Background

A manufactured home is constructed almost entirely in a factory and  transported to the site where it will be occupied, in contrast to a site-built  home, which is constructed at the site where it will be occupied. Many  manufactured homes are rectangular, wood-framed, aluminum-sided,  single-story structures—commonly known as “mobile homes” or “house  trailers”—built on a metal frame that can be placed on wheels or on the  back of a commercial-grade truck and transported to sites where they are  generally permanently installed. Camping or travel trailers—typically  smaller structures that can be pulled by car or small truck—are another  type of manufactured home but are generally designed to be temporary  dwellings rather than permanent residences.
To implement the National Manufactured Housing Construction and  Safety Standards Act of 1974, the Department of Housing and Urban  Development (HUD) began to issue and enforce standards for the  construction, design, performance, and installation of manufactured  homes to ensure their quality, durability, affordability, and safety. HUD  may enforce these standards directly, or they may be enforced at the  state level. These standards preempt state and local laws that are not  identical to the federal standards and apply to all manufactured homes  produced after June 15, 1976.
Before 1976, there were few provisions for ensuring the safety or quality  of manufactured homes. Many of these older homes were built with little  or no insulation, thin walls and roofs, uninsulated heating and cooling  systems, and inefficient louvered windows (known as jalousie windows).
Further, over time many of these older manufactured homes deteriorated  to the point that their windows and doors no longer seal tightly to protect  the interior from the weather. According to the Maine Housing Authority,  which conducted a study in 2007 of pre-1976 manufactured homes, many  of these older manufactured homes have depreciated to the point where  they have no market value. In addition, officials knowledgeable about  housing and weatherization have stated that some pre-1976  manufactured homes may be unsuitable for weatherization (i.e., making  long-term energy efficiency improvements). For example, these homes  typically have roofs made of thin metal sheets seamed together and walls  built with 2-inch by 2-inch studs; therefore, neither the ceilings nor the  walls can accommodate insulation. In addition, most of these older  manufactured homes are beyond the scope of federal and state  weatherization programs; that is, officials responsible for implementing  these programs have generally determined that such homes have  become too deteriorated to warrant weatherization or are unsafe for  weatherization crews to work on. Approximately 80 percent of older  manufactured homes are in the South and West U.S. Census Regions, as  are approximately 84 percent of newer manufactured homes. Figure 1  shows an example of a manufactured home built before 1976.
As part of the Energy Policy Act of 2005, Congress formally authorized  the Energy Star program to identify and promote energy efficient products  and buildings, including manufactured homes. The Energy Star program  is designed to identify products that deliver the same or better  performance as comparable models while using less energy. An Energy  Star-rated manufactured home is a home that has been designed,  produced, and installed by the home manufacturer to meet Energy Star  requirements for energy efficiency. Such requirements include increased  insulation, tightly sealed air ducts, and Energy Star-qualified windows.  Each Energy Star-rated manufactured home is inspected while it’s being  built in the factory and during on-site installation to verify that it meets  Energy Star standards for energy efficiency.
In addition, Title XXVI of the Omnibus Budget Reconciliation Act of 1981  established LIHEAP to help low-income households—particularly those  with the lowest incomes that pay a high proportion of their household  income on home energy expenditures—pay their home heating and  cooling costs.funding grants to states and other entities that, in turn, provide the funds  to eligible households. States, territories, and tribes and tribal  organizations that wish to assist low-income households in meeting home  energy expenditures may apply for a LIHEAP block grant. These grantees  then provide payments on behalf of the eligible households directly to  energy providers (e.g., utilities), homeowners, occupants, landlords, or  others. Grantees provide LIHEAP assistance to eligible beneficiaries up  to the maximum eligible payment for that beneficiary as determined by  the grantee. Grant funds are distributed in this manner until the grantees’  annual funding has been entirely expended or the fiscal year has ended.  LIHEAP funding, adjusted for inflation, was highest from 1981 to 1986  and from 2009-2011, witnessing a decline in real terms in the years in  between these two periods. For 2012, LIHEAP allocated to state grantees  funding that ranged from about $6.1 million, for Hawaii, to about $375.5  million, for New York. For 2012, LIHEAP allocated to U.S. territory  grantees funding that ranged from about $58.7 thousand, for the Northern  Mariana Islands, to about $4.2 million, for Puerto Rico, and for all tribes  and tribal organizations funding of about $38.4 million.
LIHEAP is a federal block grant program that provides  While the federal government establishes overall LIHEAP guidelines,  each grantee operates its own program. For example, federal law  stipulates that a LIHEAP-eligible household’s income generally must not  exceed the greater of 150 percent of the poverty level or 60 percent of the  state’s median income. However, LIHEAP grantees may not set their  maximum income threshold for applicants below 110 percent of the  poverty level, but they may give priority to those households with the  highest home energy expenditures or needs in relation to income.  LIHEAP grantees may set additional criteria for allocating LIHEAP funding  to recipients. For example, they may give priority to households with  vulnerable occupants, which HHS defines as those who are at least 60  years old, disabled, or 5 years old or younger.
LIHEAP does not require grantees to match federal funds, but some  grantees choose to supplement funds. Grantees also have the flexibility  to use up to 15 percent of their LIHEAP funds—or up to 25 percent under  certain circumstances—for state weatherization programs that provide  funds to improve home energy efficiency, typically by upgrading insulation  and heating and cooling equipment. However, because funds from  LIHEAP, which assists low-income families in reducing their energy bills  by making long-term energy efficiency improvements to their homes, precluded from being used for new construction, they cannot be used to  replace existing homes with newer, more efficient models.
GAO, Home Energy Assistance for Low-Income Occupants of Manufactured Homes,  GAO-12-848R (Washington, D.C.: Aug. 24, 2012). of occupants of older manufactured homes than occupants of detached  homes—15 and 17 percent, respectively.

	Three States Have Replaced Older Manufactured Homes with More Energy Efficient Models

We identified three states––Maine, Montana, and Washington—that have  used a combination of state and federal funds to conduct pilot programs  that replaced older manufactured homes with more energy efficient  models. The three programs were relatively small, accounting for about  $4.5 million in spending and responsible for replacing 81 homes, over  about 2 years. The programs differed in program requirements, the types  of financing used, and the types of replacement homes used.
Maine. Maine has conducted one replacement pilot and has one ongoing  program. Maine Housing Authority’s (MaineHousing) replacement pilot— conducted from November 2008 through August 2010—was the largest- scale pilot we identified to replace older manufactured homes. Under the  pilot, Maine replaced 35 older manufactured homes with new, Energy  Star-rated manufactured homes. The program was funded with  approximately $2 million in state funds provided by the Housing  Opportunities for Maine (Maine HOME) Fund along with $148,000 in  mortgage financing from MaineHousing’s Home Mortgage Program.
According to Maine officials, the intent of the program was for the  beneficiary to secure a 30-year first mortgage at a 5.25 percent interest  rate with Home Mortgage Program funds for part of the cost of the  replacement home and a second deferred mortgage with the Maine  HOME funds for the balance—deferred in this case meaning that  beneficiaries made no interest or principal payments if they stayed in the  home. However, of the 35 beneficiaries, 9 could afford the 30-year first  mortgage. Loans for these 9 beneficiaries ranged from $8,000 to $40,000,  which covered an average 24 percent of the cost of their replacement  homes, with the balance covered by the second, deferred Maine HOME  mortgage. For the remaining 26 beneficiaries who were unable to afford  the 30-year first mortgage, the replacement was wholly funded using a  Maine HOME deferred mortgage. Under either loan structure, no down  payment or application fee was required. According to Maine officials,  potential beneficiaries were selected with input from community action  agencies and were drawn from LIHEAP rolls. To be eligible,  beneficiaries’ manufactured homes were required to have been built  before 1976 and deemed unsuitable for weatherization. Beneficiaries  were also required to own the land on which the home was situated. The  first pilot ended in 2010 when all the available funding was used, and  officials told us they have another pilot ongoing.
Montana. Montana’s replacement pilot—conducted from December 2008  through September 2010—replaced 19 manufactured homes with more  energy efficient models. It was initially conceived not as a pilot, but as an  ongoing program; however, when private underwriting for loans for  replacement homes could not be secured, the program was turned into a  pilot. Under the pilot, beneficiaries received a replacement home using a  combination of state funds and federal grant funds. Total funding for the  program was approximately $804,448 and consisted of $354,886 from the  state’s general fund and about $449,562 funded by a combination of  Montana Board of Housing first-time homebuyer assistance and the U.S.  HUD’s HOME Investment Partnerships (HUD HOME) Program. Funding  for each replacement home was determined on a case-by-case basis.  Under the program, money from Montana’s general fund was used to  provide direct, 15- to 20-year loans at a 2 percent interest rate for all  program beneficiaries, which beneficiaries were required to repay in full  with monthly payments. Based on the beneficiaries’ ability to pay, these  loans ranged from $9,500 to about $20,000. The remainder of the  financing was provided using HUD HOME and Montana Board of Housing  funds, which the beneficiary was not required to pay back as long as they  complied with program rules, such as the requirement that beneficiaries’  homes be owner-occupied. Potential beneficiaries were identified through  community outreach by participating community action agencies based  on the condition of the homes and household income and the presence of  vulnerable occupants. Unlike Maine, the pilot did not require the  beneficiary to own the land on which the home was situated but required  that the beneficiary’s lease on the land exceed the terms of the loan.  Montana’s pilot was unique among the pilots we reviewed in that nearly  half of the replacement homes were previously owned manufactured  homes. Officials told us they chose to purchase previously owned homes  to reduce costs. In addition, unlike the other state pilots we reviewed,  Montana’s pilot did not require replacement homes to be Energy Star  rated; however, according to program officials they were generally  significantly more energy efficient than the homes they replaced. The pilot  ended in October 2010, when it had used all the available funds. Montana  officials told us they have no immediate plans to make the pilot an  ongoing program or to conduct another pilot.
Washington. Washington’s replacement pilot—conducted from July 2008  through March 2009—replaced 27 manufactured homes with new,  Energy Star-rated manufactured homes. The pilot was funded by a $2  million grant funded by HUD’s HOME Program. Under the pilot,  beneficiaries received a deferred, forgivable 15-year loan, which required  no down payment and no monthly payments on the loan. Like  Montana’s pilot, the beneficiary was not required to own the land on  which the home was situated; however, unlike Montana, the pilot required  the beneficiary to have only a 1-year lease on the land. Initially, each  project was limited to $60,000 total cost; however, in some cases, utility  upgrades and other costs necessitated granting waivers to the investment  limit and making amendments to replacement contracts. Like Montana’s  and Maine’s pilots, potential beneficiaries were selected with input from  participating community action agencies from a list of occupants who  were vulnerable (e.g., older individuals and families with young children)  and whose homes were in need of weatherization assistance but were  deemed to be beyond repair. The pilot ended in March 2009 when all the  available funding was used. State officials told us that they would like to  make the pilot an ongoing replacement program or conduct another pilot,  but that they have no immediate plans to do so because of a lack of  funding sources, among other challenges.
Table 1 provides a comparison of the three replacement programs.

	States Reported Facing Challenges, Including Difficulty Finding Potential Beneficiaries Who Were Eligible and Willing to Participate

Officials from all three state replacement pilot programs and  representatives of organizations and agencies that aided these programs  told us that they faced three key types of challenges: (1) many potential  beneficiaries were not eligible to participate; (2) some potential  beneficiaries were not willing to participate; and (3) other logistical  challenges, such as finding suitable replacement homes within a  reasonable distance to transport them to beneficiaries, which resulted in  higher costs.
Specifically, officials and representatives of organizations and agencies  that aided these programs told us that many potential beneficiaries were  not eligible to participate for three key reasons:
Liens on their property. Officials in Maine with an agency helping to  identify potential participants told us that their program stipulated that  potential beneficiaries could not have any liens—such as outstanding  property taxes or sewage fees, or foreclosure proceedings—on the  property that would receive the replacement home. They told us that a  property with a lien had a higher risk of foreclosure. These officials  told us that, as a result, many potential beneficiaries were disqualified  due to liens on their properties.
Did not own or have a long-term lease for the land. In Maine, potential  beneficiaries were required to own their properties and, in Montana,  they were required to have long-term leases. Officials from these  programs told us that these policies were intended to improve the  likelihood of beneficiaries staying in their replacement homes.  However, these officials told us that many potential beneficiaries were  disqualified because they lived in manufactured home parks, where  lots are typically held on shorter-term leases.
Poor credit histories. Officials from all states told us that, in some  cases, potential beneficiaries’ credit histories, which made them  ineligible for any loan, were so poor that it was deemed too risky to  enroll them in the replacement program.
In addition, these officials and representatives of organizations and  agencies that aided these programs told us that, in the pool of eligible  potential beneficiaries, some were unwilling to participate because they  were:
Mistrustful of program’s legitimacy. Some potential beneficiaries were  doubtful that such a program would be legitimate. For example, one  organization assisting with the program in Montana told us that they  spent a lot of time in the early stages of the replacement program  convincing potential beneficiaries that the pilot was not a scam. In  Washington and Maine, where some community action agencies had  already replaced dilapidated homes, they told us that trust in the  larger program was not a significant issue.
Unwilling to take on any debt. One official in Maine and an  organization assisting with the program in Montana told us that some  potential beneficiaries, especially among the elderly population, were  just not willing to take on new debt regardless of the poor condition of  their home, and there were no loan terms under which they would  accept a replacement home.
Unwilling to move from their current location. Older manufactured  homes are typically smaller than new ones, so many replacement  homes were larger than the homes they replaced. In some cases–– particularly when homes were located in older manufactured home  parks––the replacement homes would not fit on the lots. In some  cases, organizations assisting in programs told us that they were able  to find another location, but it would have required a move to a new  school district, which caused some potential beneficiaries with school- aged children to choose not to participate in the program.
Unwilling or unable to pay tax increases. Some potential beneficiaries  may be unwilling, or unable, to pay the increased property taxes that  would result from the increased value of their homes. For example, a  Maine official described a situation where a potential beneficiary’s  home was built in 1957 and had no taxable value, so property taxes  were assessed solely on the value of the land. After replacement, the  sales value of the new home would be added to the land value, and  the beneficiary’s property taxes would have tripled. Because this  potential beneficiary could not afford this tax increase, he or she  chose not to participate.
Officials from all three pilots also identified other challenges that were  primarily logistical in nature. For example, a representative assisting the  Montana program told us that it was difficult and time-consuming to find  suitable replacement homes within a reasonable distance to transport  them to beneficiaries. In addition, in Maine, where the homes to be  replaced were required to have been built before 1976, officials told us  they faced difficulties in confirming the date of construction of some  homes. Officials from all three pilots told us that some of these logistical  challenges would translate into higher costs. For example, officials in  Washington and Montana told us that many of their administrative costs  were not covered by the program funding. These officials told us they  were willing to take on these costs under a pilot, but that their  administrative costs would have to be covered if the pilot became an  ongoing program. A representative assisting the Montana program told us  that some replacement homes were damaged during transport, leading to  additional costs. In addition, representatives knowledgeable of the  replacements in all three states told us that some replacement homes  required unforeseen additional ad hoc construction such as wheelchair  ramps or updates to utilities.

	Energy Savings Alone Did Not Fully Offset the Costs of Replacing Older Manufactured Homes, but Replacements May Have Had Other Benefits

In the three replacement pilot programs we examined, the energy savings  alone were not sufficient to fully offset the costs of replacing older  manufactured homes, but program officials told us that these programs  were not specifically focused on doing so and that they had health and  welfare benefits for beneficiaries. Specifically, the two programs that  maintained information on energy use and estimated savings spent an  average of about $56,119 per unit to replace each older manufactured  home and estimated about $489 in annual energy savings per home.
The average cost of replacement homes varied across the three  programs we examined. The least costly program we examined was  Montana’s, which replaced some older manufactured homes with used,  but newer and more energy efficient models, with an average cost of  about $42,339 per home. Maine’s replacement program was the most  costly but replaced homes with new Energy Star-qualifying homes, and  cost about $62,024 per home. Officials from all three programs noted that  the costs of a specific replacement can vary widely depending on whether  other site-specific steps are required, such as installing foundations and  upgrading utilities. Because of the varied costs, and the varying extent to  which programs tracked and recorded those costs, we were not able to  consistently compare total replacement costs across programs. Table 2  provides a comparison of the number of replacements, cost per  manufactured home, and estimated annual energy savings, where data  were available.
Officials reported that the replacement homes in these programs were  significantly more energy efficient, resulting in improved quality of life for  the beneficiaries and significantly lower projected energy costs on a  square foot basis; however, officials in all three states said these energy  savings alone were generally not sufficient to pay for the cost of the  replacement over a typical loan period. In the case of Maine and  Montana, where some beneficiaries paid a monthly payment toward the  cost of their replacement homes, those payments may slightly reduce the  total cost of the program. However, in both cases, officials told us that  those payments were so small that they had little impact in offsetting the  overall total replacement costs across the program, though they may  have offset the costs of a specific replacement.
In addition, we analyzed costs and projected energy savings for individual  replacement homes where data were available, and we found the data  confirmed that the energy savings were not sufficient to recover the costs  of replacing the homes over a typical loan period.Montana—where the average replacement cost was $42,339—the  average projected energy savings on a replacement home were  estimated to be $1,070 per year. In Maine—where the average cost was  $62,024, the post-replacement energy savings were approximately $240  per year. Newer manufactured homes are often larger, so the total annual  home energy costs increased for some beneficiaries; which may account  for the lower average energy savings in Maine, where all replacement  homes were new. For example, there were six cases in Maine where  annual home energy costs increased by at least $300 per year after  replacement, and three of those six cases increased by more than $500  per year. According to Maine officials, these could have been cases  where a beneficiary’s existing one-bedroom home was replaced by a  new, two- or three-bedroom home. Nonetheless, there were eight cases  in Maine where annual energy costs decreased by more than $500.  Officials overseeing the program in Washington state did not track  estimated or actual energy savings and, as a result, we were not able to  examine those figures for Washington. Washington state officials told us  they did not collect data on home energy costs before and after  replacement because the programs were focused on improving housing  and not on energy savings.
In addition, these state-funded replacement programs were not designed  to help save LIHEAP funds. Because the eligibility for and level of  LIHEAP benefits are determined primarily by income, replacing older  manufactured homes does not eliminate the beneficiaries’ eligibility for  LIHEAP benefits. State officials informed us that, in virtually all cases, the  beneficiaries of the replacement programs continued to qualify for and  receive LIHEAP benefits. As a result, the replacement of older  manufactured homes with newer, more efficient homes may not eliminate  the need for assistance to recipients in paying their energy bills.
Nonetheless, state officials told us that these replacement programs were  not specifically designed for energy savings to offset replacement costs,  and some officials told us that energy efficiency gains were secondary to  the health and welfare benefits of getting occupants into safer, more  weather-tight manufactured homes. Program officials cited less  measureable benefits of replacement, including fewer trips to the doctor,  greater physical security; improved safety in the home, especially for  vulnerable beneficiaries; and strengthened community identity. For  example, they told us that beneficiaries of replacement homes reported  being sick less often, reducing the beneficiary’s health bills and—as all  beneficiaries were below the poverty level—public health costs. State  program officials we spoke with had not quantified these benefits.

	Agency Comments and Our Evaluation

We provided a draft of this report for review and comment to HHS. HHS  provided technical and clarifying comments, which we incorporated as  appropriate.
We are sending copies of this report to the appropriate congressional  committees, the Secretary of Health and Human Services, and other  interested parties. In addition, this report is available at no charge on the  GAO website at http://www.gao.gov.
If you or your staff members have any questions about this report, please  contact me at (202) 512-3841 or ruscof@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff members who made major  contributions to this report are listed in appendix I.

Appendix I: GAO Contact and Staff Acknowledgments

	GAO Contact

	Staff Acknowledgments

In addition to the contact named above, GAO staff who made key  contributions to this report were Jon Ludwigson, Assistant Director;  Michael Kendix; Alison O’Neill; Cheryl Peterson; Kelly Rubin; James W.  Turkett; and Jarrod West.

Summary:
Why GAO Did This Study

Approximately 2 million of the nations 130 million housing units are manufactured homes (i.e., mobile homes) that were built before 1976. These older manufactured homes are generally considered to have some of the poorest energy efficiency of all housing units. Many of the occupants of these homes qualify for federal assistance to help pay their energy bills through the U.S. Department of Health and Human Services Low Income Home Energy Assistance Program. A portion of this programs funds can be used to improve the energy efficiency of these homes; however, program funding may not be used for new construction, or replacing existing homes. Some states have conducted pilot programs to replace older manufactured homes with newer, more energy efficient models.
GAO was asked to identify and review state programs and the extent to which they may be cost-effective based on reduced energy costs. For this report, GAOs objectives were to (1) identify states that have funded replacement programs and describe these programs; (2) identify challenges, if any, these states reported facing in implementing these programs; and (3) determine the extent to which these programs resulted in energy savings sufficient to offset replacement costs. To address these objectives, GAO surveyed all 50 states and the District of Columbia, examined data from pilot programs spanning about 2 years, and interviewed officials from three state-based programs.
HHS provided technical and clarifying comments, which GAO incorporated as appropriate.

What GAO Found

GAO identified three statesMaine, Montana, and Washingtonthat have developed pilot programs focused on replacing older manufactured homes using a combination of state and federal funds. The three programs were relatively small, accounting for about $4.5 million in spending and responsible for replacing 81 homes, over about 2 years. The programs differed in requirements, including whether the land that the replacement home would occupy had to be owned or could be leased; the types of financing used, with some replacements requiring recipients to take on a partial mortgage; and the types of replacement homes.
Program officials and representatives of organizations that aided them from the three state replacement pilot programs identified three key types of challenges in implementing these programs. First, they told GAO that many potential beneficiaries were not eligible to participate because (1) they had liens on their existing properties, (2) they did not own or have a long-term lease for the land the homes would be placed on, or (3) their credit histories made them ineligible for any type of loan. Second, these officials told GAO that some potential beneficiaries were unwilling to participate because they were: (1) mistrustful that such a program would be legitimate; (2) unwilling to take on any debt, regardless of the poor condition of their home; (3) unwilling to move from their current location; or (4) unwilling to take on increases in property taxes resulting from increased home value. Third, they identified challenges that were primarily logistical in nature, such as the need to construct wheelchair ramps or update utilities, which could raise the cost of replacement.
In the three pilot replacement programs GAO examined, the energy savings did not fully offset the costs of replacing older manufactured homes over a typical loan period. The two programs that maintained information on energy use and estimated savings spent an average of about $56,119 per unit to replace each older manufactured home and estimated about $489 in annual energy savings per home. The average cost of replacement homes varied across the three programs GAO examined. The least costly program GAO examined was Montanas, which replaced some older manufactured homes with used, but newer and more energy efficient models, with an average cost of about $42,339 per home. However, state officials told GAO that these replacement programs were not specifically focused on energy savings and that energy efficiency gains were secondary to the health and welfare benefits of getting occupants into safer, more weather-tight manufactured homes.