The United States government has sued a subsidiary of Warren Buffett’s Berkshire Hathaway, saying that the company knowingly gave borrowers loans they could not afford.
Vanderbilt Mortgage “ignored clear and obvious red flags” that borrowers could not afford their loans, according to the Consumer Finance Protection Bureau (CFPB). Vanderbilt is a unit of Clayton Homes, which is fully owned by Berkshire Hathaway.
“Vanderbilt knowingly traps people in risky loans in order to close the deal on selling a manufactured home,” said CFPB Director Rohit Chopra.
The company specialises in offering loans for manufactured homes, typically to purchase from Clayton Homes or other Clayton subsidiaries.
“CFPB research has shown that manufactured home loans often come coupled with higher interest rates and limited opportunity to refinance compared to traditional home mortgage loans,” said the CFPB.
According to the lawsuit, Vanderbilt assumed unreasonably low monthly living expenses when offering loans. In some cases, it lent to borrowers with negative net residual income, a violation of the federal Truth in Lending Act.
The lawsuit was filed in federal court in the Eastern District of Tennessee, where Vanderbilt Mortgage is based. The CFPB seeks civil fines against Vanderbilt Mortgage, as well as restitution for those affected.
Berkshire Hathaway’s (NYSE: BRK.B) class B share price closed at US$451.41, down from its previous close at $453.56. Its market capitalisation is US$971.7 billion.