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November 25, 2001
Hundreds of thousands of lower-income trailer-home owners face tough times ahead as the economy slows and the results of poor lending practices become evident.

Trailers, also called manufactured homes, made up more than half of all new homes sold in 1997 and 1998. From 1991 to 1998, annual sales of the units more than doubled, from 174,000 to 374,000.

But the wheels began coming off around the turn of the century, when it became clear that Green Tree Financial and other lenders had written hundreds of thousands of loans on terms that made it nearly impossible for the homeowners to meet their monthly payments. Tens of thousands have already defaulted and been evicted and it's expected that hundreds of thousands more will follow.

Consumers who default on their loans not only lose their homes, they wind up with huge debts and ruined credit.

The go-go years in manufactured homes were driven by loose accounting practices, inflated reports to investors and high-pressure sales tactics at the local level. Green Tree and other lenders began offering 30-year loans instead of the 15-year notes that had been standard in the business. The longer mortgage lowers the monthly payment slightly but more than doubles the cost of the loan.

Many consumers who bought mobile homes looked only at the monthly payment and did not realize they were committing to a 30-year loan on a temporary structure, what accountants call a "wasting asset."

Trailers are vehicles, after all, and they depreciate nearly as fast as cars and trucks, having practically no value after ten years, whereas traditional single-family homes nearly always appreciate, becoming more valuable as time goes by.

With interest rates of 15 percent or more on 30-year loans, trailer home buyers wind up being "upside down," with a debt that far exceeds the value of their home. This makes it impossible for them to trade up to a largerr home, refinance or take out a second mortgage when their financial situation changes.

Green Tree is now Conseco Finance, the lending arm of Conseco, a large financial services company headquartered in Indiana. Conseco now has serious problems of its own and is saddled with $26 billion in loans on trailer homes. It expects to take huge losses on the trailer loans and is also facing problems in its insurance division. Many Wall Street analysts are predicting the company will slide into bankruptcy later this year. Its stock is down 92 percent from its peak in 1998.

The company says it is working with borrowers who run into trouble. But even so, it concedes that it will repossess one in five of the new trailer homes it finances, The New York Times reported. It expects a default rate of 50 percent on the loans it writes on repossessed homes.

Meanwhile, sales have fallen back to 1990 levels. Only about 180,000 are expected to be sold this year. The resulting glut further erodes the resale value of existing units.

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