[Music] a US consumer Watchdog is suing a mortgage lender owned by Warren Buffett's birkshire hathway the agency claims the Tennessee base 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 Holmes Clayton Holmes is the largest builder of manufactured homes in the US 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 I didn't see anything in the complaint that would have led me to bring this case hi I'm Howard beels 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 uh I was the director of the Bureau of Consumer Protection at the FTC uh from 2001 to 2004 it seems like the the core allegation uh 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 uh either they have no expenses which is unlikely uh or when Vanderbilt's estimate is higher than what the consumer reported 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 negative 50 in its defense Vanderbilt claimed cfpb looked at tens of thousands of loans and identified less than 0.8% that may have raised Flags cfpb did not detail a percentage Bad actors have much higher uh rates of bad loans than that um you know default rates in the subprime mortgage crisis were 20 and 30% uh 8% is nothing 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 one is um the population that's interested in buying manufactured housing uh is likely to be lower income and higher risk uh than the population of people who buy stick built houses um and that's going to lead to higher interest rates simply because of the credit risk uh and in fact the essence of the the the cfpb's charge here seems to be these loans were too cheap um they should have should have charged more or not made them at all it's not the first time Clayton Holmes 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 the time Buffett said he wasn't going to make any apologies for the manufactured homes lending practices Clayton follows uh a pattern that actually is exemplary and rather extraordinary we have no interest in selling sing anybody a house and having the mortgage to fall because it is a net loss to us it's a net loss to the customer 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 IR of conservatives search delete cfpb for this story at s.com or the straight arrow news app [Music]