[Simone Del Rosario]

A U.S. consumer watchdog is suing a mortgage lender owned by Warren Buffett’s Berkshire Hathaway. The agency claims the Tennessee-based lender pushed customers to buy manufactured homes knowing they couldn’t afford them.

Here’s how it’s all connected: The defendant, Vanderbilt Mortgage and Finance, is a subsidiary of Clayton Homes. Clayton Homes is the largest builder of manufactured homes in the U.S. And Clayton is owned by Warren Buffett’s Berkshire Hathaway.

Consumer Financial Protection Bureau Director Rohit Chopra said, “Vanderbilt knowingly traps people in risky loans in order to close the deal on selling a manufactured home.”

The lawsuit says their underwriters “ignored clear and obvious red flags” that certain customers would not be able to repay their loans.

But Vanderbilt denies these claims.

In a statement to Straight Arrow News, they say, “The CFPB’s lawsuit is unfounded and untrue, and is the latest example of politically motivated, regulatory overreach.”

They claim they not only follow the letter of the law, they exceed it, saying they consider “both monthly debt-to-income ratio and residual income, while the law only requires the use of one or the other.”

Howard Beales:

I didn’t see anything in the complaint that would have led me to bring this case

Hi, I’m Howard Beales. I’m an emeritus professor of strategic management and public policy in the business school at George Washington University here in Washington. I’m an economist by training. I was the director of the Bureau of Consumer Protection at the FTC from 2001 to 2004.

It seems like the the core allegation is that Vanderbilt is using an estimate of other expenses that is too low. Now, according to the complaint, they only use that estimate when the consumer says either they have no expenses, which is unlikely, or when Vanderbilt’s estimate is higher than what the consumer reported.

Simone Del Rosario:

In the lawsuit, the agency details troubled lending situations to make the case … One where CFPB says Vanderbilt approved a loan to co-applicants with 33 debts in collection, insufficient assets to pay those debts, and two young children. The agency says Vanderbilt assumed unreasonably low monthly living expenses for the family of four, leaving them with $65 to spare every month after paying their debts. The borrowers fell behind eight months after getting their mortgage.

In another case, a single mother failed to make her mortgage payments after four months. Her residual monthly income was -$0.50.

In its defense, Vanderbilt claims CFPB looked at tens of thousands of loans and identified “less than 0.8 percent” that may have raised flags. CFPB did not detail a percentage.

Howard Beales:
Bad actors have much higher rates of bad loans than that. You know, default rates in the subprime mortgage crisis were 20% and 30%, 0.8% is nothing.

Simone Del Rosario:

Manufactured homes accounted for around 11% of new home builds in 2022, according to the Manufactured Housing Institute, a trade group in the space. The average household income for buyers was $35,000, while the average price of a manufactured home was just over $127,000. That doesn’t account for the price of the land it sits on.

Howard Beales:
The population that’s interested in buying manufactured housing is likely to be lower income and higher risk than the population of people who buy stick built houses, and that’s going to lead to higher interest rates simply because of the credit risk. And in fact, the essence of the CFPB charge here seems to be, these loans were too cheap. They should have, should have charged more or not made them at all.

Simone Del Rosario:

It’s not the first time Clayton Homes and Vanderbilt’s lending practices have caught attention.

A 2015 report from the Seattle Times said the company targeted minority customers and charged them higher interest rates than similarly qualified white borrowers.

At that time, Buffett said he wasn’t going to make any apologies for the manufactured home’s lending practices.

Warren Buffett:
Clayton follows a pattern that actually is exemplary and rather extraordinary

We have no interest in selling anybody a house and having the mortgage default because it is a net loss to us, is a net loss to the customer.

Simone Del Rosario:

A group of Democrats followed up in 2016, imploring the attorney general and CFPB director to look into the companies.

In this latest suit, CFPB is asking the court to stop Vanderbilt from making allegedly bad loans and pay civil penalties.

Meanwhile, incoming Trump administration surrogate Elon Musk has called to “delete” CFPB. For more on why the agency has drawn the ire of conservatives, search “delete CFPB” for this story at SAN.com or the Straight Arrow News app.