Closed - Implemented

    Comments: On August 13, 2014, the Department of Housing and Urban Development (HUD) published a final rule that increased its revenues for the Program by implementing a user fee increase from $39 per manufactured home unit to approximately $100 per unit. The final rule became effective in September 2014. As of March 2018, HUD stated the label fee is adequately funding the program within congressionally authorized and appropriated levels. Further, HUD maintains that the label fee is reviewed by the Office of Manufactured Housing Programs on a regular basis to ensure that label fee revenue can continue to adequately fund the program.

    Recommendation: To better ensure that Congress, stakeholders, and agencies have complete information about changing costs and whether a fee needs to be changed, HUD should complete the necessary rulemaking changes to allow the Office of Manufactured Housing Programs to adjust its label fees from the $39 per label toward levels up to the congressionally authorized level that better reflect the current levels of manufactured home production, while considering the impact that such fees may have on the industry; put in place a process for regular fee reviews to determine whether the fees currently being charged will allow the program to respond to spikes and surges in label fee revenue and to identify any factors that may drive label fee revenue instability; and identify any additional sources of funding that may mitigate initial revenue shortfalls and the program's fixed and variable costs.

    Agency Affected: Department of Housing and Urban Development

  5. Status: Open

    Comments: As of March 2018, HUD stated that the Office of Manufactured Housing Programs continues to work toward fully implementing both the installation and dispute resolution programs in the default states using two new contractors for these purposes. As the implementation of these programs continues to mature, HUD stated that its Office of Manufactured Housing Programs will be monitoring program requirements and service delivery and gathering data that it can use in assessing the feasibility of putting in place user fees for these programs. We will continue to monitor HUD's progress in implementing our recommendation.

    Recommendation: To better ensure that Congress, stakeholders, and agencies have complete information about changing costs and whether a fee needs to be changed, HUD should assess the feasibility, including an analysis of the benefits and costs, of putting in place user fees for its dispute resolution and installation programs.

    Agency Affected: Department of Housing and Urban Development

  6. Status: Open

    Comments: In response to this recommendation, as of March 2018, HUD plans to consider user fee reserve best practices in evaluating any carryover balances and developing future operating budgets for its manufactured housing programs. The Office of Manufactured Housing Programs plans on reviewing best practices and determining next steps ideally by the end of Fiscal Year 2019. We continue to believe that setting clear goals for the reserve and clarifying how those reserves will be used helps ensure accountability and transparency both to Congress and users of fee-based programs. We will continue to monitor HUD's progress in implementing our recommendation.

    Recommendation: To better ensure that Congress, stakeholders, and agencies have complete information about changing costs and whether a fee needs to be changed, HUD should establish the goals for use of reserves of the Manufactured Housing Fees Trust Fund, and the minimum and maximum thresholds for the reserves appropriate for meeting these goals.

    Agency Affected: Department of Housing and Urban Development

 

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