The Consumer Financial Protection Bureau (CFPB) has filed a lawsuit against Vanderbilt Mortgage & Finance, accusing the company of deliberately setting families up for failure by pushing them into unaffordable loans to purchase manufactured homes. The lawsuit alleges that the Berkshire Hathaway-owned company ignored clear signs that many borrowers could not afford the terms of their loans, leading to significant financial hardship for countless families.
According to Forbs, in a 2019 news article, the Warren Buffett’s Clayton Homes has been the largest mobile home manufacturer in the United States and has been thriving on high-interest loans. For nearly two decades, the Oracle of Omaha has been offering low-income Americans the opportunity to achieve homeownership, while his investment firm, Berkshire Hathaway, profits from the loans, as they own the financing company that Clayton recommends to its customers
Clayton operates the two leading mobile home lenders, 21st Mortgage Corporation and Vanderbilt Mortgage. They finance more mobile home loans than any other lender, surpassing competitors by more than seven times. According to CultureBanx, in 2015, 72% of black borrowers secured their loans through Clayton’s Vanderbilt Mortgage and 21st Mortgage, based on FFEI federal data.
In 2015, 72% of Black borrowers got their loans from Clayton’s Vanderbilt Mortgage and 21st Mortgage, according to FFEI federal data. The majority of mobile-home residents, 23% are between the ages of 18 to 29 and have an average household income of $28,400. They have outsized dominance in the manufactured home market with a 49% share, and where profit margins are greater. Buffet’s Clayton company brought in $765 million in revenue, in 2017. The majority of mobile-home residents, 23% are between the ages of 18 to 29 and have an average household income of $28,400. If that’s not alarming enough, in 2015, the average sales price for a new manufactured double-wide home was around $110,000.
Vanderbilt Mortgage & Finance, Inc. is a non-bank financing firm specializing in manufactured homes, headquartered in Maryville, Tennessee. It operates as a division of Clayton Homes, Inc., which holds the title of the largest manufactured home builder in the United States and is fully owned by Berkshire Hathaway. Manufactured homes, often referred to as mobile homes, play a crucial role in providing affordable housing options for millions of low-income Americans, particularly those residing in rural communities.
Vanderbilt, which originates loans for the purchase of manufactured homes built and sold by its affiliated companies, is accused of engaging in deceptive practices that forced borrowers into mortgages they couldn’t repay. The CFPB’s lawsuit seeks to halt these harmful practices and secure relief for the homeowners who have been adversely affected by the company’s actions.
The Allegations: Setting Borrowers Up for Failure
According to the CFPB, Vanderbilt knowingly approved loans for families without properly considering their ability to repay. In some cases, the company manipulated its own underwriting standards and fabricated unrealistic living expense estimates to justify approving loans for borrowers who were already in financial distress.
“Vanderbilt knowingly traps people in risky loans in order to close the deal on selling a manufactured home,” said Rohit Chopra, Director of the CFPB. “The CFPB’s lawsuit seeks to protect homebuyers and ensure that honest lenders have the opportunity to finance affordable homes for those who can truly afford them.”
Manufactured homes have long been an essential source of affordable housing, particularly for low-income and older Americans. Many of these homeowners live in rural areas where affordable, site-built homes are scarce. While manufactured homes are often more affordable to purchase, they tend to come with higher interest rates and limited refinancing options compared to traditional home mortgages.
According to the CFPB’s complaint, Vanderbilt’s underwriting process failed to ensure that borrowers had sufficient income to meet their loan obligations. Instead, the company used unrealistic estimates of living expenses and disregarded clear financial red flags, such as outstanding debts and insufficient income, leading to many borrowers defaulting on their loans and facing financial ruin.
Despite the affordability of manufactured homes, the CFPB alleges that Vanderbilt’s business practices led borrowers into loans they could not afford. The lawsuit details multiple instances where Vanderbilt approved loans for borrowers with insufficient income, excessive debt, or other financial difficulties that made repaying the loans nearly impossible.
Unfair Lending Practices: A Closer Look
The CFPB’s investigation highlights several troubling tactics used by Vanderbilt in its lending practices:
- Ignoring Borrower Income: Vanderbilt often disregarded evidence that borrowers did not have enough income or assets to repay the loans. For example, the company approved a loan for a family with 33 debts in collection and two young children, leaving them financially strained and unable to meet their mortgage payments within months of receiving the loan.
- Inflating Living Expenses: In its underwriting process, Vanderbilt used artificially low estimates of living expenses, making borrowers appear more financially stable than they actually were. These estimates were often half of the self-reported living expenses from other similar applicants. In one case, Vanderbilt left a family of five with only $57.78 in net income after applying its own estimate of living expenses.
- Issuing Loans to Borrowers Who Couldn’t Pay: In several instances, Vanderbilt violated its own internal policies by issuing loans to borrowers it knew, or should have known, couldn’t afford the payments. One such case involved a single mother with two dependents, whose mortgage payment quickly went into collections after only four months of ownership. A History of Lax Regulation and Systemic Failures
The CFPB’s lawsuit also reflects a broader issue within the mortgage industry. In 2010, Congress passed reforms that required mortgage lenders to verify borrowers’ income and ensure that loans were only approved if the borrower could realistically repay them. These reforms were aimed at preventing the kind of systemic failures that contributed to the 2008 foreclosure crisis, which saw millions of American families lose their homes due to predatory lending practices.
Vanderbilt’s alleged actions suggest that the company ignored these safeguards, instead prioritizing profits over borrowers’ financial stability. The CFPB claims that the company’s disregard for the basic principles of responsible lending contributed directly to borrowers’ financial ruin, with some losing their homes after falling behind on their payments.
The Road Ahead
The CFPB is seeking to halt Vanderbilt’s predatory practices and provide relief to the homeowners who have been negatively impacted. The lawsuit aims to hold the company accountable for violating the ‘Truth in Lending Act’ and ‘Regulation Z’, which are designed to ensure that lenders make loans only to borrowers who can afford them.
As the case moves forward, the CFPB hopes its action will serve as a warning to other lenders in the manufactured housing market. In a sector that already faces unique challenges in terms of affordability and access to financing, the CFPB’s lawsuit underscores the need for responsible lending practices that protect borrowers rather than exploit them.
For now, the spotlight is on Vanderbilt Mortgage, and the outcome of this lawsuit could have significant implications for the broader industry, particularly as more Americans turn to manufactured homes as an affordable housing option. The CFPB’s action could mark an important step toward ensuring that low-income families are no longer trapped in unaffordable loans.
