A unit of Warren Buffett's Berkshire Hathaway is being used by the Consumer Financial Protection Bureau (CFPB) for disregarding "clear and obvious red flags" indicating that borrowers were unable to afford the mortgages provided to purchase manufactured homes from another Berkshire-owned company.
Why It Matters
The CFPB said that Vanderbilt Mortgage & Finance, which is owned by Berkshire Hathaway, trapped "people in risky loans."
The CFPB alleged in Monday's lawsuit that Vanderbilt Mortgage & Finance's lending practices forced numerous families into financial hardship, leaving them unable to cover basic expenses. In one instance, the company approved a loan for a family already burdened with 33 debts in collection, leading to loan delinquencies just eight months after approval.
What To Know
Vanderbilt Mortgage & Finance, a division of Berkshire Hathaway's Clayton Homes—the nation's largest manufacturer of prefabricated homes—is at the center of the CFPB lawsuit.
Clayton Homes faced allegations of predatory lending a decade ago, following a series of investigative news reports. At the time, Buffett defended the company's practices, asserting that Clayton operated within the bounds of state and federal laws.
In the wake of the 2008 financial crisis, which stemmed from widespread failures in the mortgage market, lenders were mandated to verify borrowers' incomes and assess their ability to repay loans in good faith.
Omaha-based Berkshire Hathaway boasts a diverse portfolio that extends beyond its manufactured housing subsidiaries. The conglomerate owns major utilities, leading insurers such as Geico, the BNSF railroad and popular retail brands like Dairy Queen and Helzberg Diamonds, alongside various manufacturing companies.
The Lawsuit
The CFPB's lawsuit alleges that Vanderbilt Mortgage & Finance routinely neglected to verify borrowers' ability to repay and, in some cases, adjusted its lending standards to approve applicants with insufficient income or relied on overly optimistic estimates of living expenses.
"As a result, many families found themselves struggling to make payments and meet basic life necessities. Vanderbilt charged many borrowers additional fees and penalties when their loans became delinquent, and some eventually lost their homes. The CFPB is seeking to stop Vanderbilt's illegal practices and obtain relief for the harmed homeowners," the CFPB said in a press release announcing the lawsuit.
What People Are Saying
CFPB Director Rohit Chopra said in a statement: "Vanderbilt knowingly traps people in risky loans in order to close the deal on selling a manufactured home...the CFPB's lawsuit seeks to not only protect homebuyers, but also honest lenders helping people to finance the purchase of an affordable home."
What's Next
A Vanderbilt spokesperson said Monday the company is reviewing the allegations but did not provide further comment.
Clayton Homes, also headquartered in Tennessee, has yet to respond.
This article includes reporting from The Associated Press.
English (US) ·