Berkshire Hathaway-Owned Lender Sued Over Allegedly Unaffordable Mortgages

The federal government sued a Berkshire Hathaway-owned mortgage underwriter for alleged predatory loan practices.

The Consumer Financial Protection Bureau filed the suit against Vanderbilt Mortgage & Finance, alleging the firm knowingly gave borrowers unaffordable loans and regularly ignored obvious red flags in its underwriting due diligence. 

Vanderbilt is a nonbank financing company based in Tennessee and a subsidiary of Clayton Homes, the largest manufactured homebuilder in the U.S., owned by Warren Buffett’s Berkshire Hathaway. 

“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.

The CFPB alleges that Vanderbilt failed to follow legal guidelines that require a good faith determination of a borrower's ability to repay loans. 

The CFPB said in the suit that Vanderbilt disregarded evidence that borrowers lacked sufficient income or assets to repay mortgages, deliberately used unrealistic estimates of living expenses to get loans approved and, in some cases, wrote loans for borrowers that still failed to qualify under Vanderbilt’s overly optimistic financial projections. 

Vanderbilt denied the allegations in a statement to Bisnow Tuesday morning.

“The CFPB’s lawsuit is unfounded and untrue, and is the latest example of politically motivated, regulatory overreach,” the statement says. 

“The CFPB examined tens of thousands of Vanderbilt Mortgage loans and identified less than 0.8 percent, over a six-year period, that allegedly should not have been made. Many of those loans have not been delinquent. Vanderbilt Mortgage follows the law, and the facts bear that out.”

Clayton Homes and Berkshire Hathaway didn’t respond to a request for comment early Tuesday. 

Clayton Homes was founded in Tennessee in 1956 and acquired by Berkshire Hathaway in 2003, according to Bloomberg. 

Among the examples the CFPB offered of Vanderbilt's alleged misconduct, the federal agency said Vanderbilt approved a mortgage for a borrower with 33 other debts already in collections and two young children. She fell behind on her mortgage within eight months. 

In a similar case, Vanderbilt approved a mortgage for a borrower who ended up in collections four months later. 

The moves violated the Truth in Lending Act, according to the CFPB, which was passed amid the Great Recession to clamp down on mortgage underwriting and added requirements that lenders document borrower incomes and ensure they can make loan payments.