JACKSONVILLE, Fla. — Triad Financial Service's credit union clients are reaping the rewards of overcoming negative social stereotypes, enjoying an average 7.75% return on manufactured home loans that are completely guaranteed.
Triad CEO Don Glisson Jr. said manufactured home sales are down, like all big-ticket item sales, but he believes the industry has a bright future, thanks in part to the housing bust.
"We've definitely lost some market share over past five years to entry-level site builders who used very attractive finance terms that took some of our core buyers away," Glisson said. "But, when buyers do come back, and they will, they'll find out the cheap money isn't available for builder homes anymore, and they'll return to manufactured housing as an affordable alternative to what they're used to."
But buyers won't be the only ones looking to manufactured home loans, he said. Lenders are starting to take a second look at Triad's product because it carries a guarantee in the form of a reserve account that pays off bad loans and prepayments.
The company operates like a turnkey indirect lender, working with parks and manufacturers to identify buyers, collect their loan applications and process and fund the loans. Triad then sells the closed whole loans to financial institutions, who also take over servicing.
But that's not where the relationship ends. If the loan goes just 15 days past due, Triad will provide collection services in an attempt to bring the loan current. In the event of repossession, Triad buys back the loan, paying off the full balance out of a $105 million reserve account, which represents about 12.5% of its total loans.
Elizabeth Newman, vice president of lending and member service at $1 billion Credit Union of Texas, said her shop has worked with Triad since 2005 and is on pace to close out 2008 with $18 million in new manufactured home loans.
Newman confirmed that Triad does pick up collection duties when loans go past due. CU of Texas has experienced six repossessions on Triad loans, out of $41 million outstanding, and reports a 0.98% 60-day delinquency ratio on the product.
Triad also allows institutions to hold the reserve funds on its own balance sheet, so it can leverage the assets. And, Glisson said, regulators don't even require credit unions to maintain loss reserves for the whole loans.
The company is currently working with a bank operating under a memorandum of understanding from its regulators, he said, and the institution wanted to purchase Triad loans.
"Within just a couple of weeks they had a letter from the regulator saying it was okay," he said, "and I think that's a great testament to our company. We have a 50-year track record, so this isn't a new concept. It's proven which makes lenders and regulators comfortable."
Credit unions are also having luck participating out the loans to other institutions, he said. Because the loans are closed when Triad sells them, there's no field of membership requirements.
Glisson said he's out looking for new credit union clients because he thinks credit union philosophies for thrift and helping the common man are a good match. Plus, he said, the loans can help fill in the gaps left by the lack of auto and home equity lending.
"We'll generate about $280 million in volume next year, so we're looking at a $25 million-a-month origination machine, and we need places to put those loans," he said. "We're always looking for new lenders, and we think that credit unions offer a good opportunity for us and themselves."
Glisson said poor public perception about manufactured homes and the people who buy them is the company's biggest challenge. He said his average borrower is a far cry from the stereotypical trailer dweller; rather, they earn around $50,000 per year and have an average FICO score of 725.
Newman said her management team and board had some concerns regarding the perceptions of those who apply for the loans, saying back in 2005, Triad was still new to credit unions and banks were the firm's only references. However, the credit union has been pleased with its new book of business.
"Our Triad borrowers average a 717 FICO, and we were all surprised that it was that high for manufactured home loans," Newman said. "The average rate is 8.87%, so we've been happy with the performance of the entire portfolio."
Glisson said only about 1% of the homes are repossessed, and that number hasn't increased much despite skyrocketing foreclosure rates in the site-built home market.
"We've been pretty surprised about that, to be honest, but I think what's happening is that people who bought the manufactured home, bought the home they should have-the home that they could honestly afford," he said. "Plus, our loans have fixed rates and fixed payments. The ones we're losing are still due to traditional reasons, like divorce, which is our primary cause."
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