> Warren Buffett Blog: Clayton homes not involved in predatory lending

Friday, March 11, 2016

Clayton homes not involved in predatory lending

Although other lenders have come and gone, Clayton steadfastly financed home buyers throughout the panic days of 2008-2009, even financing dealers who did not sell our homes. The funds Berkshire supplied to Goldman Sachs and General Electric at that time produced headlines; the funds Berkshire quietly delivered to Clayton both made home ownership possible for thousands of families and kept many non-Clayton dealers alive.

Berkshire’s retail outlets, employing simple language and large type, consistently inform home buyers of alternative sources for financing – most of it coming from local banks – and always secure acknowledgments from customers that this information has been received and read. Buffett actually included a copy of the actual form Clayton uses at the back of the Annual Report.

In contrast to the risky mortgage practices that took place during the subprime crises that caused the Great Recession – where “(1) an originator in, say, California would make loans and (2) promptly sell them to an investment or commercial bank in, say, New York, which would package many mortgages to serve as collateral for a dizzyingly complicated array of mortgage-backed securities to be (3) sold to unwitting institutions around the world” – Clayton holds every single mortgage is originates (other than those that qualify for a government guarantee). Consequently, Berkshire must live with the pain it would cause itself if it grants bad credit (which dwarfs the profit it would record from the original sale of the home).

Clayton’s mortgage practices have been continuously reviewed and examined by the Federal Trade Commission, the Department of Housing and Urban Development, and the Consumer Financial Protection Bureau, as well as by dozens of states. During the past two years, various federal and state authorities (from 25 states) examined and reviewed Clayton and its mortgages on 65 occasions. The result? Berkshire’s total fines during this period were $38,200 and our refunds to customers $704,678.

Clayton only had to foreclose on 2.64% of its manufactured-home mortgages last year and 95.4% of its borrowers were current on their payments at year-end.