Introduction

In a bold move that could shake the foundations of mortgage lending industries, the Consumer Financial Protection Bureau (CFPB) has filed a lawsuit against Vanderbilt Mortgage and Finance, a firm under the umbrella of Warren Buffett’s Berkshire Hathaway. The suit was initiated in the Eastern District of Tennessee and alleges that Vanderbilt extended loans to buyers of manufactured homes, despite clear indications that these borrowers were financially incapable of repaying such debts.

Condemnation by CFPB

Rohit Chopra, the director of the CFPB, condemned Vanderbilt's actions, claiming they "knowingly trap people in risky loans to finalize the sale of manufactured homes." This lawsuit highlights a critical focus by the agency on protecting vulnerable consumers, particularly those who are already struggling with debt at the time of their loan acquisition.

Allegations in the Lawsuit

The CFPB contends that Vanderbilt ignored "clear and obvious" signs that indicated borrowers were at risk of default—some were already behind on their financial obligations when they took out their loans. As part of the lawsuit, the bureau seeks to force changes in Vanderbilt's lending practices, ensure restitution for affected customers, and impose a civil penalty to hold the company accountable.

Vanderbilt’s Corporate Structure and Absence of 21st Mortgage

Vanderbilt operates under Clayton Homes, the largest manufacturer of prefabricated housing in the United States. Clayton also owns 21st Mortgage, which focuses on lending for manufactured homes. Notably missing from the lawsuit is 21st Mortgage, raising questions about the scope of the CFPB's enforcement actions.

Response from Vanderbilt

In response, Christina Honkonen, a spokesperson for Vanderbilt, has dismissed the allegations as "unfounded and untrue," arguing that they reflect political motivations rather than justified regulatory actions. The firm pointed out that an examination of tens of thousands of loans revealed less than 0.8% may have had any irregularities—a figure they imply vindicates their overall lending practices.

Background on Lending Practices

The controversy surrounding Vanderbilt and its parent companies is not new; they have faced multiple accusations regarding their sales and lending strategies, especially as many of their clients come from lower-income rural communities seeking affordable homeownership. Despite this, the CFPB claims that the high interest rates associated with manufactured home loans make them particularly burdensome, leading to defaults, missed payments, late fees, and in some dire cases, foreclosure.

Conclusion

The lawsuit comes at a time when the CFPB has ramped up enforcement efforts, particularly in the closing months of the Biden administration. Recent high-profile actions include lawsuits against Rocket Homes for alleged kickbacks.