Improvement for 2011?
I don’t have to tell anyone 2010 was another tough year for our state and industry. However, we have seen small improvements. So, it is time to look forward in 2011 and ask if your operations are ready for improvements in business. We have all been “in shell” trying to hang on and protect our business. Now might be the time to set your business up to push ahead of the curve for recovery. Stay involved with Michigan Manufactured Housing Association to hear the latest. If you have not heard from them, then pick up the phone and call them. Make sure to take advantage of free websites such as yelp or mantra. Update your MHvillage.com information. Make plans for a spring open house. Set aside small budgets for flower planting, fresh paint on entranceway signs, and street lights. Make time and budget to meet with advertising and PR firms like All Seasons Communications (they design and print this newsletter for us) to bounce ideas of what may work for your operations. (If we don’t handle your insurance maybe a proposal can get you some savings to add to this budget.) If you believe 2011 will be an improvement, as I do, then now is the time to get ready to take advantage of it. If you wait until summer, you may find yourself behind the curve.

Most business owners view an audit right up there with a trip to the dentist. With a little preparation these appointments can be painless and less expensive. The following are some tips that can make the audit easier:

• Don’t delegate this task to your accountant or secretary. They can prepare the information for you, but you should sit with the auditor. It’s your money on the line and if any questions are asked, you know best what or how to answer.
• You’re not being deposed by your ex-wife’s lawyer, so don’t act like you’re trying to hide something. Auditors do this every day and can tell when something’s fishy.
• Have all your records organized and readily at hand. If you have payroll by individual employee, it’s a good idea to put a worker’s comp class code next to his name to signify his job (Examples are 9015 for maintenance, 8387 for service/set-up and 8810 for clerical). This relieves the auditor of the job of having to classify your employees and asking you a lot of questions. The fewer questions they ask, the better.
• Get certificates of insurance from any independent contractors you use showing that they have general liability and workers comp coverage. If they don’t, you could end up paying for them as if they were your employees or more.
• If you are incorporated, officers can be excluded from coverage as long as the officer owns at least 10 percent of the company stock. If you are a partnership, partners with at least a 10 percent interest in the partnership can be excluded from coverage. (Be careful since most medical insurance excludes loss due to work related injury if coverage is available elsewhere). Owners of a sole proprietorship are automatically excluded from coverage. This exclusion must be made and a form must be signed prior to the effective date of coverage. Owners, officers and partners have a maximum payroll limit that they can be charged for on workers’ compensation. There is no such limit on our employees.
• Consider changing your policy dates to your fiscal year or first of a quarterly reporting period. It makes it much easier to audit, since you don’t have to try to combine pay periods.
• Make sure to separate overtime. If you pay time and a half, you are charged only 2/3 of the overtime payroll.

As always, you should check with your agent about your audit. He or she can answer any questions you may have. A little advance preparation can prevent lots of problems later and save you money.

It’s that time of year—time to predict what the lending world will be like in 2011! Let’s take a look at the usual sources for land-lease community loans.

In recent years, money for manufactured housing properties has come from conduit lenders, banks (primarily local and regional), life companies, GSEs (government sponsored entities, primarily Fannie Mae), and others such as GE Real Estate. Let’s take a look at the current lending climate for each of these sources.

Commercial Mortgage Backed Securities (CMBS) or conduit lending— In 2008, the CMBS industry was all but dismantled. However, 2010 marked the comeback of the securitization industry in regard to commercial real estate. Most of the prior major players have hired back at least a portion of their staff or completely new staff. The largest conduit originator in 2010 was JP Morgan, accounting for almost half of the securitized loans for the year. They are now being joined by a lot of familiar names including Wells Fargo, Deutsche Bank, CIBC, Bridger Funding, Goldman Sachs just to name a few. And there are some newcomers, most notably Ladder Capital, Guggenheim and Cantor-Fitzgerald.

Aside from conservative underwriting, the largest obstacle to increased loan production has been the need to recreate the origination infrastructure. Most of these investment houses are staffed with just a fraction of the people they had just two years ago. The result is, because of limited personnel, the focus in 2010 was on—LARGE deals—$10 million and up and preferably $25 million and up in many cases. However, as the staff is increased and competition unfolds, look for lenders to be willing to entertain smaller loans in 2011. This is particularly welcoming in the manufactured housing industry. In fact, two lenders, Wells Fargo Bank and Guggenheim, have created loan origination programs geared for smaller loans—$1 to 5 million. Underwriting is still very conservative and is likely to remain so through the balance of the year. And maximum loan amounts are typically 70 percent of value and less is preferred.

Banks—In 2009 and the first half of 2010, there had been a “rush for the door” by banks of all sizes struggling to shrink their loan portfolios. However, in the latter part of 2010, many banks are now at the point that their real estate exposure is “right-sized” and so look for many banks to gear up loan origination efforts in 2011. If they are able to write off enough “bad loans” on their books, they will eventually become anxious to replace those loans. After all, lending is what they do to make money.

Life Companies—Unlike banks and conduits, life companies have an ongoing need to invest cash. Millions of us continue to make payments on our property and life insurance policies, and that money needs to be invested so that sufficient funds will be available when the insurance proceeds are needed. The life companies have many places they can invest, but historically they have preferred long term fixed rate investments (like commercial real estate) with definite maturities. We expect life companies to be a major player in commercial real estate in 2011—albeit at conservative levels and only on the best quality assets, and also with the following important caveat—Michigan is probably one of the last places they want to invest their funds. A lot of them are licking their wounds from the commercial loans they made in recent years. I think it’ll be at least another year before their memories have dulled enough to be active in our local markets.

Fannie Mae—Fannie was a major lending source for land-lease communities in 2010. They offer long term, fixed rate, and nonrecourse loans at good rates and on competitive terms. They can be accessed by any of the DUS lenders (Delegated Underwriting & Servicing) who are designated to underwrite and service manufactured housing community (MHC) loans for Fannie Mae. Fannie’s MHC lending exceeds a billion dollars per year. Fannie makes loans on high quality 4 and 5 star communities. All MH land lease community loans are currently designated as “pre-review”—that is Fannie has to pre-review all loan submittals before the DUS lender is allowed to quote the deal. For acquisitions, this can actually be a “positive” —although the borrower won’t yet have a firm commitment, they’ll know that Fannie has seen and likes their deal—prior to having spent serious money on applications and due diligence. We expect Fannie to be a dependable lender in 2011 for higher quality communities. In Michigan, they tend to want to lend only 60 percent on communities with 25-year amortization. Senior communities qualify for 65 percent LTV and 30 year amortization.

Other Lenders—The “private” lenders that I referenced in last year’s article were active only in distressed properties and loan sales, where they could get double digit yields. We do not expect them to be a force in conventional lending in 2011. GE Real Estate has historically been a strong player in the land-lease business. For most of 2010, they have only been making loans to their existing clientele. But they will be entertaining loan requests from new clients in 2011—although they are not expecting to be active in the state of Michigan.

Summary—The re-birth of securitized lending should provide significant increase in the money available for all commercial loans and especially manufactured housing loans. Conduits like MHCs because they have trouble competing with Fannie and Freddie on apartments and MHCs qualify as “multi-family” providing much needed diversification in their pools of loans. I wrote a similar article to this one in 2010 and ended it with “We do expect lending to get better as 2010 progresses and that by this time next year—even though we still won’t be “business as usual,” we should be well on our way toward achieving normal lending practices in 2011.” I am pleased to say, that this seems to be the case. Onward and upward in 2011!

Unless the Federal Trade Commission (FTC) further extends the enforcement date of the so-called “Red Flag” Rules, they became enforceable on December 31, 2010.

As many already know, the Rules were developed by the FTC to require “creditors” and “financial institutions” to address the risk of identity theft. They became effective on January 1, 2008, but enforcement has been delayed several times (most recently to December 31, 2010) to allow time for the FTC and Congress address some apparent confusion as to exactly which businesses are covered by the Rules.

In general, the Rules require businesses with “covered accounts” to develop and implement written identity theft prevention programs to help indentify, detect and respond to certain patterns, practices and activities—known as “red flags”—that could evidence the potential for identity theft.

Many businesses in the manufactured housing industry, including lenders and retailers, are “creditors” and clearly included. Most have already developed such programs as required by the Rules.

But, are typical land/lease manufactured home communities (MHCs) covered?

As noted, the Rules apply to businesses having “covered accounts,” i.e., accounts that are offered or maintained for personal, family or household purposes that involve or permit multiple payments or transactions. Deferral of payments over time is the key in determining if “credit” is being extended and, therefore, whether the account is a “covered account.”

That is, if an MHC permits the deferral of rental payments over a period of time, as opposed to requiring full monthly payments, the MHC is a “creditor” and will likely be subject to the Red Flag Rules. In that case, the MHC must develop and implement an identity theft prevention program. If, however, a MHC only collects monthly rents in advance, it is not extending “credit” to its residents and will not be subject to the Red Flag Rules.

For the most current information on the Red Flag Rules, visit the FTC website at ftc.gov/redflagsrule Note, however, that on December 18, 2010, President Obama signed into law the Red Flag Program Clarification Act. This new law limits the circumstances in which creditors are covered by the Red Flags Rule. The FTC is revising the materials on its website to reflect the change in the law. Stay tuned!