Archive Press Releases

TESTIMONY BEFORE THE

HOUSING AND COMMUNITY OPPORTUNITY SUBCOMMITTEE

OF THE

HOUSE BANKING AND FINANCIAL SERVICES COMMITTEE

ON

H.R. 1776: THE AMERICAN HOMEOWNERSHIP AND ECONOMIC

OPPORTUNITY ACT OF 1999

 

SEPTEMBER 15, 1999

2128 RAYBURN HOUSE OFFICE BUILDING

WASHINGTON, D. C.

WITNESS: Rutherford "Jack" Brice

For further information, contact:

Roy Green
Federal Affairs Department
(202) 434-3800

 

Good morning, Mr. Chairman and members of the Subcommittee on Housing and Community Opportunity. My name is Jack Brice. I live in Decatur, Georgia, and I serve as a member of AARP’s Board of Directors. On behalf of AARP, I thank Chairman Lazio, Ranking Member Frank, and the other members of the Subcommittee for inviting us to participate in today’s hearing regarding H.R. 1776, the American Homeownership and Economic Opportunity Act of 1999. Before commenting on H.R. 1776, I would like to take this opportunity to thank the Chairman and other members of this Subcommittee for your continuing bipartisan support for legislation designed to assist our older citizens in meeting one of their essential needs – housing. The Association is especially appreciative of the Subcommittee’s efforts to reverse the loss of low-income rental housing that has been occurring. We look forward to a continuing and positive working relationship in pursuit of these shared interests.

Mr. Chairman, H.R. 1776 addresses a number of important homeownership issues. Today I will limit my remarks to two aspects of the legislation that are particularly significant to older Americans:

• Title VII – Manufactured Housing Improvement, and

• Title II, Section 204, insurance for mortgages to refinance existing home equity conversion mortgages.

Title VII – Manufactured Housing Improvement

AARP’s interest in manufactured housing and in this legislation is based on the fact that over 2 million persons age 65 and older live in manufactured homes. And, according to 1998 U.S. Census data, 44% of manufactured homeowners are age 50 and older. From a broader perspective, manufactured homes provide housing for approximately 7% of the total population, as renters or owners. Manufactured homes are an important source of affordable housing for Americans generally, and for older Americans specifically. AARP has been involved for many years in efforts to work with Congress, the U.S. Department of Housing and Urban Development (HUD), and industry to update and modernize the National Housing Construction and Safety Standards Act of 1974 (the 1974 Act), and directly participated in the work of the National Commission on Manufactured Housing.

On July 23rd of last year, AARP testified before this Subcommittee on H.R. 3899 – the American Homeownership Act of 1998 -- concerning its Manufactured Housing Improvement provisions. We agreed then, and we agree now -- as we offer our views on this year’s bill, H.R. 1776 -- that the 1974 Act is not working well for the manufactured housing industry nor for the owners of these homes. Manufactured housing is built locally, but sold to a national market, as a form of interstate commerce. Based on this fact, we believe that there is an important and continuing role for the 1974 Act in establishing and enforcing a national set of construction and safety standards for manufactured housing. No matter where the home is manufactured, or where it goes, it is essential that it at least meet minimum national construction and safety standards.

AARP also supports the goal of establishing a process for regularly updating the standards based on the 1974 Act as long as the process provides for a balanced representation of consumer, industry and general public views and interests. And finally, AARP shares a concern that manufactured housing be affordable. But clearly, affordability has at least two dimensions:

• the purchase price of the manufactured home, and

• the cost of repairs due to its improper manufacture, transport, storage or installation.

From the consumer’s perspective, last year’s hearing identified a critical deficiency in the quality assurance process regulations mandated by HUD under the authority of the 1974 Manufactured Housing Act. That deficiency is a continuing lack of readily available and reliable data from the manufacturers that is necessary to measure each home’s performance against existing federal standards. The fundamental issue is not an absence of construction and safety standards – although some updating is certainly needed -- but rather the failure to enforce the standards as now written.

In support of this year’s renewed legislative efforts to update the 1974 Act, and in the interest of securing relevant data, AARP sponsored a telephone survey conducted from May 21 to June 3. 1999, by National Family Opinion Research (NFO), of 933 mobile homeowners who had purchased their homes within the past eight years. The survey sample was drawn from a nationally representative panel of approximately 35,000 adults whose manufactured home was purchased new and is their primary residence. The margin of sampling error for a sample of this size is a plus or minus 3 percent. Appendix I to my written testimony includes the complete and fully documented survey instrument, and a comprehensive analysis of the findings.

The purpose of the survey was to document the extent to which recent homeowners have experienced problems with the construction and/or installation of their manufactured home, and to explore how they dealt with these problems. The list of possible problems was derived from Part 3280 of the existing Federal Manufactured Home Construction and Safety Standards. The vast majority of the problems identified by the respondents can be described as failures to conform to existing federal construction and safety standards. The survey results were extremely troubling with regard to current quality assurance standards enforcement, and shed a bright light on the need to further perfect Title VII of H.R. 1776, and its stand-alone version, H.R. 710, before final passage. In this regard, we would like to express AARP’s willingness to work through these concerns with all interested parties.

Key Survey Findings include:

• While homeowners’ satisfaction with the quality of their homes was comparable to levels found in other national surveys (nearly 80% reported being "very" or "somewhat" satisfied in this survey), a closer analysis of responses showed that ratings varied significantly by whether or not a problem was reported, and by the type of problem reported.
• Nearly eight in ten manufactured homeowners (77%) reported problems with the construction or installation of their homes, or other problems related to the use and enjoyment of their homes. Nearly six in ten (57%) reported more than one problem.
• Nearly all (89%) of the particularly troublesome problems identified by manufactured homeowners reportedly developed within the first five years of ownership, while six in ten (61%) were reported for the first year.
• Virtually all those surveyed (95%) said they received warranties with their new manufactured homes. Nevertheless, for all 944 problems identified by respondents as being of "major" or "greatest" concern, only about one-third (35%) were repaired under warranty. Two-thirds of homeowners reporting such problems either paid for the repairs or they remained unfixed. And remember, these problems are – in theory -- covered by existing HUD regulations.
• Finally, among those who reported out-of-pocket expenses for repairs, those expenses averaged $1,140 per problem.

Doesn’t the purchaser of a new manufactured home deserve better service, regardless of where – or by whom -- the home was manufactured?

While owners of new manufactured homes remain committed to their choice in homeownership, the results of this study serve to confirm that the existing quality assurance program supporting that decision is not working. Perhaps even more significant is the fact that the purchasers of the most recently manufactured homes -- and again, in theory, the best homes ever made -- face substantial risk of paying out-of-pocket repair costs soon after they buy their new manufactured home. Clearly the current array of manufacturer-offered warranties, and the general lack of effective dealer/retailer installation guarantees, do not promote more affordable homeownership – but rather often raise the price of the home post facto. Nothing has prevented the manufacturers and the dealer/retailers from collecting quality assurance data about homeownership concerns, and indeed from using this information to redress their shortcomings in meeting federal construction and safety standards.

With regard to the housing legislation that is pending before the Subcommittee – Title VII of H.R. 1776 -- the Association has three basic concerns. AARP urges the Subcommittee to address these concerns by providing for:

• First, a more balanced consensus committee for making recommendations to the Secretary of HUD to periodically update standards under the 1974 Act. A reformulated committee would reflect a better balance between consumer and industry views on enforceable national construction and safety standards than is currently proposed.

• Second, federal minimum level requirements for a manufacturer’s warranty, and for a state recovery fund; and

• Third, a nationally mandated, performance-based installation standard.

Balanced Consensus Committee

The composition, scope of authority, and practical voting definition of what represents a "consensus" in the proposed Consensus Committee are important issues because of the importance of its recommendations to the Secretary of HUD. Currently, Title VII of HR 1776 proposes five interest categories for the Consensus Committee. Two of these categories clearly represent industry interests and thereby give undue weight to industry views.

In order that the Consensus Committee reflect a better balance of views toward possible changes in construction and safety standards—and their enforcement -- the proposed interest categories and the numbers of members in each category should be revised. Specifically, the categories in Title VII of HR 1776 designated for Home Producers (the manufacturers) and for Other Business Interests (the retailer/dealers) should be merged. The resulting category of "Home Producers and Other Business Interests" would have seven members instead of five each (including dealers/retailers).

At the same time, the number of members in the Consumer interest category should be increased to 7 as a balance to the industry category. The Public Officials category and the General Interest category should be combined and given 7 members. Land-use planners should be added to the latter group. The total number of Consensus Committee members would then be 21.

Warranties and State Recovery Funds

Title VII of HR 1776 does not provide for minimum federal warranties nor for state recovery funds. A new section providing for Warranties and State Recovery Funds should be added, including the following:

• Warranties shall be written and provided to the purchaser of a new manufactured home and shall warrant that the home is constructed to the standards promulgated by the Secretary and that the home is free from defects in materials and workmanship.

• The warranty shall cover the correction of defects which result from the design, construction, transportation, installation and/or storage.

• Manufacturers shall cover all defects which become evident within 5 years, (except as covered by the retailer’s warranty), including defects in plumbing, electrical, air distribution, and structural systems.

• Retailers shall provide a written warranty that the home is installed in accordance with the applicable installation standards and that any appliances or equipment added by the retailer and included with the sale of the home are properly installed and are free from defects in materials or workmanship. The term of the retailer’s warranty shall be 2 years.

Warranties would be limited or voided in situations where the home purchaser does site preparation and installation and would be valid only so long as the home remains installed at the initial home site. Disputes over warranty coverage would be resolved, at the choice of the consumer, through an alternative dispute resolution (ADR) mechanism or litigation.

State recovery funds would be established to cover claims where the responsible manufacturer or retailer is no longer in business or refuses to honor claims after the ADR process or litigation. The Secretary of HUD would carry out the functions of the state recovery funds (collecting fees and distributing recovery amounts) where states have not enacted legislation to establish a fund within four years of the effective date of the Act.

Installation Standard

A definition of "installation" should be added to the Definitions section. It would require the Secretary to establish, by order, the installation standard which has been developed by the Manufactured Housing Standards Committee of the American National Standards Institute (ANSI).

Title II, Section 204, insurance for mortgages to refinance existing home equity conversion mortgages .

Section 204 of H.R. 1776 would create a refinancing option for Home Equity Conversion Mortgages (HECMs) insured by FHA. When home values and FHA mortgage insurance limits increase or interest rates decline, borrower interest in refinancing HECM loans goes up. Unfortunately, borrowers seeking to refinance HECM loans currently must go through the entire process and expense of loan origination.

AARP supports the goals of Section 204 in making refinancing less expensive and easier to process for HECM borrowers. However, we believe that the specific provisions of that section might create serious problems for the financial security of the program and for essential consumer protections. Specifically, AARP is concerned about the following aspects of Section 204: 1) the elimination of the counseling requirement for all refinances; and 2) provisions governing the setting and refunding of premiums.

The new Subsection (k)(2) would exempt all refinances from the counseling requirements that apply to HECM loans. While the full counseling process may not be necessary for all borrowers, the potential for misuse of refinancing suggests the need for caution in considering elimination of all counseling requirements. AARP recommends that borrowers be able to waive counseling in refinances under the following conditions: a) if additional net benefits exceed additional total costs and b) if the refinance takes place within a specified period of time after the initial loan.

New Subsection (k)(3) would establish a specific formula for premiums for refinancing. Clearly, borrowers who refinance should be given credit for the HECM fees they have already paid. However, if refinancing were widely used, it could have a substantial impact on the risks to the insurance fund. This risk would be magnified if the ability to refinance were coupled with proposals to use a single national loan limit for reverse mortgages. While AARP supports both the use of a single national limit and credit for HECM borrowers who refinance their loans, the specific limit and credit for premiums should be based on actuarial analyses of the risks involved, rather than legislative action alone.

AARP believes that HUD already has the authority to institute needed changes with respect to refinancing HECM loans. On July 1st of this year, we sent a letter to Secretary Cuomo outlining administrative changes that HUD could be taking to improve the program. That letter is attached as Appendix II to this testimony.

Accordingly, AARP urges the committee to delete Section 204 from H.R. 1776 and, instead, include legislative language directing the HUD Secretary to take the following actions:

1) Institute a refinancing program for HECM loans that gives borrowers credit for premiums already paid on an actuarially sound basis;

2) Develop a new disclosure form for refinances that fully discloses total new costs and changes in the net principal limit (net cash available to the borrower) so that consumers will be able clearly to see the potential benefits and costs involved;

3) Permit borrowers who are refinancing loans to waive counseling if a) additional net benefits exceed additional total costs and b) the refinance takes place within a specified period of time after the initial loan; and

4) Conduct actuarial studies of the potential impacts of a single national loan limit set at various levels on: a) the risks to the insurance fund; and b) mortgage insurance premiums that would be charged to borrowers. Such a study should take into account various approaches to providing credit to borrowers who refinance HECM loans.

Conclusion

Mr. Chairman, in conclusion, AARP strongly urges you to consider these comments and suggestions as the Subcommittee works to perfect H.R. 1776. Thank you again for the opportunity to testify on the "American Homeownership and Economic Opportunity Act of 1999." We look forward to continuing to work with you and the other members of the Subcommittee on this and other housing issues.

In compliance with House XI, clause (2) (g) (4) regarding information of public witnesses, attached is AARP’s statement disclosing federal grants and contracts by source and amount received in the current and preceding two years.