Subcommittee on Housing and Transportation


Hearing on S.1452 - "The Manufactured Housing Improvement Act"


Prepared Testimony of Mr. William Lear
Vice President and General Counsel
Fleetwood Enterprises, Inc.


9:30a.m., Tuesday, October 5, 1999

I. INTRODUCTION.

This testimony is submitted on behalf of the Coalition to Improve the Manufactured Housing Act ("Coalition"). The Coalition is comprised of the manufactured housing industry's two national trade associations -- the Manufactured Housing Institute ("MHI") and the Manufactured Housing Association for Regulatory Reform ("MHARR").

Together, MHI and MHARR represent virtually every manufactured home builder in the United States. In addition, MHI's membership includes most manufactured home retailers, component suppliers, community owners, operators and developers, financial institutions which offer manufactured housing loans and manufactured housing insurers. In total, the members of the two associations account for approximately twenty-five percent of the new single-family houses sold in the United States and contribute more than $33 billion annually to the domestic economy.

At the outset, the Coalition wishes to express its gratitude to Senator Shelby and all of his co-sponsors for their support of The Manufactured Housing Improvement Act of 1999 -- S. 1452. It also wishes to thank the Subcommittee for conducting hearings on this important legislation and for inviting the Coalition to present its views.

As is explained in much greater detail below, the Coalition enthusiastically supports the passage of S. 1452 and its companion bill in the House, H.R. 710 (Title VII of H.R. 1776), which was the subject of a hearing on September 15, 1999.

In the twenty-five years that have elapsed since the enactment of the National Manufactured Housing Construction and Safety Standards Act of 1974 (42 U.S.C. 5401 et seq.)("Act," or "Title VI") a great deal has changed. Manufactured homes themselves have changed -- evolving further and further away from the stereotypical "trailers" of the 1940s, 50s and 60s and the "single-section" homes of the 1970s. The utilization of manufactured housing has also changed, expanding beyond traditional market areas and ownership demographics to today constitute the housing of choice for a significant portion of American homebuyers. In large measure, this transition has been fueled by the affordability and technological innovation that the Act was intended to protect and foster.

Unfortunately, however, the Act has not kept pace with the rapid evolution of the industry and its product. First written and introduced in 1972 at the end of the "trailer" era, the Act is modeled upon Federal automobile safety legislation and has not been updated or modernized in the ensuing twenty-five years to reflect the now-completed transition of manufactured homes from the vehicle-like trailers of yesteryear to the permanent, affordable housing of today.

Similarly, the Federal manufactured housing program established by the Act, under the auspices of the Department of Housing and Urban Development ("HUD"), has not kept pace with this change. Relatively simple updates of manufactured housing reference standards have taken years to accomplish. Regulations have been imposed and standards have been changed without observance of the notice and comment rulemaking procedures mandated by the Act and its implementing regulations. The program, moreover, in recent years, has been largely depleted of technical personnel. As a result, technical and compliance decisions have increasingly been left to outside contractors that are not subject to constitutional due process constraints. Indeed, the Federal program, in recent years, has continually lost personnel, while manufactured housing has been one of the fastest-growing segments of the housing industry. And this is despite the fact that the Federal program is financed not by tax dollars, but by a user fee paid by manufactured housing producers.

The improvements contained in S. 1452 will both modernize and revitalize this revenue-neutral program that ensures the availability of affordable, non-subsidized housing for millions of Americans. They will strengthen the Federal program -- not weaken it as some have contended -- by providing additional user fee funding for new Federal staff personnel. They will bring manufactured housing regulation into the mainstream of housing regulation by establishing the same type of "consensus" procedures that are utilized for all other kinds of residential building codes. They will give consumers a real voice in the standards-development and regulatory process through direct participation in consensus proceedings. They will promote accountability by defining, for the first time, the permissible role and functions of contractors and by strengthening due process safeguards. In short, they will address issues that have become apparent over the past quarter century; they will conform the law to the market status of manufactured housing as housing rather than a type of specialty vehicle, and will establish the groundwork for the future evolution of affordable manufactured housing in the twenty-first century. For these reasons, as further explained and detailed below, the Coalition strongly supports S. 1452 and urges its passage by the Banking Committee and by both houses of Congress.

II. AFTER TWENTY-FIVE YEARS, LEGISLATION IS NEEDED TO MODERNIZE THE 1974 LAW AND THE FEDERAL PROGRAM.

A. LEGISLATION IS NEEDED BECAUSE OF THE RAPID EVOLUTION OF MANUFACTURED HOUSING SINCE 1974.

When the basic language and structure of the Act were initially proposed in 1972, manufactured homes were still regarded as "trailers" -- vehicles that could be transported from place-to-place as needed and used as shelter. Consequently, the 1974 Act was patterned after the National Traffic and Motor Vehicle Safety Act of 1966 (and amendments of 1970)("NTSA"). Rep. Louis Frey, the principal sponsor of Title VI and its predecessor bills in the House of Representatives, stated on May 2, 1972, upon the introduction of the first proposed manufactured housing bill, that "the legislation which I offer today is modeled to a certain extent on the Motor Vehicle Safety Act...."

See, Congressional Record H. 3985, May 2, 1972. Consequently, the 1974 Act is a "trailer" law designed for the regulation of a type of vehicle.

Today's manufactured homes, however, are not "trailers." In the quarter century that has elapsed since 1972, manufactured homes have rapidly evolved in size and sophistication, to the point that they are now firmly established in the marketplace as a form of permanent "housing," rather than a type of vehicle. While this transition had already started when the present Act was passed in 1974, it has only been completed within the last twenty years. This evolutionary process is aptly described in a recent study:

See, Goldman Sachs U.S. Research, "Manufactured Housing: Upwardly Mobile" (June 21, 1996) at 12.

Consequently, while the manufactured housing industry began its existence by producing vehicle-like "trailers," and was still producing "trailer"-type homes into the 1960s, today's manufactured homes are permanent homes that are typically sited only once. As the above-referenced report notes, "once shipped to a land site, the home is anchored to a concrete foundation or ... full basement and is rarely moved again...." This transition from specialty vehicle to permanent home, is also reflected in the increased size and complexity of manufactured homes. Today, multi-section homes, which are shipped to the home-site and then joined to form a single unit (in some cases even including two stories), constitute 61.3 percent of all manufactured homes sold, up from 37 percent in 1986 and 46.7 percent as recently as 1991. Similarly, the average size of a multi-section home today is 1600 square feet, as compared with an average size of 980 square feet for single section homes produced in 1990.

As manufactured homes have grown in size and sophistication they have nevertheless maintained a degree of affordability that is unmatched by any other type of housing. In 1998, the average cost of a new manufactured home, per square foot (exclusive of land), was $28.94 -- while the average cost of a new site-built home (exclusive of land) -- was $61.47 per square foot. This type of affordability, moreover, has been a consistent characteristic of manufactured housing. In 1986, for example, the corresponding cost figures were $20.00 for a manufactured home and $49.00 for a site-built home. Perhaps even more important, though, is the fact that this affordability is a result not of government subsidization, but is, rather, the result of (i) a uniform, performance-based building code; (ii) uniform enforcement; and (iii) Federal preemption, which preserves uniformity. These fundamental elements of the 1974 Act, in turn, allow the efficiencies of factory construction to be passed along to consumers. Such efficiencies result, among other things, from the fact that: (1)all materials and labor are at the factory, and various craftsmen are readily available to perform specific tasks on the product as it moves from station to station; and (2)indoor assembly prevents weather-related interruption of the building process and assures that construction materials are protected from theft and exposure.

Primarily as a result of its affordability and the increasing popularity of multi-section homes, the market share of manufactured housing has grown steadily. Between 1990 and 1997 manufactured housing shipments, as a percentage of single-family home starts, have increased from 17 percent to 24 percent.

For manufactured housing to continue to evolve and serve the needs of the nation's housing consumers, however, it is essential that the Act -- and not just the marketplace -- treat it as housing rather than a type of vehicle. S. 1452 accomplishes this objective by, among other things, mandating a new, positive Statement of Purpose for the Act that would recognize the unique role of manufactured housing in providing an affordable, unsubsidized homeownership opportunity for all Americans. This statement, however, would continue to ensure the protection of consumers against the risk of personal injury or property damage. S. 1452 would also conform the Act to typical housing practice by mandating the consensus development of all standards. This would also bring the Act into compliance with OMB Circular A-119, which mandates the the formation of private, balanced consensus committees for the development of industry standards. Together, these vital improvements will allow manufactured housing to continue to evolve as an attractive, unsubsidized affordable housing option. They will also ensure that manufactured housing remains a part of the housing mainstream.

B. LEGISLATION IS NEEDED BECAUSE OF INADEQUACIES IN THE CURRENT FEDERAL PROGRAM.

While the utilization of manufactured housing has steadily increased in the 1990s and manufactured homes have become a larger and more important segment of the nation's single-family home sales, the Federal manufactured housing program established by the 1974 Act has deteriorated. This decline, which S. 1452 is designed to address, involves two principal elements: (i) HUD's failure, in certain instances, to adhere to the letter and intent of the 1974 Act; and (ii) reductions in the level of program staffing and a lack of proper emphasis on manufactured housing by HUD. The combined impact of both of these problems is a program that has had difficulty meeting the needs of the public and that has actually impeded greater utilization of safe, affordable manufactured homes.

1. THE FEDERAL PROGRAM HAS NOT COMPLIED WITH THE LETTER AND INTENT OF THE 1974 ACT.

The legislative history of the 1974 Act makes it clear that Congress intended to provide for safe and affordable manufactured homes through certain key aspects of the envisioned Federal manufactured housing program: (i) Uniform performance-based Federal standards; (ii) Uniform enforcement; and (iii) strong Federal preemption. In part, these fundamental elements were a response to the then-existing state of manufactured housing regulation, which featured 45 separate state codes loosely based upon a standard developed by the American National Standards Institute ("ANSI" Standard A119.1) and enforced to varying degrees and with varying interpretations principally by the industry itself. The remaining five states had no specific manufactured housing standards at all. Among the results of this inconsistent regulatory landscape was the unwillingness of certain states to accept for siting homes inspected and improved in other states. This lack of reciprocity, as it was called by the proponents of the Act, became a major impetus for congressional action.

The 1974 Act was designed and intended to replace this patchwork of state laws and inconsistent enforcement with a single set of Federal standards and coordinated enforcement that would allow any manufactured home to be shipped anywhere in the country and that would allow for the maximum possible degree of technical innovation. Senator William Brock, one of the earliest sponsors of Federal manufactured housing legislation, made this point in a 1972 floor statement:

A single standard for mobile home construction will allow manufacturers to market their products on a national basis without having to build to a variety of state and local standards. If states are permitted to promulgate standards which differ or exceed a Federal standard, they are, in effect, forcing manufacturers to build as many different products as there are states. A single standard will allow producers to make a universal product. This approach accommodates the elimination of costly production line changes which other-wise add to the cost of the home. A preliminary benefit of any standardization is the resultant reduction of unit cost. Any Federal standards should seek to realize and pass this benefit to the home buying public.

See, Congressional Record S. 7782, May 15, 1972.

The Act, moreover, was designed to provide for "consensus" input in the development of standards. This was intended to be accomplished first through the National Manufactured Home Advisory Council. Pursuant to section 605 of the Act, this body was to be comprised of equal numbers of representatives of: (i) consumer organizations, community organizations and recognized community leaders; (ii) the manufactured home industry and related groups; and (iii) "government agencies including Federal, state and local governments." Section 605(b) further instructed HUD to "consult with the Advisory Council prior to establishing, amending or revoking" any standard.

In addition to the Advisory Council, Congress provided for broad public participation in the development of manufactured home standards by requiring, in section 604, that all standards be adopted "by order" "after notice and an opportunity for interested persons to participate are provided." This statutory requirement was later supplemented in HUD's implementing regulations, which provide at 24 C.F.R. 3282.105 and 113 that notice and comment rulemaking procedures should be the norm for, respectively, the promulgation of Procedural and Enforcement Regulations ("PER" or "PER regulations") and official HUD interpretations of the standards.

Unfortunately, however, in practice, such basic requirements of the Act have not been observed. First, and most importantly, HUD has failed over the years in its most important obligation -- to update the standards on a timely basis. Even reference standards developed by outside organizations have taken years to adopt after their implementation by other segments of the housing industry. The cumulative impact of this neglect is a code that has not kept pace with technological innovation within the industry.

Second, when HUD has acted with respect to the standards, it has often bypassed both the Advisory Council and the Act's rulemaking procedures. The Advisory Council, for example, has been convened only twice in the last fourteen years -- in 1987 with respect to energy standards and in 1993 with respect to wind standards. Thus, the consensus input intended to be provided by the Council, by and large, has not found its way into the development of the Federal standards.

Similarly, numerous substantive changes to the standards and PER regulations have been promulgated by HUD without notice and comment rulemaking. HUD has implemented these changes by simply announcing them as "interpretations" at informal meetings of technical personnel involved in the enforcement of the Act, or has published them, without notice and comment, as "Interpretative Bulletins." In both cases, the effect has been the same: substantive changes have been made without any prior opportunity for public input or the development of a consensus standard. While affected parties can object to these pronouncements after the fact, judicial decisions under the Administrative Procedure Act (the rulemaking requirements of which are incorporated within the Act at section 604(b)) have unanimously acknowledged that after-the-fact remedies are no substitute for an opportunity to have one's views considered at a meaningful stage in the pre-promulgation development of a regulation.

In addition to such activities, HUD, through administrative decisions, has attempted to narrow the scope of Federal preemption under the Act, thereby subjecting manufactured housing and manufactured housing consumers to the re-imposition of conflicting and costly state requirements. This narrowing process was completed on February 19, 1998, when HUD adopted -- without notice and comment -- a Notice of Internal Guidance on Federal preemption under the Act. Although case law under the Act holds that preemption is to be construed "broadly," the Notice of Internal Guidance opts instead for a much more constrained view of the preemptive reach of the Federal standards.

S. 1452 addresses all of these important issues. First, it mandates the consensus development of standards, PER regulations, monitoring guidelines and interpretations so that all interested parties will have a voice in the process and an opportunity to have their views considered at a meaningful point in the process. The committee, as outlined in greater detail below, will be fairly balanced, as is required by OMB Circular A-119, to ensure that it cannot be dominated by any one interest segment. In addition, S. 1452 would allow for the reimbursement of travel and attendance expenses incurred by committee members and would require the administering organization to provide reasonable staff resources to the committee upon request by the committee. Finally, and most importantly, the committee's work output would be in the form of recommendations that the Secretary would be free to either accept or reject for any reason.

Second, S. 1452 would streamline the procedures for updating the standards. It would require updates on a continuing basis so that the standards will never again lag behind technology or other reference codes. It would also ensure that preemption will be construed by HUD as it has been construed by the courts and as it was originally intended by Congress. In short, S. 1452 strengthens the entire standards and PER development and enforcement process to ensure that it functions in a fair, reasonable and timely manner. In a similar manner, it would ensure that the scope of preemption under the Act is enforced in the manner that Congress originally intended.

2. CHANGES AT HUD HAVE HARMED THE FEDERAL PROGRAM.

The Federal manufactured housing program -- and by extension both the manufactured housing industry and manufactured housing consumers -- have also been harmed by a lack of adequate staffing, adequate funding and adequate emphasis upon manufactured housing at HUD. Thus, even though manufactured housing currently accounts for a substantial portion of all new single-family home sales, the status and resources of the manufactured housing office at HUD have repeatedly been downgraded in recent years due largely to budgetary constraints.

At present, the manufactured housing program is only one part of the Office of Consumer and Regulatory Affairs ("OCRA"). It does not have a full-time director as it had in the past. At present it is overseen, together with other programs, by the Director of OCRA. Notwithstanding its wide-ranging statutory obligations to develop and update standards; to enforce the standards; to supervise and coordinate the activities of private and state inspection agencies; to ensure proper Federal preemption; and to supervise and coordinate the processing of complaints and investigations, the program's staff has been reduced from 35 full-time employees in 1984 to 8 professional employees today. These employees, moreover, are not ordinarily permitted to travel on program business.

The result of this lack of resources and emphasis is twofold. First, issues affecting manufactured housing have not received sufficient attention at HUD and manufactured housing has been moved away from the mainstream of the Department's activities. As a result, nearly one-third of the new single-family housing market is regulated by a program that receives only a tiny fraction of HUD's funding and attention. This translates directly into missed opportunities to expand the availability and utilization of truly affordable, unsubsidized manufactured homes.

Second, this lack of resources has led the program to become dependent upon outside contractors for technical expertise, particularly with respect to investigatory and enforcement actions. The primary difficulty with this dependency is that contractors have a financial motive to find fault with as many aspects of manufactured housing as possible, and thereby increase both their duties and their compensation. Furthermore, manufacturers and retailers have no due process rights in dealing with regulatory decisions made by contract personnel, as contrasted with Federal employees.

The impact of this dependency upon the manufactured housing program has been severe. It has reduced the overall accountability of the program to Congress and to the public; it has increased the amount of paperwork that is required from manufacturers and retailers -- at a substantial cost that is inevitably passed along to consumers, but with little or no corresponding benefit to consumers; and it has diminished the procedural and due process rights of manufacturers and other parties subject to regulation under the Act.

In 1997, 32 concerned Senators, including many members of this subcommittee wrote to the Secretary of HUD to address precisely these issues. Among other things, this letter states:

The letter (and a similar one from 72 House members) then urged HUD: (i) to work with its officially-recognized voluntary consensus committee -- which functioned free of charge -- to update the standards; (ii) to utilize industry-paid user fees to pay for an appropriate level of staffing and to permit travel by program personnel; and (iii) to establish "a non-career administrator whose only responsibility would be authority over the manufactured housing program."

In its response to these letters, HUD indicated that it could not comply with Congress' suggestions without additional legislative authority. S. 1452, accordingly, is designed, among other things, to give HUD the authority that it needs to implement these changes and to maintain a strong Federal manufactured housing program. A healthy Federal program and proper Federal oversight of the program are a benefit to both the industry and consumers, and are a primary goal of the Coalition in supporting S. 1452.

IV. THE CHANGES CONTAINED IN S. 1452 WILL IMPROVE AND MODERNIZE THE FEDERAL PROGRAM.

A. NO TAX FUNDS ARE NEEDED TO IMPROVE THE FEDERAL PROGRAM.

As was stressed in the above-quoted letter to HUD, the Federal manufactured housing program can be improved and modernized without the expenditure of any additional tax funds. This is because the manufactured housing program is already largely self-financed through a "label fee" paid by manufacturers. This fee -- currently $24.00 per "floor" -- is paid by manufacturers in order to obtain a HUD compliance label which, under the Act and its implementing regulations, must be affixed to a new home before it can be sold.

Currently, the Act only allows these fees to be utilized for inspections and standards-development, including research and testing. S. 1452, however, would expand this authority to include: (i) funding for the establishment and operation of a statutory consensus committee; (ii) funding for additional Federal program staff personnel; (iii) funding for a dedicated non-career administrator for the manufactured housing program; and (iv) funding for program staff travel.

The industry, accordingly, is not seeking the utilization of general revenues to improve the Federal program. Rather, it is willing and, indeed, anxious to support an improved and modernized manufactured housing program with its own label fee payments. The benefits that will be realized by both consumers and the industry, including a better, more timely code maintenance system; more effective Federal supervision of the program; and a greater focus on manufactured housing at HUD will be well worth the effort.

B. THE CHANGES CONTAINED IN S. 1452 WILL ENSURE THAT MANUFACTURED HOUSING REMAINS IN THE "MAINSTREAM" OF AMERICAN HOUSING.

1. STATUTORY CONSENSUS PROCEDURES

The single most important improvement contained in S. 1452 is its creation of a statutory consensus committee to develop and amend the construction standards, monitoring and enforcement guidelines and interpretations of the standards and regulations.

Currently, when manufactured housing standards, PER regulations or interpretations are developed, they are prepared by HUD personnel with little or no input by either industry members or consumers. Although HUD, since 1988, has officially recognized a privately-administered, voluntary consensus committee (administered first by "CABO" -- the Council of American Building Officials -- and more recently by the National Fire Protection Association) it has failed to act on the vast majority of its recommendations. Similarly, HUD has failed to convene the consensus-based Advisory Council established by the Act and has implemented both new rules and amendments without public input through notice and comment rulemaking. This has resulted not only in a code that is outdated, but in the adoption of standards and regulations that are outside of the mainstream for housing; that are in certain cases excessive or unreasonable; that are not the subject of agreement within the manufactured housing engineering community; that are inconsistent with other existing standards; that are not cost-effective for manufactured housing purchasers as required by the 1974 Act; or that while costly, provide little or no benefit to consumers.

The development of such standards in an internal process, virtually cut off from the public, stands in sharp contrast with the development of standards for all other types of housing, which is uniformly accomplished through a consensus committee process.

Under this consensus process, all code proposals are considered by a broad-based, unitary committee which must then consider and resolve any objections to the proposal before it can be passed. In this manner, representatives from diverse disciplines within the fields of residential construction, engineering, architecture, as well as government, are able to adopt standards that are not only sensible, workable and objectively viable, but that are the result of a broad consensus of opinion.

This system has worked well for other types of housing for years and there is absolutely no legitimate reason for manufactured housing standards to be developed differently. Indeed, for manufactured housing to remain part of the mainstream of American housing and to realize its full potential to provide affordable homeownership for all Americans, it must and properly should be regulated under the same type of consensus procedures that are used for all other residential codes. Accordingly, S. 1452 would create a statutory consensus committee and consensus process for manufactured housing.

The consensus process and committee composition are specifically set forth in the bill. Under the express terms of S. 1452, the committee must be appointed on the basis of "procedures for consensus committees promulgated by the American National Standards Institute" ("ANSI"). Those procedures provide, in part, that "the standards development process should have a balance of interests and shall not be dominated by any single interest category." See, American National Standards Institute, "Procedures for the Development and Coordination of American National Standards," March 25, 1995 at p. 1, section 1.2.2. Accordingly, S. 1452 divides the membership of the consensus committee into five interest categories of five persons each: (i) manufactured home producers; (ii) other businesses involved with the manufactured housing industry; (iii) consumers, consumer organizations and recognized consumer leaders; (iv) public officials; and (v) general interest groups including academicians, architects, researchers and others. There would also be a non-voting HUD-designated member of the committee who would apprise the committee of the views of the Secretary. Significantly, any nominee to the committee could be rejected by the Secretary, with or without cause, providing yet another safeguard for proper balance and against one-party domination.

This membership breakdown is significant for two reasons. First, under the proposal, no member of category (iii), (iv), or (v) can have a significant financial interest in any segment of the manufactured housing industry. As a result, the consensus committee will have a 15- member majority of homeowners, consumer representatives, public officials and general interest members. Persons representing various segments of the industry would comprise a ten-person minority that would not be able to pass resolutions without convincing other members of their merit. Indeed, the bill specifically provides that recommendations must be approved by a two-thirds majority vote. Second, this committee will offer consumers a direct role and participation in the development of standards and related interpretations and guidelines, unlike the consensus committees that develop all of the nation's other residential building codes, where vitually all consumer interests are represented by public officials. Under the proposed bill, moreover, code changes would be considered at least once every two years. The committee's recommendations could then be either adopted by the Secretary or rejected, or modified subject to notice and comment procedures. The Secretary would have complete discretion to either accept or reject any of the committee's recommendations.

In addition, the bill would require that the consensus committee be a "unitary" body. This means that all changes would be debated and voted upon by all committee members. As a result, changes could not be debated or approved solely by a sub-committee.

The reason for this requirement is quite basic. It is, simply, that the various standards for manufactured housing construction and safety tend to be inter-related. A change in one standard often has either known or unknown effects on other standards. For example, there is an inter-relationship between the standards for energy conservation and those involving both window area and condensation. As a result, it is essential that members of all disciplines within the committee be able to consider and debate every proposal so that changes in one area of construction or safety do not lead to adverse consequences elsewhere. Indeed, it is for precisely this reason that all of the consensus committees that develop standards for non-manufactured housing utilize a unitary procedure. Again, there is no legitimate reason to treat manufactured housing differently.

S. 1452 accordingly, provides for a fair and balanced consensus process that will result in sensible standards and direct consumer participation. It will also conform the manufactured housing program to the administration's stated policy, set forth in OMB Circular A-119, in favor of the utilization of consensus regulations developed by private entities.

2. CONSENSUS DEVELOPMENT OF ENFORCEMENT REGULATIONS, MONITORING GUIDELINES AND INTERPRETATIONS.

In addition to standards development, S. 1452 also vests the statutory consensus committee with authority to develop PER regulations, monitoring guidelines for the oversight of HUD-approved Primary Inspection Agencies ("PIAs") and interpretations of both the standards and regulations. The Coalition firmly supports this ancillary delegation of authority for three principal reasons: (i) because of the problems that have characterized HUD's exercise of such authority in the past; (ii) because the benefits of consensus standards development could be undermined through unilateral "interpretations" or through enforcement actions by HUD or its contractors; and (iii) because the members of the consensus committee will be in the best position to both interpret the technical requirements of the standards and determine how they can be best and most cost-effectively enforced.

The system set forth in S. 1452 will combine all of the benefits of the proposed consensus process with ample due process safeguards for all interested parties. Thus, for consumers, the consensus process will offer them a direct voice in the development of regulations and interpretations that they do not currently have. At the same time, though, the Secretary of HUD will still have complete authority to accept or reject any such recommendation. Similarly, for the industry, regulations and interpretations will be subject to the rigors of consensus debate as they have not been in the past and will receive the type of cost-benefit analysis that they should in the context of the overall intent of the 1974 Act to provide for cost-effective construction and safety regulation. The Secretary of HUD, in addition, will still have authority to develop regulations and interpretations, subject to review by the consensus committee.

The development of regulations, monitoring guidelines and interpretations, accordingly, will be substantially improved under S. 1452. Moreover, the consensus development of these rules and interpretations is essential to the success of consensus standards development because of the interplay between the standards and enforcement methodologies, and because of the manner in which the code's performance standards can be altered by process of interpretation. S. 1452 thus properly allows the consensus committee to make recommendations with respect to the entire regulatory system, so that it can function as an integrated whole, in a sensible and cost-effective manner that reflects the agreement of all affected parties.

C. THE IMPROVEMENTS CONTAINED IN S. 1452 WILL INCREASE THE AVAILABILITY OF

UNSUBSIDIZED, AFFORDABLE MANUFACTURED HOUSING.

1. A POSITIVE STATEMENT OF PURPOSE WILL LEAD TO EVEN GREATER PUBLIC ACCEPTANCE OF MANUFACTURED HOUSING WITHOUT IMPAIRING THE INTERESTS OF CONSUMERS.

While manufactured housing has already entered the mainstream of the housing marketplace, it continues to be hampered in its public acceptance and its acceptance by certain local jurisdictions, by the negative implications of the 1974 Act's Statement of Purpose. Set forth at section 602, the Statement of Purpose currently provides:

The Congress declares that the purposes of this title are to reduce the number of personal injuries and deaths and the amount

of insurance costs and property damage resulting from manufactured home accidents and to improve the quality and durability of manufactured homes.42 U.S.C. 5401.

This statement implies that manufactured homes are at best inadequate and at worst dangerous and therefore in need of "improvement." This is simply not the case with today's manufactured housing. As a result, the statement is unnecessarily pejorative. In addition, the current Statement of Purpose is simply outdated, referring to manufactured home "accidents" and "insurance costs" as if manufactured homes were still specialty vehicles.

S. 1452 addresses these deficiencies by substituting a new, positive Statement of Purpose that still requires the standards to promote the quality, durability and safety of manufactured housing and still mandates that manufactured homeowners be protected from "unreasonable risk of personal injury and property damage." The new statement, however, will delete the anachronistic references to accidents and insurance, and specifically refer to the unique affordability of manufactured housing as a characteristic that should be protected by the Act. As is noted above, the legislative history of the Act makes it clear that affordability was an important objective of the sponsors of the original Act. This addition, accordingly, simply reflects the original intent of Congress. Similarly, the new Statement of Purpose refers specifically to the promotion of innovation and cost-effective, performance based innovations and construction techniques and to the promotion of uniform enforcement of the Federal performance standards. Again, though, this merely codifies the original intent of Congress as it is expressed in the legislative history.

The new Statement of Purpose, consequently, deletes the unnecessary negative language from section 602 while retaining consumer protection as the clear primary purpose of the Act and promoting cost-effective, sensible regulation. This new, more positive Statement will help to both improve the public image of manufactured housing and to break down the irrational barriers and stereotypes that exclude manufactured homes from certain areas and certain jurisdictions.

2. S. 1452 WILL IMPROVE THE HUD CODE AND THE ACCEPTANCE OF MANUFACTURED HOUSING BY MANDATING TIMELY UPDATES OF THE HUD CODE.

Since the adoption of the Act in 1974, manufactured homes have, at times, been denied financing or access to certain jurisdictions because the HUD Code was not amended in a timely manner to incorporate the latest versions of various reference standards. Similarly, manufacturers' efforts to introduce new and innovative technologies have at times been thwarted by the sow pace of HUD's Code revision process. In each instance, the availability and utilization of manufactured housing has suffered.

S. 1452 addresses this deficiency not only by mandating a consensus code revision process, but also by requiring that the consensus committee consider revisions and submit revision proposals to HUD at least once every two years.

3. S. 1452 WILL PROMOTE THE AVAILABILITY OF AFFORDABLE MANUFACTURED HOUSING BY REITERATING THE SCOPE OF FEDERAL PREEMPTION UNDER THE ACT.

As is noted above, HUD, in recent pronouncements has unduly constrained the scope of Federal preemption under the Act. By limiting the scope of preemption, HUD effectively expands the areas of manufactured home construction and safety that may be permissibly regulated by state and local governments. The problem with such regulation, however, is that it undermines the uniformity of both standards and enforcement that the HUD Code was designed to achieve. Thus, manufacturers are increasingly placed in the same position that they occupied in 1974 -- having to manufacture different homes for different jurisdictions in order to comply with varying local requirements. In fact, manufacturers, generally, do not know where the home is going at the time of production. As Senator Brock observed in 1974, however, this is antithetical to affordability.

In addition, as is noted above, this derogation of Federal preemption by HUD is in direct conflict with court decisions that have construed standards-based preemption under the Act. Thus, in Liberty Homes, Inc. v. DILHR, 374 N.W.2d 142 (Wis. App. 1985), Aff'd. 401 N.W.2d 805 (Wis. 1987) the court expressly held that Congress intended the scope of preemption under the 1974 Act to be "broad." Similarly, in Scurlock v. City of Lynn Haven, 858 F.2d 1501 (11th Cir. 1988) and in a very recent case, Michigan Manufactured Housing Association v. Robinson Township, F. Supp. (W.D. Mi. August 26, 1999) Federal courts have construed the Act's preemption provision in a broad manner, so as to effectuate Congress' objective of ensuring uniform Federal standards and enforcement.

S. 1452 addresses this derogation of Federal preemption by codifying Congress' original intent and the holdings in the foregoing cases. The bill thus states that "Federal preemption ... shall be broadly and liberally construed." This does not constitute, in any manner, an "expansion" of Federal preemption. It is, rather, a reaffirmation of the original intent of Congress that has gradually been narrowed by erroneous administrative determinations by HUD.

In this manner, S. 1452 ensures the continued supremacy and uniformity of Federal regulation and with it, the continued availability of affordable manufactured housing.

4. THE PROPOSED LEGISLATION CLARIFIES JURISDICTION OVER INSTALLATION ISSUES.

Congress, in adopting the 1974 Act, made it clear that the Act pertains to the construction of the home in the factory, not the installation of the home at the homesite. This, quite simply, is because proper installation is primarily a function of local conditions and does not raise the same questions of uniformity and reciprocity that led to the preemption of standards for the in-factory assembly of the home. As a result, Congress left installation regulation within the ambit of the general police power of the states and their localities. The Coalition members have always agreed with this division of responsibility and have consistently supported the adoption of comprehensive state law-based installation programs.

Consistent with this view, S. 1452 specifically reserves the regulation of installation to the states. This is a common-sense approach that allows installation regulations to be tailored to varying soil, topographical, weather and seismic conditions in each state and merely codifies the original intent of the Act. By contrast, a Federal installation standard would not be in the interest of either the industry or consumers, because it would of necessity be either too stringent (i.e., overkill in certain areas in order to provide sufficient protection in others), or too weak (i.e., it would fail to provide sufficient protection in the most vulnerable areas). Moreover, the states, under their general police power, can undertake types of regulation that would be unwieldy or impractical for the Federal government. For example, many existing state installation programs include mandatory training and certification for installers. The 1974 Act, however, does not authorize regulation of installers, the persons most directly involved with ensuring proper siting. Thus, state programs can more effectively regulate all necessary aspects of installation and such regulation is more consistent with the concept of Federalism, which generally reserves the police power to the individual states.

Moreover, it is an important that this division of responsibility be clarified. At present, there is a certain degree of confusion as to the proper role of the states and the Federal government with respect to installation. This confusion, in some states, has provided an excuse for the failure to promote or adopt state law-based installation regulation. A clear reservation of installation authority to the states, by contrast, will hopefully lead more states to adopt comprehensive installation programs.

5. S. 1452 WILL PROMOTE THE AVAILABILITY OF MANUFACTURED HOUSING

BY STRENGTHENING THE FEDERAL PROGRAM.

The manufactured housing industry has always supported appropriate Federal regulation of manufactured home construction and safety issues. It supported the passage of the original Act in 1974 and has continued to support the maintenance of a strong, preemptive Federal program. The Coalition members, accordingly, have viewed with alarm the recent dimunition of the status and staffing of the Federal program, its derogation of Federal preemption, and its growing dependence upon outside contractors. All of these various actions have helped to undermine Federal authority and the uniformity of the HUD Code, threatening the industry with a return to pre-1974 conditions and threatening consumers with needless price increases.

In order to reverse this trend and at the suggestion of the current Secretary of HUD and Congress (in its 1997 letters), S. 1452 specifically authorizes the expenditure of label fee proceeds for additional Federal staff personnel. By providing such funding, S. 1452 will enhance Federal supervision and management of the program, while simultaneously reducing the program's dependence upon outside contractors.

Although this improvement will entail certain costs for the industry, it is willing to pay for a strong consensus-based Federal program because a fair, well-managed program will enhance consumer confidence in manufactured housing while, at the same time, ensuring cost-effective regulation as was intended by the 1974 Act.

D.THE PROPOSED LEGISLATION WILL ENHANCE THE ACCOUNTABILITY OF THE FEDERAL PROGRAM.

Currently, the Federal program lacks sufficient internal and external accountability and controls. This is because those controls and means of accountability were either not included in the Act or are being ignored by HUD. Various elements of S.1452, accordingly, are designed to bring greater accountability to the program.

1. APPROPRIATIONS REVIEW.

Under the current Act, HUD collects, administers and disburses millions of dollars in label fees without congressional oversight. This anomaly is due to the fact that the Act was adopted prior to or contemporaneously with the enactment of the Congressional Budget Impoundment Control Act of 1974 ("Budget Control Act"). Yet the same considerations of public trust and confidence that underlie the Budget Control Act apply with similar force to the manufactured housing program. There is currently, however, no institutional safeguard against inappropriate expenditures.

In order to address this issue, S. 1452 expressly provides that all fee expenditures, as well as any change in the amount of the fee, must be approved, in advance in an annual appropriations Act. This change would conform the Act to existing law concerning expenditures, while preventing the label fee fund pool from being misused or abused by HUD. It is a reform that is both logically and ethically unassailable. Congressional oversight through the annual appropriations process is critical to this Federal regulatory program involving 25% of all new single family dwellings each year.

2. THE PROPOSED LEGISLATION PROVIDES A SPECIFIC, MANDATORY STRUCTURE FOR THE DEVELOPMENT OF STANDARDS, REGULATIONS AND INTERPRETATIONS.

Under the current Act, there is no timetable for revisions of the HUD Code. And while there is a basic set of notice and comment rules for the promulgation of standards, regulations and interpretations, those rules, have often been bypassed by HUD. This has resulted in (i) a code that is outdated; and (ii) the imposition of standards, regulations and interpretations that do not enjoy consensus support.

S. 1452, as noted above, addresses these deficiencies first by requiring code revisions at least once every two years, and second, by establishing a statutory consensus process for the development of the standards as well as PER regulations and interpretations. By establishing a mandatory consensus process, S. 1452 will ensure that proposals affecting all elements of the regulatory system receive due consideration and debate and that any proposal that is adopted meets the purposes and requirements of the Act in the view of a broad cross-section of all groups affected by the Act. This will not only eliminate the arbitrariness that has at times characterized the regulatory decisions of the HUD program, but will also ensure all groups affected by the Act that their views and concerns will be heard and considered while standards, regulations and interpretations are being developed and considered.

3. S. 1452 WILL RETAIN "MONITORING" AS A DEFINED FUNCTION.

As originally conceived in the PER regulations, the "monitoring" function was designed to ensure that the Primary Inspection Agencies approved by HUD to review manufactured home designs and to inspect homes under construction were, in fact, properly enforcing compliance with the standards. Over the past 25 years, however, this function, which has always been performed by a private contractor, has expanded substantially. Consequently, the monitoring contractor, in addition to reviewing and assessing the performance of PIAs, now:

Through the accumulation of these functions, many of which result in the expenditure of additional funds, the monitoring contractor has amassed a significant degree of de facto regulatory authority within the program. Yet, manufacturers and retailers have no direct recourse against the contractor for its regulatory actions and no due process rights regarding those actions because the contractor is a private entity and, therefore, is not subject to the due process constraints of the Fifth Amendment to the Constitution.

In order to ensure proper Federal supervision of the manufactured housing program and reduce its dependence on outside contractors, S. 1452 contains three major improvements. First, as noted above, it would allow label fee proceeds to be used to fund the hiring of additional Federal staff personnel. With these new employees, it will not be necessary to contract so many functions. Second, S. 1452 contains a definition of monitoring that will clarify its purpose in ensuring proper enforcement by the PIAs. Third, S. 1452 would entrust the development of monitoring "guidelines" to the consensus committee. This improvement is important because it would ensure that such guidelines reflect a consensus among the parties affected by the Act. It would ensure that monitoring guidelines or criteria are not imposed arbitrarily. And it would ensure that any such guidelines are consistent with the purposes of the Act and the standards themselves.

By implementing all of these improvements along with the annual Congressional oversight through the appropriations process, S. 1452 will restore proper balance and oversight to the Federal program and will ensure proper management and accountability.

E. S. 1452 WILL BENEFIT MANUFACTURED HOUSING CONSUMERS.

Groups that advocate the maintenance of the status quo in the Federal program, intimate that virtually any change to either the program or the 1974 Act would ultimately harm consumers. These groups attempt to portray the interests of consumers and the industry as being mutually exclusive. The truth, however, is that both consumers and the industry are being harmed by the recent deterioration of the program and that both groups would benefit from the improvements contained in S. 1452.

For example, it is not in the best interests of anyone that the HUD Code has not been updated in a timely manner and that HUD has processed proposed standards in a slow and inconsistent manner. Nor is it in anyone's best interests that HUD has bypassed the Advisory Council and rulemaking procedures in adopting standards and interpretations. These safeguards are designed to ensure that everyone, consumers and industry alike, have a voice in the process. By contrast, S. 1452 would benefit both consumers and the industry by giving both groups a direct voice in a consensus code revision and interpretation process that would be subject to a mandatory two-year cycle.

Furthermore, both consumers and the industry are harmed when the issue of cost-effectiveness is not adequately considered in the development of standards, regulations and interpretations. This has resulted in standards and procedures that are highly burdensome, and therefore costly, but that often provide little corresponding consumer benefit. Indeed, the primary beneficiaries of such procedures are contractors, which are paid to oversee the procedures. In reality, both consumers and the industry favor result-oriented, cost-effective regulation that ensures both safety and sound construction at a reasonable price. S. 1452 will ensure this by subjecting virtually all standards, regulations and interpretations to a consensus process that will focus on all of these factors.

Significantly, S. 1452 accomplishes these improvements without altering either the authority of the Secretary or the current structure of the HUD inspection system. Accordingly, under S. 1452, the Secretary will retain full authority to adopt, reject or modify consensus committee proposals or interpretations. The Secretary will continue to have the authority to propose standards, regulations and interpretations. The Secretary will also have full authority to reject consensus committee appointments. Similarly, S. 1452 would leave intact all of the investigatory and enforcement powers of the Secretary under sections 610, 611, 613, 614 and 615 of the present Act. It would leave intact all powers and rights accorded to the states under section 623. It would also leave intact all present elements of the HUD inspection system, including both PIAs and the monitoring function.

In fact, S. 1452 would promote these functions and the overall quality of enforcement under the Act, by providing label fee funding for additional Federal staff and for staff travel, and by retaining all present authority for the utilization of label fee proceeds by states with approved state plans under section 623 of the Act. Indeed, as is noted above, one of the primary benefits of S. 1452 will be the revitalization and strengthening of the Federal program.

It has been claimed by some that the Federal program cannot be adequately strengthened without a mandatory Federal warranty. This is an old idea, however, that, for good reasons, has never achieved a supporting consensus.

First, the federalization of manufactured home warranties carries the same risks as the federalization of installation regulation -- that one standard will not satisfy everyone and will not fit all conditions. This is important because many states already have warranty requirements under state law. Furthermore, in the absence of a compelling need for one national standard -- and none has ever been demonstrated -- states should have the right to adopt their own warranty requirements, tailored to the particular needs and interests of their citizens. Considering the costs and benefits to be derived. This is particularly true with respect to warranty laws which, historically, have been enacted at the state level. The fact that certain states have failed to adopt such laws, however, is not in itself a sufficient basis for nationalization of manufactured home warranty law. The authority to adopt such laws should remain with the states and the states that do not yet have warranty laws should be encouraged to adopt them. Indeed, the industry has consistently supported warranties at the state level.

Second, nearly all manufacturers currently offer warranty protection to their customers and many offer extended warranty plans that consumers themselves can tailor to meet their specific objectives, concerns and financial constraints. This approach, which has come about as a result of the competitive demands of the marketplace, provides consumers with more choices, more flexibility and, ultimately, greater protection than many would receive under a blanket Federal warranty. Moreover, warranty choice, as currently exists, allows those consumers who wish to purchase an extended warranty to do so. Significantly, in this regard, industry research has shown a consistent trend among purchasers to reject extended warranty coverage due to its cost. A mandatory Federal warranty, by contrast, would impose the additional cost of extended protection to all manufactured home purchasers, whether they would have wanted or purchased such a warranty absent the mandate and whether or not they can afford the additional cost.

Third, and perhaps most important, is the fact that the industry, for both competitive and regulatory reasons, already provides service for homeowners who report problems. From a regulatory perspective, Subpart I of HUD's PER regulations already requires every manufacturer to keep a written or computer record of every complaint received from any source. The regulations further require the manufacturer to assess the severity of the problem and to determine whether it constitutes a non-compliance, a defect, a serious defect, or an imminent safety hazard as defined by the PER regulations. The manufacturer must then, under certain conditions, determine whether a defect was systematically introduced into a class of homes and keep a written record of that determination. Ultimately, if a class is found to exist, or if the problem involves a serious defect or imminent safety hazard, the manufacturer must notify all affected homeowners. And for a serious defect or imminent safety hazard, if at fault, the manufacturer must either repair the problem or replace the home.

These are not lax requirements. Indeed, they go well beyond any legal service or repair requirements for other types of housing. And these requirements are enforced, both by HUD and by State Administrative Agencies ("SAAs") in 36 states with approved state plans. In particular, the SAAs routinely audit plant records for compliance with Subpart I Consequently, manufactured home producers already are subject to unique service and repair requirements that last for the entire life of the home.

Furthermore, most manufacturers, for competitive reasons, provide extensive product support both for homes under warranty and even those with expired warranties. Under a typical system, all consumer complaints are logged into a dedicated computer tracking program, which assigns an identification number to the complaint and also generates service reports that are reviewed at specific intervals by a service manager. Many such programs also generate acknowledgement letters that can then be sent to the homeowner for verification as to both accuracy and completeness. A service person or service team is then sent to the home with the verified work order to effect repairs. Work orders acknowledged to be completed are then entered in the program and the home file. Work that not completed for any reason, is typically assigned a new number and re-entered into the system for follow-up.

While all manufacturer programs may not operate in precisely this manner, the fact remains that the vast majority of producers and retailers are responsive to their customers and provide quality support for their homes both to comply with the strict requirements of Subpart I and to ensure that customers are satisfied with their homes and will not only become repeat customers, but will refer friends and relatives as well.

V. CONCLUSION.

In summary, the Coalition urges the Senate to enact S. 1452 because: (i) it will modernize a law that has not been updated for 25 years; (ii) it will ensure that manufactured housing is treated as a type of housing rather than a type of specialty vehicle; (iii) it will strengthen and revitalize the Federal program; (iv) it will strengthen the accountability of the program both internally, through the establishment of consensus procedures and externally, through mandatory appropriations review; (v) it will ensure timely code updates; (vi) it will ensure sensible, consensus standards and regulations; (vii) it will preserve the affordability of manufactured housing and increase its availability; (viii) it will preserve all present investigation and enforcement structures; (ix) it will result in regulations that are focused on actual consumer protection; and (x) it will strengthen and enhance the participation of all affected parties in the standards development and regulatory process.

Moreover, S. 1452 will accomplish all of these reforms without expending any additional taxpayer funds. It will also lead to the even greater utilization of manufactured housing, which provides affordable homeownership without taxpayer subsidization.

With all of these positive elements in its favor, S. 1452 deserves the support of this Committee and the entire Senate.



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