Manufactured Housing: Efforts Needed to Enhance Program Effectiveness and Ensure Funding Stability
Published: 2014-07-02T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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.
section_title: What GAO Recommends
paragraphs: 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.

section_title: Letter
paragraphs: Manufactured housing, which is factory built and can be relatively  inexpensive, has long been seen as an affordable option for some  homeowners. For four decades, the Department of Housing and Urban  Development (HUD) has regulated the manufactured housing industry  through its Manufactured Housing Program. In 2000, Congress enacted  the Manufactured Housing Improvement Act of 2000 (2000 Act) to help  facilitate the availability of affordable manufactured homes as a significant  resource for affordable homeownership and rental housing. The Act had  many purposes, including protecting the quality, durability, safety, and  affordability of manufactured homes and establishing a balanced  consensus process for setting standards and related regulations for  enforcing those standards. The 2000 Act created a new entity, the  Manufactured Housing Consensus Committee (MHCC), which would be  responsible for developing proposed revisions to the construction and  safety standards and forwarding them to the HUD Secretary.
In 1998, the number of manufactured homes that manufacturers shipped  to sites across the country reached a high of over 373,000 since the  Manufactured Housing Program was established in 1974. However, a  focus on increasing sales volume without fully considering borrowers’  creditworthiness led to a large number of repossessions from 2000 to  2002. Further, in 2000 many manufacturers and lenders for manufactured  homes began exiting the market. Since 2000, the number of homes  shipped has declined dramatically, falling to under 50,000 in 2009. The  contraction in the manufactured housing industry was further  compounded by the broader collapse in home purchases after 2007.
Further, in recent years Congress, industry representatives, and MHCC  members have raised questions about the process for updating the  federal code governing manufactured housing—HUD’s Manufactured  Housing Construction and Safety Standards, or the HUD Code. In  October 2012, we found that HUD had not adopted any changes to the  HUD Code since 2005 and that 84 recommendations forwarded by the  MHCC were still awaiting HUD rulemaking actions. In December 2013,  HUD published a final rule that considered and discussed some of the  MHCC recommendations, and adopted some. As of May 2014, however,  HUD was still considering many of these MHCC recommendations,  according to HUD officials.
You asked that we examine HUD’s implementation of the 2000 Act and  its process for collecting and administering program fees. This report (1)  describes the availability, use, and affordability of manufactured homes;  (2) assesses whether certain purposes set forth in the 2000 Act have  been met, including (a) establishing a balanced process to update  manufactured housing construction and safety and construction  standards, (b) facilitating the availability of affordable manufactured  homes, and (c) ensuring uniform and effective enforcement of the  manufactured housing standards; and (3) examines whether the funds  and fees used to administer HUD’s Manufactured Housing Program are  sufficient to cover program costs.
subsections: section_title: Scope and Methodology
paragraphs: To describe the availability, use, and affordability of manufactured  housing, we reviewed and analyzed data from the U.S. Census Bureau’s  Manufactured Homes Survey (MHS) from 2000 to 2013 and 2011  American Housing Survey (AHS) on the production and location of  manufactured housing and the characteristics of owners. We also  compared the costs to occupants of manufactured homes with the costs  of other housing choices, using available 2012 data—the most recent  data available—from the Home Mortgage Disclosure Act (HMDA)  database. By assessing related documentation, we found these data to  be sufficiently reliable for the purposes of describing manufactured  housing production trends and the affordability and financing of  manufactured homes. Additionally, we visited large and small  manufactured housing plants in Indiana and Pennsylvania, selected for  their size and proximity to our offices, where we obtained information on  factors affecting the cost of manufactured home sales.
To assess whether the HUD Manufactured Housing Program was  meeting the Act’s intent for establishing a consensus process for  developing, revising, and interpreting standards, we reviewed:
Federal Register Notices from HUD, from 2002 until 2013, to  understand the creation of the MHCC;
MHCC documents, such as available meeting minutes and voting  ballots from 2002 until 2013 to assess the timing and topics of MHCC  recommendations to HUD; proposed and final rules from 2002 until 2013 to assess the status of documentation of HUD’s efforts to ensure the operation of the MHCC  and rulemaking process, such as the contract for the administering  organization and related documents; and
HUD’s staffing and other resources allocated to the program.
We also interviewed HUD officials, six manufacturers in Indiana and  Pennsylvania, industry representatives, and MHCC officials to obtain their  views on the process for updating the standards. We compared this  process with similar processes for establishing widely accepted industry  construction standards for residences and interviewed officials from the  International Code Council (ICC), the private standard-setting  organization that develops model building codes for homes other than  HUD manufactured homes.
To assess HUD’s efforts to facilitate the availability of affordable  manufactured homes, we collected and analyzed fiscal year 2012 data  from Federal Housing Administration (FHA) loan programs. By assessing  related documentation and interviewing agency officials, we found these  data to be sufficiently reliable for the purposes of this report. By reviewing  the number of purchase loans reported we were able to examine the  extent to which these programs supported loans for manufactured homes  and compared FHA’s support for manufactured and site-built homes,  using 2012 HMDA data. Because 2012 HMDA data do not distinguish  between the types of loans made for manufactured homes (such as  chattel or personal property loans, which are often used for manufactured  homes, and mortgage loans), we were not able to assess the  characteristics of different types of loans. We also collected and  reviewed research on manufactured housing from HUD and other  organizations on the affordability of manufactured homes. We interviewed  HUD officials from the Office of Manufactured Housing Programs and the  Office of Policy Development and Research (PD&R) to assess HUD’s  efforts and plans to promote the availability of these homes. Additionally,  we obtained information from consumer organizations and interviewed  four of the largest lenders, based on HMDA data, which provided loans to  owners of manufactured homes, to understand the availability of financing  for manufactured homes and to obtain the lenders’ perspective on any  challenges involved in financing these homes.
To assess the HUD Manufactured Housing Program’s ability to oversee  enforcement of the HUD Code, we collected audits from HUD’s  monitoring contractor from August 2011 to August 2012 to determine  whether audits for all plants had been completed as required and  evaluated how HUD had used the information from the audits. We also  reviewed HUD’s policies, procedures, and mechanisms for enforcing the  HUD Code. Finally, we obtained information from program officials and  state administrative agencies, interviewed officials of manufacturers that  we visited representing large and small manufacturing facilities, and  discussed enforcement issues with manufactured housing trade  associations.
To examine funding for the Manufactured Housing Program, we reviewed  programmatic data found in HUD’s operating plans for the program for  fiscal years 2009 through 2013. We reviewed annual appropriations,  yearly program obligations, program carryover balances, and revenues  raised from the collection of label fees during that period and checked  these figures against those stated in both HUD’s yearly budget  justifications and congressional appropriations acts. We obtained agency  data on the use of program obligations and interviewed officials from  HUD’s Offices of Manufactured Housing Programs and Budget to  understand the agency’s goals and strategies for maintaining the program  and the Manufactured Housing Fees Trust Fund, and efforts to assess  the appropriate level of label fees and the feasibility of instituting other  authorized user fees. We compared these practices with those found in  our user fee guide and previous GAO reports. Finally, we interviewed  manufactured home manufacturers to obtain industry views on the  potential effects of any label fee increases and reviewed statutory and  regulatory guidance related to the collection and use of user fees.
We conducted this performance audit from January 2013 through May  2014 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
section_title: Background
subsections: section_title: The National Manufactured Housing Construction and Safety Standards Act of 1974 and Manufactured Home Construction and Titling
paragraphs: HUD is responsible for enforcing the federal manufactured home  construction and safety standards that it established under the National  Manufactured Housing Construction and Safety Standards Act of 1974  (1974 Act). The 1974 Act authorized HUD to develop construction and  safety standards for manufactured homes and to oversee the  enforcement of the standards through inspections and reviews of building  plans. HUD developed the Manufactured Housing Construction and  Safety Standards, commonly known as the HUD Code, basing them in  substantial part on the National Fire Protection Association (NFPA)  standards for manufactured homes (NFPA 501). The HUD Code was  implemented in 1976, and replaced the state-by-state patchwork of  regulations that existed prior to 1976 with one set of rules that all  manufactured home builders must meet. The HUD Code is applied  nationwide and preempts state and local codes. As a result, state and  local building authorities may not apply their own codes to manufactured  homes for components covered by the HUD Code.
Unlike site-built homes, which are constructed at their permanent  locations, manufactured homes are constructed in factories and must  have a permanent chassis that allows them to be moved to retailers and  consumers in different states and localities. Manufactured homes can be  single-section or multi-sectional units with two or more sections (as  shown in fig. 1). Manufactured homes can be placed on temporary or  permanent foundations (see fig. 2).
Manufactured homes also differ from modular homes, which are another  type of prefabricated home and are often designed and constructed by  the same manufacturers on the same production lines as manufactured  homes. Like other site-built homes, modular homes are categorized as  real property and are built to state and local building codes, most  commonly the International Residential Code (IRC). Unlike manufactured  homes that are towed to the sites on their own permanent chassis,  modular home sections, or modules, are transported on truck beds and  assembled on site. For the purposes of this report, we include modular  homes under our definition of site-built homes.
Unlike site-built homes, which are titled as real property and usually  financed through a mortgage, a manufactured home may be financed as  either personal or real property. When a home buyer purchases a  manufactured home without tying the purchase to land, the home is  generally considered personal property, or chattel—that is, it is a  movable, “personal” possession, much like an automobile. Manufactured  homes are sometimes grouped together in communities where residents  may either own or lease the home, but lease the land. However,  according to Manufactured Homes Survey (MHS) data, in 2013 70.2  percent of manufactured homes were placed on leased or owned land  outside of manufactured home communities. One lender we interviewed  told us that homeowners in rural areas often placed manufactured homes  on real property owned by a relative but did not want to place a lien on  the land to purchase the manufactured home.
When a manufactured home is attached to the underlying land by a  permanent foundation and the home and the land are treated as a single  real estate title under state law, the home is considered real property. In  such instances, the borrowers can obtain a conventional real estate loan  or a government-guaranteed mortgage through traditional mortgage  lenders. According to the MHS, 13.7 percent of manufactured homes that  were placed in service in 2013 were titled as real estate, 78 percent were  titled as personal property, and the remainder (8.3 percent) were not  titled.
section_title: The Manufactured Housing Improvement Act of 2000 and General Duties of the HUD Office of Manufactured Housing Programs
paragraphs: The National Manufactured Housing Construction and Safety Standards  Act of 1974 was amended by the Manufactured Housing Improvement  Act of 2000 (2000 Act) to create a balanced consensus process for  establishing and revising manufactured home building standards. The  2000 Act created the Manufactured Housing Consensus Committee  (MHCC), a Federal Advisory Committee charged with providing  recommendations to the Secretary on the revision and interpretation of  HUD Code and related procedural and enforcement regulations.
HUD’s Office of Manufactured Housing Programs is responsible for  carrying out certain provisions of the 2000 Act. Under the law, the HUD  Secretary is directed to establish appropriate federal manufactured home  construction and safety standards as well as model standards for the  installation of manufactured homes. The Office of Manufactured Housing  Programs is tasked with regularly updating the standards based on  careful analysis of MHCC’s recommendations, the manufactured housing  industry, and consumers. The Office of Manufactured Housing Programs  is also tasked with approving certain state agencies and private third- party entities that inspect manufactured housing plants to determine  whether manufacturers are complying with the HUD Code. Each  manufacturer contracts with two types of third-party entities, a Design  Approval Primary Inspection Agency (DAPIA) and a Production  Inspection Primary Inspection Agency (IPIA). Generally, DAPIAs review  and approve all manufactured home designs, design changes, and quality  assurance manuals. IPIAs are responsible for assuring that the  manufacturing plant follows the quality assurance manual and inspecting  each home at some stage of production in the plant. IPIAs also issue the  HUD Certification Label that is attached to each section of the home upon  completion (see fig. 3 below).
section_title: Federal Preemption
paragraphs: The 1974 Act also established the preemptive status of the HUD Code,  as it stipulated that if a home is built to the HUD Code, state and local  building authorities may not apply their own codes that are applicable to  the same element of performance. The 2000 Act stated that the federal  preemptive authority was to be “broadly and liberally construed.” For  instance, a state or local municipality cannot require that the distances  between a HUD home’s air intake and exhaust vents be greater than the  3-foot minimum currently stipulated in the HUD Code. One particular  entity that relies heavily on the preemptive status of the HUD Code is the  Federal Emergency Management Agency (FEMA).  FEMA is a large  purchaser of manufactured homes, which are utilized as temporary  housing units under its emergency management operations across  different states.
To help ensure that all manufactured homes comply with the HUD Code,  HUD has entered into cooperative agreements with 37 state governments  that participate as state administrative agencies (SAA) to conduct periodic  checks of plant records and to oversee the handling of consumer  complaints. HUD’s staff is responsible for carrying out these same  functions in the 13 states without SAAs and the District of Columbia (see  fig. 4).
section_title: Despite Declining Production, Manufactured Homes Remain an Affordable Housing Alternative in Some Regions
paragraphs: Annual shipment of new manufactured homes has declined substantially  in recent years. According to the MHS, about 250,500 manufactured  homes were shipped to retailers in the United States in 2000. In 2012  the number of manufactured homes shipped fell to 54,900 (see fig. 5).  According to the MHS, manufactured homes shipments increased to  about 60,000 in 2013.
Despite the decline in new shipments in past years, in 2013  approximately 5.9 million HUD Code compliant manufactured homes  were in use in the United States, accounting for 5.1 percent of total  occupied housing units. However, the concentration of manufactured  homes varies across regions. The southern United States, for instance,  has the highest concentration, with manufactured homes making up  approximately 8 percent of the region’s total occupied homes (see fig. 6).  In addition, the majority of manufactured homes are located in non- metropolitan areas, in part because of land constraints or barriers such as  zoning laws in metropolitan areas. According to data from the 2011  American Housing Survey (AHS), over half of manufactured homes (52.4  percent) were located in non-metro areas in that year, compared to about  25 percent of single family homes and 11 percent of rented   apartments.13, 14 As with other single family homes, manufactured homes tend to be  occupied by their owners rather than rented to others. In 2011, about 81  percent of the manufactured homes built after 1975 in the U.S. were  owner occupied, and 16 percent were rented for cash. In comparison,  about 85 percent of all single family homes were owner occupied in 2011  (see fig. 7).
Our analysis also showed that owners of manufactured homes tended to  have lower incomes than other homeowners. In 2011, about 75 percent of  owners of manufactured homes had household incomes of less than  $50,000, compared with about 77 percent of apartment renters, about 41  percent of owners of single family homes, and about 52 percent of  owners of one story single family homes (see fig.8).
Our analysis also showed similar income characteristics for manufactured  home owners located in non-metropolitan areas. In 2011, about 76  percent of owners of manufactured homes had household incomes of  less than $50,000, as compared with about 90 percent of apartment  renters, 51 percent of owners of single family homes, and about 62  percent of owners of one story single family homes (see fig. 9).
Our analysis of the 2012 MHS and 2011 AHS data also showed that  manufactured homes were an affordable housing option in terms of their  relatively low sales prices and monthly costs. In 2012, single-section  manufactured homes were priced, on average, at $41,175 and multi- section manufactured homes at $75,525. Manufacturers we interviewed  said that these homes cost less to build than site-built homes, including  modular homes, primarily because on-site construction and transportation  costs for manufactured homes are less than those associated with  modular homes and other site-built homes. Manufactured homes also  typically had lower monthly costs, including loan payments, taxes, rent,  utilities, and other fees, than site-built homes.
In 2011, around 16 percent of owners of manufactured homes paid  $1,000 or more in monthly costs, compared with 55 percent of owners of  single family site-built homes. Around 45 percent of manufactured home  owners paid less than $500 in monthly costs, while 19 percent of owners  of single family site-built homes paid less than $500 each month (see fig.  10). Owners of manufactured homes also had lower monthly costs than  renters. According to the AHS data, the median monthly cost of owning a  manufactured home in 2011 was approximately $550, while the median  monthly costs for apartment renters that same year were $800.
Although manufactured homes generally cost less to purchase than other  homes and have lower monthly costs, owners of manufactured homes  are more likely to have higher-priced financing than owners of site-built  homes. According to 2012 HMDA data, manufactured home loans  accounted for about 2.5 percent of all one-to-four family purchase loans.  However, according to the HMDA data, they comprise 34 percent of all  high-priced purchase loans. Moreover, 74 percent of conventional  purchase loans for manufactured homes were identified as high-priced  loans, compared with 24 percent of purchase loans supported by FHA,  the U.S. Department of Agriculture (USDA), and the Department of  Veterans Affairs (VA). Private lenders, such as national consumer  finance companies, also provide financing for purchasing manufactured  homes. Loans generally take the form of home-only or chattel loans  rather than real estate mortgages. According to some lenders we  interviewed and one consumer organization, these loans typically have  higher interest rates and shorter terms (15-20 years versus 30) than  home mortgages.
section_title: HUD Has Not Fully Achieved the Manufactured Housing Program’s Key Purposes
paragraphs: HUD has encountered challenges in meeting key purposes of the 2000  Act, as seen by, among other things, delays and backlogs in its  rulemaking process, limited assessment of financing alternatives, and  incomplete documentation of enforcement-related activities. The  purposes of the 2000 Act include (1) establishing a consensus-based  process to update and interpret manufactured housing safety and  construction standards and regulations for enforcing them; (2) facilitating  the availability of affordable manufactured housing; and (3) ensuring  uniform and effective enforcement of manufactured housing standards  and protecting consumers. More specifically, the 2000 Act requires HUD  to establish the MHCC to submit proposed standards within each 2-year  period from the time its members are appointed. The MHCC must submit  the standards in the form of a proposed rule, and include an economic  analysis, for each proposal.set of proposals within 30 days of submittal and respond to each set  within a 1-year period. Further, it directs HUD to review the programs for  FHA manufactured home loans, develop any changes that would promote  the affordability of manufactured homes, and encourage the government- sponsored enterprises (GSE) to develop and implement secondary  market securitization programs for these loans. Finally, the Act requires  that HUD ensure uniform and effective enforcement of the HUD Code.
subsections: section_title: HUD Has a Process for Updating the HUD Code, but Has Not Resolved Delays Related to the Lack of Economic Analyses
paragraphs: HUD has met the requirements for the initial establishment of both the  MHCC and a process for updating the HUD Code. In 2001, HUD entered  into a contract with an administering organization for the MHCC and  continued to work with the contractor through June 2013, when the  contract expired. HUD rebid the contract in July 2013 but as of the  release of this draft to HUD in May 2014 had not awarded the contract to  a new administering organization. This organization is a private-sector  standard-setting body with specific experience in developing building  codes. It is responsible for managing the MHCC—for example,  recommending new members—and for administering the processes for  developing new standards. As required by the Act, the MHCC consists of  21 members, who are all appointed volunteers. They represent three  groups: producers and retailers, consumers, and general interest and  public officers, including regulatory organizations. The administering  organization first appointed members to the MHCC in August 2002. HUD  last updated the roster of MHCC members in February 2013.
HUD has also put in place a process for updating the standards. First,  MHCC reviews proposals submitted by its members, HUD, or the public.  As required by the Act, if two-thirds of the MHCC members approve a  proposal, the committee finalizes it and recommends it to HUD in the form  of a proposed rule with an economic analysis. HUD is required to publish  the proposed rule within 30 days of receiving the MHCC’s proposals.  According to HUD officials, if the MHCC does not prepare a proposed rule  with an economic analysis, HUD develops the proposed rule and the  economic analysis. After this step, the proposal follows the typical  rulemaking process, including an Office of Management and Budget  (OMB) review, publication in the Federal Register, and a public comment  period. After reviewing the public comments and possibly revising the  recommendations, HUD adopts, modifies, or rejects the recommendation  and publishes the decisions in a Final Rule (see fig. 11). HUD also submits the rule to its congressional authorizing committees for 15 days  before publication of the proposed rules.
For the most part, the MHCC has met the requirements for submitting  proposed standards within each 2-year period. The MHCC last  submitted recommendations for changes in the standards in January  2012 and January 2013, when it recommended approval of 9 proposals.  However, HUD officials stated that because the former administering  organization did not formally submit these last 9 proposed MHCC  recommendations from January 2012 and January 2013, the agency will  not begin to consider them until it receives them from a new administering  organization. We found that from its inception in 2003 to January 2013,  the committee submitted 174 recommendations.
As we have seen, the 2000 Act requires that not later than 12 months  after receiving a MHCC recommendation to the HUD Code, HUD must  either adopt and publish the recommendation as a final rule, reject the  recommendation and publish the reasons for the rejection, or publish a  modified version and provide for a comment period. However, we  observed that HUD had not accepted, rejected, or modified any of the  MHCC recommendations for updating the HUD Code within 1 year of  their submission. According to HUD officials, the relevant procedural  requirements and timelines for acting on MHCC’s recommendations were  not triggered because the MHCC did not submit the recommendations in  the form of proposed rules that included relevant economic analyses, as  required by the 2000 Act. HUD officials said that the administering  organization was responsible for providing technical support to the MHCC  in developing proposed rules and economic analyses. For example, the  contract for fiscal year 2013 required the administering organization to  ensure the availability of subject-matter expertise necessary to support  the satisfactory performance of the MHCC, including activities related to  the federal rulemaking process. However, one official from the former  administering organization told us that both it and the MHCC lacked the  expertise and resources to draft proposed rules and conduct economic  analyses. HUD and the administering organization have acknowledged  that the MHCC does not have the expertise or resources to conduct  economic analyses. According to HUD officials, because the MHCC and the administering organization had not been able to develop proposed  rules with adequate economic analyses, none of the submissions from  the MHCC had been complete, and the 1-year statutory requirement for  adopting, modifying, or rejecting MHCC proposals has never been  triggered.
HUD officials also said that because of the lack of adequate proposed  rules with economic analyses from the MHCC or its administrative agent,  HUD staff have developed rules and done the analyses, delaying the  rulemaking process. In fact, HUD’s revisions to the Code have taken  substantially longer than the timeframes specified in the 2000 Act. HUD  has updated the Code twice (in 2005 and 2013). According to HUD  officials, in November 2005 (in its first update of the Code), HUD  published a final rule in the Federal Register that contained 36 MHCC  recommendations submitted in February 2003 and July 2004, most of  which were adopted without any further modifications by it. The second  update of the Code consisted of 49 recommendations also proposed by  MHCC in 2003. While at least some of these recommendations were the  subject of further discussions between HUD and MHCC, HUD did not  publish a proposed rule in the Federal Register containing these  recommendations until July 2010 and did not publish a final rule until  December 2013. As of May 2014, HUD was still considering 35  recommendations that the MHCC submitted in 2009 and 2010. As stated  earlier, according to HUD officials, because the administering  organization did not formally submit an additional 9 recommendations in  2012 and 2013, HUD will not consider these recommendations until it  receives them from a new administering organization (see fig. 12 for a  depiction of the timelines for five examples of manufactured housing  construction and safety standards for which HUD had completed final  rules).
According to HUD officials, this additional workload posed by the tasks of  developing proposed rules and economic analyses has further strained  existing staff resources. Further, HUD officials voiced concerns over other  administrative and legislative impediments to producing more timely  updates to the HUD Code. These include the Act’s requirement that HUD  publish a proposed rule within 30 days of receiving the MHCC’s  recommendations, the requirement for a 15 day pre-publication review by  Congress, a 30-60 day public comment period, as well as allowing  sufficient time for other administrative reviews, including review by OMB.  HUD requested increased staffing for fiscal year 2005 to better meet the  1-year requirement for updating the standards, but staff levels have not  increased. Also, the position of Administrator of the Office of  Manufactured Housing Programs remained vacant from 2010 until March  2014. Other than the earlier attempt at increasing staff levels, and facing  ongoing challenges, HUD has no plan for ensuring more timely updates  to the construction and safety standards. Standards for internal control  emphasize the need for federal agencies to establish plans to help ensure  goals and objectives can be met, including compliance with applicable  laws and regulations.
As we previously found, the lack of updates to the HUD Code has  delayed implementation of important safety devices, reducing the  effectiveness of the standards and, over time, creating discrepancies  between the HUD Code and other commonly accepted residential  building standards, which are updated every 3 years. pending recommendations include requirements for carbon monoxide  detectors, which are now incorporated in industry standards.
Safety concerns have led some states and localities to begin requiring  certain safety features for homes in their jurisdictions. For instance,  Pennsylvania state officials told us that at least one locality required that  manufactured homes have anti-scalding devices in showers before the  HUD Code included them in December 2013. The HUD Code did not  address this area of performance and therefore, according to HUD, a  jurisdiction could have imposed such a requirement without conflicting  with the preemptive HUD Code. However, the costs to purchasers of a  manufactured home could be significant if the manufacturer had not  already installed such a device. That is, a homeowner might be required  by the locality to install such devices at a cost of hundreds of dollars.  Further, according to officials from the State of Pennsylvania, this  modification of the homes’ plumbing might void the manufacturers’  plumbing warranty. As mentioned earlier, the MHCC recommended anti- scalding devices in February 2003 and the HUD Code will require these  devices beginning in June 2014.
GAO, Manufactured Housing Standards: Testing and Performance Evaluation Could  Better Ensure Safe Indoor Air Quality, GAO-13-52 (Washington, D.C.: Oct. 24, 2012).  Carbon monoxide detectors are not intended to be used as a measure of, or to test for,  adequate indoor air quality but are a safety device to warn occupants in the event of a  dangerous build-up of carbon monoxide gasses in the air.
Conditioning Engineers have required carbon monoxide detectors for all  residential site-built and modular homes since 2009 and 2010,  respectively. While the MHCC recommended in 2009 that this standard  be required for all new manufactured homes, HUD has not yet adopted  this proposal. According to HUD officials, as of May 2014 HUD is  considering the proposal to require carbon monoxide detectors. Until  HUD works its way through its backlog of proposals, purchasers of  manufactured homes could face increased costs and, in some cases,  potential safety hazards.
section_title: HUD Has Done Little to Assess How Federal Loan Programs Could Improve the Affordability of Manufactured Homes
paragraphs: HUD offers two loan insurance programs that provide financing for  manufactured homes, FHA Title I and Title II. Both programs are intended  to insure lenders against losses in the event of a default. Homebuyers  and homeowners may finance the purchase of or refinance their  manufactured home, lot, or both through the FHA Title I program, which  insures both chattel and mortgage loans. Manufactured homes titled as  personal property are financed through chattel loans and would be  eligible for Title I. Home buyers and homeowners may also finance the  purchase or refinancing of their home through the Title II program, which  insures mortgages for all types of single family homes, including  manufactured homes that are classified as real estate. Manufactured  homes titled as real estate and installed on a permanent foundation would  be eligible for Title II.
Considering both its Title I and Title II loan programs, FHA plays a smaller  role in the financing of manufactured homes than in the financing of other  single family homes, according to HMDA data. Specifically, 2012 HMDA  data, which include both chattel and real property manufactured housing  loans, showed that FHA programs made up 17.5 percent of all loans for  the purchase of manufactured homes, but 27 percent of loans for the  purchase of one-to-four family homes. Although the Title I program is  intended in part to serve the needs of the manufactured housing market,  owners of manufactured homes use it less often than Title II. In 2012,  FHA insured a total of 654 Title I manufactured home loans and 12,301  Title II manufactured home loans. According to data from the MHS, in  that same year nearly 41,000 newly placed manufactured homes were  titled as personal property, while 8,000 newly placed manufactured  homes were titled as real estate. FHA officials stated that they were not  aware of specific barriers that consumers faced in obtaining Title I loans,  but noted that two nationwide lenders participated in the program. Ginnie  Mae securitizes FHA Title I manufactured home loans and works with  these lenders. One Ginnie Mae official explained that although the  agency had experienced losses from manufactured housing products in  the past, the agency had conducted ongoing outreach with lenders to  increase participation in the Ginnie Mae program. FHA arranged a  meeting between Ginnie Mae officials and several manufactured housing  stakeholders to discuss requirements for participating in the Ginnie Mae  program. Industry representatives requested less stringent eligibility  criteria for those wanting to issue Ginnie Mae-guaranteed securities  backed by Title I loans. At present, Ginnie Mae requires that such issuers  have a minimum net worth of $10,000,000. In contrast, issuers of  securities backed by Title II mortgages must have a minimum net worth of  $2,500,000. According to one HUD official, issuers of securities backed  by Title I loans bore greater risk that necessitated the higher net worth  requirement. A number of factors contribute to the increased risk,  including higher losses because of greater frequency of default and lower  insurance coverage. According to one Ginnie Mae official, Ginnie Mae  had invited the industry to provide additional data to demonstrate the  performance of their manufactured home loans, but had yet to receive a  response. According to a Ginnie Mae official, it has continued to engage  with lenders and industry representatives, but have so far received no  data demonstrating the performance of these loans.
Further, Fannie Mae and Freddie Mac, which guarantee and purchase  loans from mortgage lenders, play less of a role in providing liquidity to  lenders of manufactured home loans than they do in providing liquidity to  lenders of loans on other single family properties. HMDA data indicated  that of conventional loans for manufactured homes, 7 percent were sold  to Fannie Mae and Freddie Mac, compared to 41 percent of conventional  loans for site-built homes. One lender of manufactured home loans cited  certain underwriting constraints that limited their participation in Fannie  Mae and Freddie Mac programs. For example, Fannie Mae requires an  appraisal of the manufactured home with comparable local manufactured  homes titled as real estate, a requirement that can be challenging,  particularly in rural areas with relatively few homes and where many  manufactured homes are titled as personal property. Fannie Mae and  Freddie Mac do not purchase loans for manufactured homes titled as  personal property.
Because of these constraints, most financing for manufactured homes,  whether chattel or real property, is provided through private lenders.  According to industry representatives and one lender, lenders often hold  these loans in their portfolios and do not sell them on the secondary  market. Some lenders we spoke with indicated that they declined to work  with the FHA loan products because of the administrative burden. These  lenders also stated that they believed Fannie Mae and Freddie Mac  should buy chattel loans in addition to real estate loans. According to  testimony given by the Manufactured Housing Institute during a House of  Representatives field hearing on November 29, 2011, the lack of a viable  secondary market for manufactured home loans has led to higher  financing costs. The institute noted that the lack of liquidity in the  manufactured housing market restricted buyers’ access to low-cost loans  and that the available loans sometimes carried higher interest rates than  loans for site-built homes. As stated previously, loans for manufactured  homes are more likely to be higher priced than loans for site-built homes.  Although some of these differences may be due to differences in credit  strength, the generally higher interest rate associated with financing a  manufactured home diminishes, in part, because of some of the  affordability benefits that we discussed earlier.
Recognizing the impact that a lack of low-cost financing could have on  the affordability of manufactured homes, Congress directed HUD in the  2000 Act to review the FHA programs for manufactured home loans. The Act required that HUD develop any changes in, among other things,  loan terms, amortization periods, regulations, and procedures that might  promote the affordability of manufactured homes. However, HUD has not  yet examined or researched the effectiveness of these loan programs  because its research has focused on other priorities. HUD’s most recent  study on manufactured housing focused on state and local regulatory  barriers to placing manufactured homes in urban communities. Other  research that PD&R has coordinated includes aspects of manufactured  housing as they relate to energy efficiency and the environment.  PD&R’s Research Roadmap for fiscal years 2014 through 2018 proposed  researching the manufactured housing market and the effect of financing  on manufactured housing demand. However, HUD did not select this  proposal for its fiscal year 2015 Budget Request and, according to one  HUD official, it was not among the highest priorities.
Additionally, the FHA Manufactured Housing Loan Modernization Act of 2008 required  HUD to revise FHA’s Title I program. See Pub. L. 110-289, Division B §§ 2141-2150. HUD  revised Title I to increase loan amount limits and amend credit underwriting requirements,  among other changes. See Title I letters TI 481 and TI 484. Also, in response to the FHA  Modernization Act, Pub. L. 110-289, Division B, §§ 2101 – 2133, HUD made  manufactured homes eligible for Title II insurance if treated as real estate by the local  authority, even if not treated as real estate for purposes of state taxation,  as well as  individual manufactured housing units in condominium projects. See Mortgagee Letter  2009-16. guaranteed loans on manufactured homes with permanent foundations  perform worse than all RHS single family guaranteed loans. However,  this analysis did not control for other factors that might explain these  differences, such as borrower and property characteristics. FHA collects  such data, which should permit a more rigorous analysis of loan  performance. Further, FHA officials stated that they evaluate Title I  manufactured housing loan performance and the Title I insurance fund to  ensure that premiums are sufficient to cover program expenses, as  required by the Housing Economic Recovery Act 2008 (HERA).  However, FHA has not analyzed the performance of Title I and Title II  manufactured housing loans to understand the different participation  levels in the programs and lacks a plan for doing so. As noted earlier,  standards for internal control emphasize the need for federal agencies to  establish plans to help ensure goals and objectives can be met, including  compliance with applicable laws and regulations. Such research could  further HUD’s understanding of the relationship between loan  performance and property type, providing information that it could  potentially use to encourage lenders to participate in the federal program.
The Act also requires HUD to conduct research and make other efforts to  encourage the enterprises and Ginnie Mae to actively develop and  implement secondary market securitization programs for federally insured  loans for manufactured homes, as well as those of other loan programs,  in order to promote the availability of affordable manufactured homes. As  we have seen, industry officials have cited the lack of a viable secondary  market for manufactured housing loans as a factor in higher financing  costs, especially for chattel loans. However, HUD was unable to identify  any efforts, other than the discussions with Ginnie Mae, which it had  undertaken to encourage the enterprise to do more to help securitize  additional manufactured home loans. A Ginnie Mae official pointed to  their prior experience in working with issuers of securities backed by  manufactured home loans insured under the FHA Title I program.  Specifically, he cited experience with lenders that were unable to fulfill  their commitments, requiring Ginnie Mae to pick up servicing of their  portfolios. The official also noted that lenders might not want to securitize  their loans through Ginnie Mae because they had other sources of  funding and wished to keep these loans in their portfolio. The official  noted that one of the largest such lenders met the net worth requirement  for Ginnie Mae and was an approved issuer of Ginnie Mae securities  backed by Title I loans. Nonetheless, it is not clear that HUD has  conducted research and other efforts to encourage the enterprises and  Ginnie Mae to actively develop and implement secondary market  securitization programs for FHA manufactured home loans or loans  guaranteed by other federal programs.
Further, it remains uncertain that the enterprises would enter the market  for securitizing loans on manufactured homes that are titled as personal  property. Under HERA, which resulted in the enterprises being placed  under conservatorship by the Federal Home Finance Administration  (FHFA), Congress also directed the enterprises to serve specified  underserved markets, including manufactured housing. HERA provided  that in determining whether the enterprises had adequately served the  manufactured housing market, FHFA could consider loans secured by  both real and personal property. However, in 2010 FHFA published a  proposed rule that would establish a method for evaluating and rating the  Fannie Mae and Freddie Mac’s performance in underserved markets. The  proposed rule also excluded loans for manufactured homes titled as  personal property from consideration for securitization because, as FHFA  stated, these loans would require substantial efforts by the Fannie Mae  and Freddie Mac “to ensure safe and sound operations and sustainable  homeownership for families.”
section_title: HUD Cannot Consistently Demonstrate That Issues from Inspection Monitoring Activities and Complaints Are Being Resolved
paragraphs: Another purpose of the 2000 Act is to help ensure uniform and effective  enforcement of federal construction and safety standards for  manufactured homes. To do this, HUD uses a monitoring contractor that  reviews the activities of organizations that inspect manufactured home  design and production activities. However, HUD could not demonstrate  that it has consistently taken actions in response to the monitoring  contractor’s “Recommendations for HUD Follow-Up.” These  recommendations highlighted items that HUD should follow-up on based  on the contractor’s review of IPIA and DAPIA inspections in  manufacturing plants. For example, in some cases the HUD monitoring  contractor noted that an IPIA was not performing inspections as required  in certain plants and recommended that HUD take action to ensure that  the appropriate corrective measures had been taken. HUD officials  maintained that they did conduct follow up actions such as phone calls  and provided us with emails showing follow-up on some of the findings  we inquired about, but did not provide documentation showing that the  agency consistently acted on all the monitoring contractor’s findings or  the outcome of follow-up actions taken. HUD officials also said that they  had not been able to devote further attention to monitoring and following  up on findings from the monitoring contractor because of resource issues  and time limitations. Standards for federal internal controls suggest that,  among other things, monitoring activities should assess the quality of  performance over time and ensure that the findings of audits and other  reviews are promptly resolved. Without consistent documentation of the  outcome of these follow-up efforts, HUD has limited assurance that  issues identified during the enforcement process are being resolved and  that federal construction and safety standards for manufactured homes  are uniformly and effectively applied.
HUD acknowledged that the monitoring contractor did not provide a  deliverable from a recently completed monitoring contract period (July  2011 through July 2012). The missing item was a transition plan that  would have documented activities tied to the monitoring contract in the  event that HUD decided to assume the activities in the contract or hire a  new contractor. The transition plan was intended to provide a plan for  transferring all data and property associated with the contract to the  government and/or a new contractor should HUD decide to assume the  activities of the contract or transfer them to another contractor. Such  information could aid HUD in exploring other options for conducting the  work called for in the monitoring contract. Overall, such a condition raises  questions and uncertainties about HUD’s oversight of its monitoring  contract as well as whether the data that were not delivered in a transition  plan represents significant noncompliance under the contract. Among  other things, the Federal Acquisition Regulations (FAR) state that  contracting offices are responsible for ensuring that nonconformances are  identified, and establishing the significance of a nonconformance when  considering the acceptability of supplies or services which do not meet  contract requirements.
FAR 46.103(e).
HUD also oversees a complaint process that is intended to help with the  goal of ensuring uniform application of manufactured housing standards.  In part, HUD relies upon the 37 state administrative agencies (SAA) that  respond to consumer complaints and periodically review manufacturer  facilities. However, HUD did little to assess the content of complaints. For  example, HUD does not maintain a consolidated complaint log to  evaluate in a systematic fashion the nature and resolution of complaints  involving manufactured housing, or the entities involved. HUD’s website  directs consumers to individual SAAs where they may file complaints.  There are 13 states where no SAA exists, thus making HUD the primary  focal point for complaints in those states. However, even for the  complaints it does receive, HUD does not maintain a consolidated  complaint log or record to identify their extent and nature. The complaint  process has the potential to play an important role in quantifying the  extent of complaints tied to homes built under the HUD Code,  understanding the nature of complaints, and ensuring that the safety  standards are followed. Standards for federal internal controls suggest  that organizations, among other things, establish monitoring activities to  assess the quality of performance over time, including identifying and  correcting deficiencies within established time frames, which a  comprehensive complaint system would help accomplish.
Looking ahead, we also noted that on-site construction activities pose  new challenges for HUD’s inspection efforts on manufactured homes.  HUD’s testing and inspection activities of manufactured homes are  focused within the plant itself. However, some construction activities  occur on-site. One of the most common building layouts to surface over  time has been the construction of manufactured homes in two or more  factory-built units, or sections (see fig. 13). For example, a manufactured  home may consist of two complete sections that are joined together on- site to create a multi-section manufactured home. Consequently, other  construction activities, such as the completion of siding and joining roofs,  are occurring on-site, outside of the factory.
Since we sent a draft of this report to the agency for comment, HUD has accepted a  transition plan from its monitoring contractor, which was the same entity that served as the  monitoring contractor for the contract that ended July 2012.
GAO-13-52.
section_title: Current Funds Collected from HUD Label Fees Are Insufficient to Fund the Manufactured Housing Program
subsections: section_title: Label Fees Are the Primary Funding Source for the HUD Manufactured Housing Program
paragraphs: HUD is authorized to collect fees from builders of manufactured homes to  offset the expenses it incurs in carrying out its responsibilities under the  Manufactured Housing Program. HUD currently assesses a $39 label  certification fee per transportable manufactured housing unit produced by  manufacturers. HUD set the level of the label certification fee in 2002 and  has not increased it, although declining sales of manufactured homes  mean that fee collections no longer cover the program’s annual costs.  Under the 2000 Act, all HUD label certification fee collections from HUD  transportable units are deposited into the Manufactured Housing Fees  Trust Fund and are available for use to the extent provided in annual  appropriations acts. The 2000 Act also stipulated that the amount HUD  charges for label fees may only be modified as specifically authorized in  advance in an annual appropriations act and pursuant to a rulemaking.
In addition, the 2000 Act specifies the activities for which the Office of  Manufactured Housing Programs may use the funds appropriated from  the Manufactured Housing Fees Trust Fund. HUD can use the label fees to cover contractual costs, carry out inspections, or monitor aspects  of the program in the 13 states and the District of Columbia that do not  have SAAs. HUD can also use them to pay the 37 SAAs that enforce the  HUD Code and handle consumer complaint activities on HUD’s behalf to  offset the costs they incur. Fees and appropriations from the general fund  are held in the Manufactured Housing Fees Trust Fund. The Fund may  have reserves that are carried over from one fiscal year to the next,  helping the Office of Manufactured Housing Programs make payments at  the beginning of each fiscal year.
section_title: Since Fiscal Year 2009 Manufactured Housing Program Obligations Have Been Greater Than Revenue from HUD Label Fees
paragraphs: As the production and sale of manufactured homes generally declined  after 2002, revenue collections from HUD certification label fees also fell,  dropping to historically low levels in 2011. As we have seen, sales of  transportable units fell from approximately 325,000 in fiscal year 2002 to  around 90,000 in fiscal year 2013. This decline in sales, reflecting a  decline in production, in turn, significantly reduced HUD’s revenue from  label fees, which fell from around $12,000,000 in 2002 to less than  $3,000,000 by 2011 (see fig. 14).
At the same time, obligations for the Manufactured Housing Program  have increased. According to HUD, until 2009, the number of  manufactured homes built and sold generated enough in label fee  revenue to cover the costs of the HUD Manufactured Housing Program.  Beginning in fiscal year 2009, however, the revenue that label fees  generated was insufficient to cover the program’s obligations. According  to data that HUD officials provided to us, the Manufactured Housing  Program’s obligations were $6.62 million in 2009, when HUD generated  $3.3 million in label fees. In each of the following years, HUD generated  less revenue in label fees than it incurred in obligations. For the most  recently completed fiscal year, fiscal year 2013, HUD had $10.1 million in  obligations, while generating only $3.5 million in label fees. For fiscal year  2014, HUD estimates that program obligations will total roughly $10.0  million but the program will only collect $6.53 million in label fees.
According to officials, these obligations include expenses associated with  office staff and program administration (including payments to SAAs), as  well as costs related to MHCC activities—monitoring contractors,  administration, and planning meetings. The officials said that payments to  SAAs were a major programmatic cost and noted that the payments  made to each SAA varied from year to year, depending on the activities  the states undertook. For fiscal year 2014, HUD projected that the costs  of annual SAA payments and the contract for monitoring inspection  agencies of the Office of Manufactured Housing would total $7.3 million,  or 73 percent of the program’s projected obligations. HUD officials noted  that in recent years SAAs had been taking a more active role in HUD  Code monitoring and enforcement and, as a result, HUD’s payments to  them and the monitoring contractor had increased.
In order to meet its increasing budget obligations, the program has relied  on congressional appropriations from the U.S. Department of Treasury’s  general fund. From 2009 through 2013, the program took in  approximately $16.1 million in label fees and had programmatic  obligations of around $38.3 million. During this same period, the program  received $22.2 million in congressional general fund appropriations to  make up the gap between its program costs and label fee revenue.  Furthermore, the program’s year-end carryover balances in recent years  have been higher as a direct result of general fund appropriations that are  available until expended (see fig. 15).
section_title: HUD User Fee Analysis
paragraphs: In fiscal year 2014, HUD’s budget justification called for a total of $7.53  million in budget authority, including up to $6.53 million in estimated label  fees and $1 million in general fund appropriations. In its fiscal year 2014  budget justification, the agency projected that the number of transportable  units for which label fees are paid was not expected to significantly  increase, and proposed an increase to the certification label fee of up to  $100 in order to increase label fee revenue.
HUD’s budget justification for fiscal year 2015 also calls for an increase in  label fees from $39 to $100. HUD’s Office of Manufactured Housing  Programs currently projects a gradual increase in transportable unit sales  through the end of fiscal year 2015 and estimates that fee collections in  2015 will be approximately $10 million dollars. The agency also stated in  its 2015 congressional budget justification that its projected label fee  revenue, combined with small amounts of unobligated balances from prior  years, would be sufficient to fully fund the program’s operating  requirements in 2015.
The HUD Office of Manufactured Housing Programs has stated its intent  to raise label fees in previous HUD budget justifications dating back to  fiscal 2009 and, as a result, had anticipated higher label fee collections in  previous years. However, total user fee collections have fallen short of  projections of the Office of Manufactured Housing Programs because it  did not raise its label fees or seek other additional user fee income (see  fig. 16).
Despite its stated intent for several years to raise label fees, HUD did not  take the necessary actions to implement these label fee increases.  Standards for federal internal controls suggest that organizations, among  other things, establish plans to achieve their objectives, including effective  and efficient operations using the entity’s resources.Housing Program officials stated that at the end of 2013 they had begun  working with HUD’s Office of General Counsel on a proposed rule  designed to raise label fees. At present, HUD officials stated their intent to  have a final rule permitting this label fee increase ready to be  implemented at the end of 2014. However, as of April 2014, the agency   Manufactured  had not issued any notices of proposed rules regarding label fee  increases.
Since fiscal year 2009, HUD has proposed increases to the label  certification fee in all but one of its congressional budget justifications.  The Chief Financial Officers (CFO) Act and OMB Circular A-25 provide  for biennial fee reviews that include recommendations about adjustments  to fees, as appropriate. While HUD Manufactured Housing Program  officials told us that they have not conducted any such biennial reviews of  their HUD label fees, program officials told us they have completed  analysis of label fees in previous years. The label fee analysis that HUD  officials provided to GAO was based on manufactured home production  estimates, the amount of direct appropriations the program receives, the  amount of carryover the program has from the previous year, and the  anticipated program office activity and expense levels for the upcoming  year.
We previously concluded that whether fee rates are set by the agency in  regulation or by Congress in statute, agencies must substantively review  and report on all cost-based fees regularly to better ensure decision  makers have complete information about program costs and activities.
Agencies should provide program information to agencies, stakeholders,  and Congress. These reviews can improve transparency, help ensure  that fees remain aligned with program costs and activities, increase  awareness of the costs of the federal program, and therefore increase  incentives to reduce costs where possible. We previously found that user  fee design and review should address how the user fees will be linked to  a program’s fixed and variable costs and whether or not user fees are set  at a rate that enables the program to respond to spikes and surges in  demand for the good or service upon which they are collected. Agencies  should also seek to identify which factors drive fee revenue instability,  and whether or not a particular program has other sources of funding  which may mitigate initial revenue shortfalls.
In order to identify and manage revenue instability, decision makers need  regular information and analysis to understand potential vulnerabilities in  the context of the specific fee design.The appropriate analysis can help  an agency obtain a thorough understanding of factors such as cost  drivers and elements that influence collections. Without regular  comprehensive reviews, agencies and Congress may miss opportunities  to make improvements to a fee’s design which, if left unaddressed, could  contribute to inefficient use of government resources. For example, fee  reviews could help ensure that fees are properly set to cover the total  costs of those activities that are intended to be fully fee-funded, thus  eliminating the need for direct appropriations for those activities.  Furthermore, not reviewing fees regularly can create costly challenges for  user fee programs and agencies, such as larger fee increases, when fees  are ultimately increased. Regular fee reviews can help ensure that  Congress, stakeholders, and agencies have complete information about  changing costs and whether a fee needs to be changed, help identify  opportunities to revise fees in ways that enhance user funding of goods or  services above and beyond what is normally available to the public, and  can be a useful step towards examining whether the activities themselves  are duplicative or overlapping.
section_title: HUD Has Not Assessed Other Authorized User Fees or Program Goals Related to the Manufactured Housing Fees Trust Fund
paragraphs: Since fiscal year 2009, Congress has authorized the HUD Manufactured  Housing Program to collect additional user fees in the form of installation  fees and dispute resolution fees in states where HUD operates  installation and dispute resolution programs. The 2000 Act required HUD  to establish and implement a manufactured home installation program for  states that chose not to operate their own installation programs.  According to HUD, the federal installation program ensures the inspection  of over 7,000 manufactured home installations annually, as well as the  training and licensing of over 2,000 installers in the 19 states that do not  have such programs. Additionally, the 2000 Act requires HUD to  establish and implement a manufactured home dispute resolution  program for states that choose not to operate their own dispute resolution  programs. The program provides for the timely resolution of disputes  between manufacturers, retailers, and installers regarding responsibility  for the repair of defects in manufactured homes. HUD maintains a dispute  resolution program in the 23 states that have no such program.
Any dispute resolution and installation fees that HUD collects are to be  deposited into the Manufactured Housing Fees Trust Fund and used to  offset the costs of the Manufactured Housing Program. For fiscal years  2009 through 2012, the Office of Manufactured Housing Programs stated  that it intended to collect a total of $11.2 million in fees from its dispute  resolution and installation programs. However, HUD officials told us that  the agency had not collected any of these fees, citing reasons such as  the insufficient resources to implement such fees and the considerable  administrative and logistical burden the agency would face. Under the  authority granted in section 620 of the 2000 Act allows the Office of  Manufactured Housing Programs to use HUD label fees to help pay for  other aspects of the program, such as the dispute resolution and  installation programs. However, as we have seen, because HUD has not  increased label fees it has not generated sufficient fee revenue to meet  the program’s costs. Despite this shortfall in fee revenue, HUD has not  assessed how it might put in place a program for assessing and collecting  installation and dispute resolution fees, nor has it assessed the costs and  benefits that such a program might realize.
HUD officials also stated that they have yet to develop any specific  program goals that would help in establishing a minimum or maximum  amount of reserve funding for the Manufactured Housing Fees Trust Fund  or the appropriate levels of program carryover balances for the  Manufactured Housing Program. Officials stated that the program’s  carryover balances vary from year to year; are based on label fees  collected, general fund appropriations, and program obligations; and are  capped each year by the budgetary authority granted to the Office of  Manufactured Housing Programs in each year’s congressional  appropriations act. HUD officials stated that each fiscal year’s carryover  balance is established by the remaining amount of funding available once  all program obligations had been paid, and consequently they saw little  need to examine the costs or benefits of establishing longer or shorter  goals for the Manufactured Housing Fees Trust Fund. Regardless of the  authority under which a user fee reserve is created, 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. Agencies may wish to use a reserve to help ensure long-term  financial stability, to position the agency to respond to varying economic  conditions, to smooth expected fluctuations in costs or collections, or to  build capital for necessary infrastructure improvements or mitigate  unforeseen and unavoidable revenue shortfall. To further ensure  accountability and adherence to any reserve fund goals, establishing  minimum and maximum reserve levels, justified by program data and risk  management considerations, may be advisable.
section_title: Conclusions
paragraphs: Longstanding unresolved issues in implementing reforms to the HUD  Manufactured Housing Program limit the potential for achieving key  purposes specified in the 2000 Act. Although the 2000 Act mandates that  HUD act on proposed changes to the HUD Code within a 1-year period of  the proposal being approved by the MHCC, this requirement has not  been effective in accelerating the rulemaking process. HUD has not  considered any of the proposals made by the MHCC to be subject to the  1-year deadline because the MHCC has not submitted recommendations  in the form of proposed rules with adequate economic analyses, as  required by the Act. Because the MHCC and the previous administering  organization lacked the expertise to develop recommendations in the  proper form, HUD’s staff has developed the proposed rules and  conducted the economic analyses with limited staff resources. Despite  these longstanding shortcomings, known resource limitations, and other  administrative and legal impediments it faces, HUD has not identified how  it might ensure more timely updates of the standards in achieving the  purposes of the Act. As a result, it took over 10 years after receipt of a  proposal from the MHCC for HUD to make some of the recent updates to  the HUD Code. In contrast, building codes for use in site-built (including  modular) homes are updated on a recurring basis every 3 years raising  questions about HUD’s effectiveness in establishing meaningful and  timely standards for manufactured housing. Ultimately, delays in updating  the standards can result in families seeking an affordable housing option  bearing additional costs when they must retrofit their homes to meet local  and state standards that have outpaced the scope of the HUD Code, or  being denied the benefit of safety and other standards that the consensus  committee has recommended.
Although the higher cost of financing manufactured homes can limit their  potential affordability, HUD has done little to implement the Act’s  requirements for reviewing FHA programs for providing manufactured  home loans and developing any changes that might further promote the  affordability of manufactured homes, or for conducting research and other  efforts to determine the potential for the enterprises and Ginnie Mae to  actively develop and implement better secondary market securitization  programs for manufactured home loans. Although HUD PD&R proposed  a study on the financing of manufactured homes for its 2014 to 2018  Research Roadmap, HUD selected other research projects over this  proposal and does not yet plan to conduct this study. Without analysis  and research into the contribution financing might make toward the  affordability of manufactured housing, HUD has little assurance that its  loan programs and securitization programs of Ginnie Mae and the  enterprises are appropriately promoting the availability of affordable  manufactured homes.
HUD’s efforts to ensure compliance with the HUD Code rely on actions of  others, including the monitoring contractor that reviews the activities of  inspectors of manufacturers. However, we found that HUD lacked  consistent documentation of actions it had taken in response to significant  audit findings of the monitoring contractor. Further, HUD has no  mechanism to catalogue complaints received by HUD and the SAAs.  Without such documentation and transparency, HUD cannot determine  the nature and content of complaints and whether any patterns might  suggest further analysis or action. Ultimately, these weaknesses limit the  potential for the enforcement process to ensure that federal safety and  construction standards for manufactured homes are having their intended  effect. Given its limited resources, HUD will likely face continued  challenges in ensuring its standards are followed and needs to make the  most efficient use of the resources it does have to enforce those  standards.
In recent years, the HUD Manufactured Housing Program has relied on  general fund appropriations to bridge the gap between its declining label  fee revenue and its higher programmatic obligations. The current fee  structure, which is based on per unit fees charged for labels indicating  that units have been built in accordance with the HUD Code, is at its  present amount not sufficient to fully fund the program. However, HUD  had not put in place the increased label fees that it had proposed in 5 of  the last 6 fiscal years. Nor has HUD taken steps to rigorously assess  the feasibility of establishing inspection and dispute resolution fees that  Congress has authorized. The 1990 CFO Act and OMB guidance provide  for biennial fee reviews that include recommendations about adjustments  to the fees, as appropriate. A rigorous analysis of user fees can help an  agency obtain a thorough understanding of factors such as cost drivers  and elements that influence collections. HUD cited a number of reasons  for not increasing label fees or considering other fees, including political  pressure, the presence of large carryover balances that grew after  receiving general fund appropriations, and challenges in implementing  new user fees. Given manufactured home production levels in recent  years and the constrained resource environment that the federal  government faces, it is important for HUD’s Office of Manufactured  Housing Programs to consider all revenue streams at its disposal  including higher label fees and the potential for others fees already  authorized by Congress. Further, delaying increases in user fees has the  potential to require even higher fee increases when they are ultimately  made—increasing any potential disruption to the manufactured housing  market.
Finally, the HUD Office of Manufactured Housing Programs has not  established any programmatic goals for the Manufactured Housing Fees  Trust Fund, or established recommended minimum and maximum  reserve levels. Due to a lack of analysis, HUD may be unaware of the  optimum levels of trust fund reserves or yearly carryover balances  needed to maximize the Manufactured Housing Program’s operational  efficiency. GAO best practices state that unobligated balances in fee  programs may represent a reserve intended to manage the effects of  revenue instability. Setting clear goals for a program’s user fee reserves  and clarifying how those reserves will be used can help ensure both  accountability and transparency to Congress and users of fee-based  programs. To further ensure accountability and adherence to any reserve  fund goals, establishing minimum and maximum reserve levels, justified  by program data and risk management considerations, may also be  advisable. However if agencies and Congress are not deliberate in their  design of a reserve fund to effectively manage an agency’s user fee  program, any unobligated funds built up may be rendered ineffective as a  reserve fund. In an era of limited resources, these steps will help HUD  provide the most reliable information to Congress as it considers program  funding and the sufficiency of fund reserves.
section_title: Recommendations for Executive Action
paragraphs: 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 take the following  three actions:
Develop and implement a plan for updating construction and safety  standards for manufactured homes on a timely, recurring basis to  include: addressing unresolved issues related to defining and developing  sufficient economic analyses tied to proposed changes to the  construction and safety standards; and ensuring sufficient resources and capacity within HUD and the  MHCC 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.
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.
Strengthen the oversight of inspections and enforcement-related  consistently documenting actions taken to resolve  recommendations from completed audits and the outcome of such  actions,  completing a Transition Plan for the monitoring contractor activity,  and exploring the feasibility of developing a cost-effective systematic  process for collecting and evaluating information on the content of  complaints.
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.
Assess the feasibility, including an analysis of the benefits and costs,  of putting in place user fees for its dispute resolution and installation  programs.
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.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to HUD for review and comment. HUD  provided written comments that are discussed below and presented in  Appendix I. HUD agreed with two recommendations, partially agreed with  two recommendations, and stated its intent to consider the remaining two  recommendations. HUD also described actions it planned to take or had  taken in response after receiving the draft report. We reiterate the  importance of HUD addressing fundamental program weaknesses and  that it efficiently use the resources it has and take advantage of all  potential sources of revenue. We therefore continue to recommend that  HUD act on the report’s recommendations. HUD also provided technical  comments that were incorporated as appropriate.
HUD agreed with our first recommendation to develop a plan to  accelerate future updating of the construction and safety standards on a  timely, recurring basis. Specifically, this plan would address, among other  things, unresolved issues related to the economic analyses that must  accompany proposed rules and ensuring that MHCC has sufficient  resources to perform its duties. However, HUD said that implementing  such a plan would be contingent upon its appropriations levels. As we  stated in our report, HUD will likely face continued financial challenges in  ensuring that its standards are followed and will need to make the most  efficient use of available resources to enforce them. However, as stated  in the report, we found that the lack of updates to the HUD Code had  delayed implementation of important safety devices, reducing the  effectiveness of the standards and, over time, creating discrepancies  between the HUD Code and other commonly accepted residential  building standards, which are updated every 3 years. For example,  several states require carbon monoxide detectors, which are not  addressed by the HUD Code. The IRC and the American Society of  Heating, Refrigerating, and Air-Conditioning Engineers have required  carbon monoxide detectors for all residential site-built and modular  homes since 2009 and 2010, respectively. Until HUD addresses the  backlog of MHCC proposals, purchasers of manufactured homes could  face increased costs due to a need to retrofit these homes and, in some  cases, potential safety hazards. We also recommended that if HUD  cannot devise and implement a plan for more timely HUD Code updates  and improve its workforce planning efforts and budget submissions, it  should identify and report to Congress alternative methods of ensuring  the quality, durability, safety, and affordability of manufactured homes,  such as relying more extensively on existing industry standards.
HUD partially agreed with our second recommendation. HUD stated that  Ginnie Mae agreed to develop a plan to identify the potential for better  securitization of manufactured housing financing and that FHA would  coordinate with Ginnie Mae as needed. However, HUD did not agree to  develop a plan to assess how FHA financing might further promote the  affordability of manufactured homes. HUD responded that FHA  continuously monitors its programs to ensure that affordable credit is  available. HUD added that FHA manufactured home policies and  information on FHA Title I loans is to be included in HUD’s Single Family  Policy Handbook, which is under development. Consolidating such  program guidance may help lenders better understand FHA programs,  but there is more that FHA could do to systematically assess how FHA  financing might further promote the affordability of manufactured homes.  The first step is to plan for such an assessment, as we recommend. As  we state in our report, owners of manufactured homes use the Title I  program, which was intended in part to serve the needs of the  manufactured housing market, less often than Title II. FHA officials were  not aware of barriers that might have precluded homeowners from  applying for Title I loans. Recognizing the impact that a lack of low-cost  financing could have on the affordability of manufactured homes,  Congress directed HUD to review the FHA loan programs. However, as  noted in the report, HUD has not taken action to fully address this  requirement. As such, we recommended that HUD first develop a plan to  formulate its actions to help ensure that the goals and objectives of these  loan programs can be met. Without an analysis of and research into the  contribution financing might make toward the affordability of  manufactured housing, HUD has little assurance that its loan programs  are appropriately promoting the availability of affordable manufactured  homes. Thus, we continue to believe HUD should take action to fully  implement this recommendation.
HUD agreed with our third recommendation to strengthen oversight of  inspections and enforcement-related activities. For example, HUD stated  that it will consistently document actions taken to resolve  recommendations from completed audits and their outcomes. In addition,  after the agency received our draft report, HUD accepted a completed  transition plan for the new monitoring contract. This action is consistent  with our recommendation. Finally, HUD agreed to explore the feasibility of  establishing a cost-effective systematic process for collecting and  evaluating information on the contents of complaints. For example, HUD  stated it would evaluate monitoring contractor findings resulting from  manufacturer records during in-plant record reviews and from information  collected by IPIAs resulting from their expanded requirements to review  manufacturer service records at least monthly. HUD stated the process  will include the establishment of a complaint log that the agency could  use to regularly review complaints it received to determine whether  investigations were warranted under HUD’s enforcement regulations. We  note in the draft that such a log would help assure that safety standards  are followed.
HUD partially agreed with our fourth recommendation about implementing  the necessary rulemaking changes to raise the label fee and putting in  place a process for regular fee reviews. HUD reported that it had  published a proposed rule in the Federal Register to increase the label  fee from $39 to around $100 (as we provided the draft report for review  and comment). Therefore, we revised the recommendation to direct HUD  to complete the necessary rulemaking changes to allow for the label fee  to be increased.  HUD stated that it already had a process in place to  regularly review user fees and that it was considering seeking authority to  allow it to change the fee by Notice, rather than under full rulemaking  procedures to better address possible revenue fluctuations in the future.  However, as we noted in the report, the current user fee analysis  provided by HUD was based on production estimates, appropriations, the  amount of carryover from the previous year, and anticipated expenses.
We noted that best practices for user fee reviews, such as examining the  fixed and variable programmatic costs in relation to the user fees  charged, and additional sources of funding that may mitigate initial  revenue shortfalls or instability in the future, should be performed in  maintaining the Manufactured Housing Fees Trust Fund. As a result,  HUD continues to risk being unable to properly manage future revenue  shortfalls if user fees are insufficient. Thus, we continue to believe HUD  should take action to fully implement this recommendation.
HUD agreed to consider our fifth recommendation that it assess the  feasibility of putting in place user fees for dispute resolution and  installation programs, but stated that its ability to do so is dependent upon  appropriations levels. As we noted in the report, future user fee reviews  must take into account additional sources of funding that could help  prevent shortfalls, such as user fees from dispute resolution and  installation programs. As discussed in the report, HUD has not collected  such fees as authorized by Congress citing reasons such as insufficient  resources. HUD officials explained that HUD label fees are to be used to  pay for dispute resolution and installation programs. However, we found  that because HUD had not increased label fees that it had not generated  sufficient revenue to meet the program’s costs. As such, we believe that  HUD should assess how it might put in place a program for assessing  and collecting installation and dispute resolution feeds to strive to align  these fees with costs in order to actively manage revenue instability.  Thus, we continue to believe HUD should take action to fully implement  this recommendation.
HUD stated it would consider our sixth recommendation to establish goals  for the use of reserve funds and the minimum and maximum thresholds  for the reserves appropriate for meeting those goals. HUD stated that it is  interested in obtaining more information on best practices for trust fund  reserves for evaluating future fee amount changes. HUD also noted that  by fiscal year 2015 it expects to operate solely on fee income after fiscal  2015 and does not foresee any remaining carryover balances at that time.  However, as stated in the report, agencies may wish to use a reserve to  help ensure the long-term financial stability of a user fee-funded program,  to position the agency to respond to varying economic conditions, to  smooth expected fluctuations in costs or collections, or to build capital for  necessary infrastructure improvements or mitigate unforeseen and  unavoidable revenue shortfall. To further ensure accountability and  adherence to any reserve fund goals, establishing minimum and  maximum reserve levels, justified by program data and risk management  considerations levels, may be advisable. Thus, we continue to believe  HUD should take action to fully implement this recommendation.
In other comments, HUD officials voiced concerns over the manner in  which we characterized efforts to update the HUD Code. Specifically,  HUD officials took issue with a summary statement that it had not  completed actions on recommendations from the MHCC within one year  of their submission. We clarified the statement to specify that HUD had  not accepted, modified, or rejected MHCC recommendations within one  year of submission. HUD pointed to its position, already included in the  draft report, that the one-year time period has never been triggered  because HUD has never received recommendations with the proper  economic analysis or format for rulemaking. In other comments HUD  listed a series of administrative and legislative impediments to producing  more timely updates to the standards. For example, HUD said that a  requirement to publish a proposed rule within the 30-day time frame  stipulated in the 2000 Act is unrealistic. In response, we further describe  these concerns in the report. The challenges HUD faces in addressing  these longstanding issues underscores the need for HUD to develop and  implement a plan for updating construction and safety standards for  manufactured homes on a timely, recurring basis, as we recommended.  Further, as we recommended, if such a plan cannot be devised and  implemented, HUD should identify and report to the Congress alternative  methods of ensuring the quality, durability, safety, and affordability of  manufactured homes, including the possibility of relying more extensively  on existing industry standards.
As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies of this report to the  Secretary of Housing and Urban Development and interested  congressional committees. The report also is available at no charge on  the GAO website at http://www.gao.gov. If you or your staff have any  questions about this report, please contact me at (202) 512-8678 or  sciremj@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 who made major contributions to this report are listed in  appendix II.
section_title: Appendix I: Comments from the Department of Housing and Urban Development
section_title: Appendix II: GAO Staff Contact and Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Andy Finkel (Assistant Director),  Barry Kirby (Analyst in Charge), Tim Bober, Stephen Brown, Tarik Carter,  Emily Chalmers, Pamela Davidson, Alexandra Edwards, Juliann Gorse,  Felicia Lopez, John McGrail, Marc Molino, Ruben Montes de Oca, Dae  Park, Nadine Garrick Raidbard, Katherine Trimble, and James Vitarello  made key contributions to this report.