Clayton Homes is pushing Congress to roll back consumer protections on mobile-home loans.
Second of a series
Warren Buffett’s mobile-home business wants Congress to curtail recent consumer safeguards put in place after the financial crisis, saying a rollback is necessary to ensure that competing lenders continue to provide loans.
But, in reality, the deregulation plan that recently passed the U.S. House would be a boon almost exclusively for Buffett’s Clayton Homes, according to an analysis of 2013 federal loan data by The Seattle Times. Based on interest rate levels from that year, Clayton controlled 91 percent of the market segment set to be deregulated.
U.S. Rep. Maxine Waters, D-Calif., the lead congressional critic of the proposed deregulation, gave an exasperated chuckle last week when a reporter told her the 91 percent figure.
“There’s something wrong with legislation that would benefit any one company,” said Waters, who didn’t realize the proposal would serve Clayton to such a large degree. Once open to changes pushed by the mobile-home industry, the congresswoman said she has grown wary of its practices and that perhaps a federal agency like the Consumer Financial Protection Bureau should be investigating Clayton.
A Senate committee is scheduled to take up the House plan on Thursday.
Clayton’s loans are particularly expensive compared with those of its peers. A recent investigation published by The Times and the Center for Public Integrity showed how the company locks buyers in loans at interest rates that can exceed 15 percent. The nation’s largest manufacturer of mobile homes, Clayton sells them at its own retail lots, finances purchases through its own subsidiaries and sells property insurance on them.
Buyers have described how Clayton retail outlets misled them to take on unaffordable loans and steered them to Clayton-owned lenders, Vanderbilt Mortgage and 21st Mortgage, without disclosing the corporate relationships. Former dealers also told of how Clayton Homes pressured or provided incentives to retail outlets to get buyers into Clayton loans.
Loans with high interest rates can be especially devastating to buyers of mobile homes, since the houses often depreciate swiftly. A buyer with a high rate will still owe a large sum for many years on a home that can be almost impossible to sell or refinance because its value is below the loan balance.
In 2010, responding to the financial crisis, Congress adopted sweeping financial reforms as part of the Dodd-Frank Act. Its provisions included rules protecting mobile-home consumers offered high-cost loans.
Among the changes, starting in 2014 lenders were required to give those borrowers an accounting of all costs and interest rates three days before signing. Lenders also were prohibited from charging prepayment penalties and were required to refer borrowers to pre-loan counseling.
These loans were defined as having an annual interest rate more than 6.5 percentage points above the average prime rate. For smaller loans under $50,000, the protections typically applied to those more than 8.5 percentage points above that benchmark.
Industry officials, including representatives from Clayton, have lobbied aggressively to repeal the Dodd-Frank rules, arguing the standards make it harder for buyers to obtain affordable financing. The mobile-home industry gained traction this year with a bill by Rep. Stephen Fincher, R-Tenn.
Fincher’s bill would raise the 8.5 rate rule to 10 percentage points and the small-loan threshold from $50,000 to $75,000. Under current interest rates, that means those smaller mobile-home loans generally wouldn’t benefit from the added consumer protections unless they had interest rates close to 14 percent or higher — more than triple the level of a typical home interest rate.
In the last election cycle, Clayton employees gave Fincher $15,150 in campaign contributions, which was more than they gave any other candidate.
Federal home-loan data is not yet available for 2014, when the interest-rate protections took effect. If those rules had been in place in 2013, about 9,700 of the industry’s mobile-home loans would have triggered additional consumer protections. Under the new proposal moving through Congress, some 5,600 of those 9,700 would not have qualified for the protections.
There’s something wrong with legislation that would benefit any one company.” - U.S. Rep. Maxine Waters, D-Calif.
Of those, 91 percent were Clayton loans. The industry’s second-largest mobile-home lender, Wells Fargo, didn’t have a single loan in that pool.
(The rules also add protections for loans that have high fees — information not available in federal loan data.)
Claims don’t hold up
Several consumer groups have opposed the plan, including the National Manufactured Home Owners Association, a Seattle-based group that works with mobile homeowners around the country. The group says the legislation would harm homeowners and make homeownership more costly for the poor.
In a brief interview earlier this month at the Berkshire Hathaway shareholder meeting, Clayton Homes CEO Kevin Clayton cast the proposed rollback that passed the U.S. House last month as a lifeline for other lenders, not Clayton. Clayton, whose company was acquired by Berkshire Hathaway in 2003, said the recent rules on costly mobile-home loans had driven some companies out of the business.
“We want more lenders in the industry,” Clayton said in an interview. It’s a sentiment echoed by Rep. Fincher, who hails from Clayton’s home state of Tennessee.
When asked to identify which companies left the industry, Clayton Homes referred questions to the Manufactured Housing Institute (MHI), the industry’s trade group. MHI pointed to two banks that had been cited by a lawmaker on the floor of Congress, saying the banks “cited the regulations as a cause for major reductions in their manufactured housing lending.”
One of the banks was Five County Credit Union in Maine. Rep. Jeb Hensarling, R-Texas, reading from a document, said Five County reported that it was no longer offering mobile-home loans.
But federal data shows the company has provided just two new mobile-home loans in the nine years before Dodd-Frank protection took effect.
Mike Foley, a Five County vice president, said in an interview that the floor-speech mention was news to him and he was unaware of any company letter sent to Congress. He said he was checking to see what the congressman may have been referring to.
- How a Warren Buffett empire preys on the poor (April 2, 2015)
- A look at Berkshire Hathaway’s response to mobile-home investigation (April 6, 2015)
- U.S. House OKs cutting safeguards for mobile-home buyers (April 14, 2015)
- Buffett sticks up for mobile-home business at shareholder meeting (May 2, 2015)
- Buffett concedes default rate on mobile-home loans could be much higher (May 4, 2015)
- Buffett's mobile-home business has most to gain from deregulation plan (May 17, 2015)
- Citing Seattle Times investigation, NYT editorial calls on Congress to protect mobile-home buyers (May 20, 2015)
- Minorities exploited by Warren Buffett’s mobile-home empire (Dec. 26, 2015)
- Clayton Homes denies discriminating against minorities (Jan. 11, 2016)
- Lawmakers call for federal investigation of Clayton Homes (Jan. 12, 2016)
Kirk and Patricia Ackley spent thousands to prepare their land, then were stuck with a higher loan rate than promised. Their home was taken by Berkshire Hathaway-owned Clayton Homes in 2012. (Katie G. Cotterill and Lauren Frohne / The Seattle Times) MORE
The other bank cited by the industry and by Hensarling in Congress to support the deregulation plan was First National Bank of Milaca. But the bank, in Minnesota, said that while it had concerns about the federal regulations, it was able to provide eight mobile-home loans last year, up from three the year before the high-cost rules took effect.
MHI also told The Times that U.S. Bank stopped making mobile-home loans because of the new regulations. But U.S. Bank continues to provide mobile-home loans directly to consumers, according to the bank, just not through dealers or brokers.
Very few of the bank’s loans were subject to the tighter standards. In 2013, of the more than 2,300 new mobile-home loans U.S. Bank provided, just eight of them had interest rates high enough to trigger the stronger consumer protections.
Earnings up despite rules
Clayton said his company is no longer making loans above rates that require extra consumer protections, now about 12 percent interest. He said lenders need the higher rates on those loans to make a profit.
With the rules in effect last year, Clayton still earned $558 million, up 34 percent over the 2013 cycle when the rules had not been implemented.
The bill would also repeal rules that prevent salespeople from advising consumers about financing. That’s particularly pertinent to Clayton, which has its own retail outlets that have been touting Clayton financing options.
Clayton is represented in Washington, D.C., by the MHI, which has a Clayton executive as its vice chairman and another as its secretary. MHI spent $4.5 million since 2003 lobbying the federal government.
Fincher declined an interview request through a spokeswoman, as did Sen. Joe Donnelly, D-Ind., the bill sponsor in the Senate.