Affordable Housing, unaffordable Credit? Concentration and High-Cost Lending for Manufactured Homes

ERIM-TI Finance Seminar

Abstract
Every fifth lower-income homeowner lives in a manufactured home, making it the largest source of unsubsidized affordable housing in the US. Because of substantially cheaper construction costs policy makers place high hopes in manufactured housing as a solution to the housing crisis. This paper provides the first evidence that the multi-billion-dollar market for manufactured home loans is characterized by high market concentration that enables lenders to charge substantially higher rate spreads. Using detailed loan-level data, we show that manufactured home loans originated in counties with higher market concentration carry significantly higher rate spreads, especially among traditionally under-served groups of the population. Evidence from bunching around the HOEPA threshold and an instrumental variable analysis suggest a causal relation. We establish that integrated lenders, which play an outsized role in the market for manufactured homes, are an important driver of the link between market concentration and rate spreads. Our results have implications for fair lending practices and access to credit, as well as mortgage market regulation.