Consumer watchdog says Berkshire Hathaway unit ignored red flags in manufactured home loans

OMAHA, Neb. (AP) — The federal Consumer Financial Protection Bureau says in a lawsuit that a unit of Warren Buffett's Berkshire Hathaway “ignored clear and obvious red flags” that borrowers couldn't afford the mortgages they were given to buy manufactured homes from another Berkshire company, but the lender called the lawsuit “unfounded.”

The CFPB said Monday that Vanderbilt Mortgage & Finance's decisions put many families in a position where they struggled to pay their bills and purchase basic necessities. In one example, Vanderbilt approved a loan for a family that already had 33 debts in collection and as a result, the family started to fall behind just eight months after the loan was approved.

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

Vanderbilt is a unit of Berkshire's Clayton Homes, which is the nation's largest builder of manufactured homes. Both Vanderbilt and Clayton are based in Tennessee.

“For 50 years, Vanderbilt Mortgage has increased homeownership in the U.S. The CFPB’s lawsuit is unfounded and untrue, and is the latest example of politically motivated, regulatory overreach,” the company said in a statement.

A decade ago, Clayton was accused of predatory lending in a series of news articles, but Buffett defended Clayton's lending practices and said the company followed all state and federal laws.

After the 2008 financial crisis that was triggered by systemic failures in the mortgage market all lenders were required to verify borrowers’ incomes and make a good-faith determination about whether they will be able to replay a loan.

The CFPB said in the lawsuit that Vanderbilt failed to do that and at times manipulated its lending standards when borrowers didn’t have enough income or relied on unrealistic estimates of living expenses.

Vanderbilt affirmed that it follows all lending regulations and considers borrowers’ incomes and living expenses. The company said the CFPB reviewed tens of thousands of loans and less than 0.8% of them were loans the agency said shouldn’t have been made. Vanderbilt said the lawsuit seems to try to enforce “an unknown and unknowable new ‘standard’ not addressed in the law.”

“Far from protecting American consumers, the CFPB’s lawsuit will deprive credit worthy borrowers of owning a home,” the company said.

In addition to manufactured housing companies Berkshire, based in Omaha, Nebraska, owns a broad assortment of companies, including other manufacturers, several major utilities, huge insurers like Geico, the BNSF railroad and some of the best-known retail brands including Dairy Queen and Helzberg Diamonds.