The Consumer Financial Protection Bureau has filed a suit alleging that Vanderbilt Mortgage & Finance – a unit of Warren Buffett’s Berkshire Hathaway – “ignored obvious and clear red flags” in approving mortgages to purchase manufactured homes from Clayton Homes, another Berkshire Company.
The CFPB claims Vanderbilt’s actions led to many families being burdened by loans they couldn’t pay, pushing them into financial difficulty.
The lawsuit has raised concerns about possible predatory lending practices in Berkshire’s vast empire.
CFPB: “Knowingly traps customers in risky loans”
According to the CFPB Vanderbilt made decisions regarding lending that caused families to struggle to make payments and to afford basic necessities.
The agency highlighted a case in which Vanderbilt had approved a loan to a family that already had 33 debts owed.
The family fell behind on the payments within eight months of the loan approval.
In a statement, Rohit Chopra, Director of the CFPB, said that Vanderbilt knowingly trapped people in risky loan in order to close a deal on the sale of a manufactured home. This underscored the agency’s concern about Vanderbilt’s motivations.
Vanderbilt & Clayton under scrutiny
Vanderbilt, a subsidiary of Clayton Homes of Berkshire, is the largest manufacturer of manufactured homes in the United States.
A spokesperson for Vanderbilt confirmed to Associated Press that Vanderbilt is currently reviewing the lawsuit, but had no immediate comment.
Clayton did not immediately respond to requests for comments. Both Vanderbilt University and Clayton University are located in Tennessee.
This recent legal action revisits critics raised a decade earlier when Clayton faced accusations in news reports of predatory lending, accusations that Buffett had previously defended by asserting that the firm followed all state and federal law.
Allegations of manipulated loan standards
After the 2008 financial crisis – a result of failures on the mortgage market – all lenders were required by law to verify the income of borrowers and to make a good faith determination of their ability repay a loan.
The CFPB claims that Vanderbilt did not adhere to these regulations and at times manipulated its lending standards, when borrowers lacked enough income or relied upon unrealistic estimates of living costs.
The lawsuit claims that Vanderbilt prioritised closing deals over ensuring the financial stability of borrowers.
Berkshire’s vast Portfolio under scrutiny
Berkshire Hathaway is headquartered in Omaha, Nebraska. It owns a variety of companies spanning many sectors, such as other manufacturers, major utility companies, insurers such as Geico, BNSF railroad and well-known retailers like Dairy Queen and Helzberg Diamonds.
This lawsuit brings Berkshire to the forefront and raises questions about Berkshire’s lending practices.
This post CFPB alleges Berkshire Hathaway ignored red flags on manufactured home loans could be modified as new information unfolds
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