Warren Buffett's Berkshire Hathaway Subsidiary Sued Over Unaffordable Loans, 2008-Style Predatory Loan Approval Tactics

The Consumer Financial Protection Bureau (CFPB) has filed a lawsuit against Vanderbilt Mortgage & Finance, a subsidiary of Warren Buffett's Berkshire Hathaway Inc., alleging that the company systematically approved unaffordable manufactured home loans that set borrowers up for failure. The lawsuit, filed in federal court, claims that Vanderbilt violated the Truth in Lending Act by disregarding evidence of insufficient income and approving loans for already struggling borrowers.

According to the CFPB complaint, Vanderbilt, a unit of Clayton Homes, allegedly manipulated lending standards and used artificially low living expense estimates to approve loans for borrowers who clearly couldn’t afford them. In one case, the regulator cited a family of five was left with only $57.78 in monthly disposable income after mortgage payments. “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 lawsuit claims that Vanderbilt failed to verify borrowers' incomes and make a good-faith determination about their ability to repay a loan, as required by law. Instead, the company relied on unrealistic estimates of living expenses to approve borrowers who wouldn't otherwise qualify for the loans. This manipulation of living expense estimates allowed Vanderbilt to approve borrowers with insufficient income, putting them at risk of default and potential loss of their homes.

The CFPB cited several examples of Vanderbilt's predatory lending practices, including approving a loan for a family with 33 debts in collection and two young children, who fell behind on payments just eight months after getting the mortgage. In another instance, Vanderbilt issued a mortgage to a single mother with two dependents after estimating she had insufficient income, and then sent her loan to collections when she missed a mortgage payment after only four months in the home.

The lawsuit seeks to halt Vanderbilt's alleged illegal practices and secure relief for affected homeowners. Manufactured homes serve as crucial affordable housing, particularly for low-income and rural Americans. However, CFPB research shows these loans typically carry higher interest rates and limited refinancing options compared to traditional mortgages.

The CFPB's lawsuit against Vanderbilt Mortgage & Finance highlights the ongoing scrutiny of lending practices in the manufactured housing sector following Congress's 2010 mandate requiring lenders to verify borrowers’ ability to repay loans. The lawsuit alleges that Vanderbilt's predatory lending practices, reminiscent of those that contributed to the 2008 financial crisis, put vulnerable home buyers at risk of financial instability and potential loss of their homes.



In conclusion, the CFPB's lawsuit against Vanderbilt Mortgage & Finance serves as a reminder of the importance of responsible lending practices in the manufactured housing sector. As the demand for affordable housing continues to grow, it is crucial for lenders to adhere to strict underwriting guidelines and ensure that borrowers can afford their loans. The lawsuit also underscores the need for continued oversight and regulation of the lending industry to protect vulnerable home buyers from predatory practices.