Warren Buffett's mobile home empire preys on the poor

Daniel Wagner
Updated

Editor's note: This is a joint investigation of The Center for Public Integrity and The Seattle Times.

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Denise Pitts walked into the pawn shop not far from where she bought her mobile home in Knoxville, Tennessee, and offered up her wedding rings for $100. Her marriage wasn’t over, but her husband was battling cancer and, Pitts said, her mortgage company told her the only way to keep a roof over his head would be to sell everything else.

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Across the country in Ephrata, Washington, Kirk and Patricia Ackley sat down to close on a new mobile home, only to learn that the annual interest on their loan would be 12.5 percent rather than the 7 percent they said they had been promised. They went ahead because they had spent $11,000, most of their savings, to dig a foundation.

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And near Bug Tussle, Alabama, Carol Carroll has been paying down her home for more than a decade but still owes nearly 90 percent of the sale price — and more than twice what the home is worth.

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The families’ dealers and lenders went by different names — Luv Homes, Clayton Homes, Vanderbilt, 21st Mortgage. Yet the disastrous loans that threaten them with homelessness or the loss of family land stem from a single company: Clayton Homes, the nation’s biggest homebuilder, which is controlled by its second-richest man — Warren Buffett.

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Buffett’s mobile home empire promises low-income Americans the dream of homeownership. But Clayton relies on predatory sales practices, exorbitant fees, and interest rates that can exceed 15 percent, trapping many buyers in loans they can’t afford and in homes that are almost impossible to sell or refinance, an investigation by The Center for Public Integrity and The Seattle Times has found.

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Berkshire Hathaway, the investment conglomerate Buffett leads, bought Clayton in 2003 and spent billions building it into the mobile home industry’s biggest manufacturer and lender. Today, Clayton is a many-headed hydra with companies operating under at least 18 names, constructing nearly half of the industry’s new homes and selling them through its own retailers. It finances more mobile home purchases than any other lender by a factor of six. It also sells property insurance on them and repossesses them when borrowers fail to pay.

Berkshire extracts value at every stage of the process. Clayton even builds the homes with materials — such as paint and carpeting — supplied by other Berkshire subsidiaries. And Clayton borrows from Berkshire to make mobile home loans, paying up to an extra percentage point on top of Berkshire’s borrowing costs, money that flows directly from borrowers’ pockets.

More than a dozen Clayton customers described a consistent array of deceptive practices that locked them into ruinous deals: loan terms that changed abruptly after they paid deposits or prepared land for their new homes; surprise fees tacked on to loans; and pressure to take on excessive payments based on false promises that they could later refinance.

Former dealers said the company encouraged them to steer buyers to finance with Clayton’s own high-interest lenders.

There’s more to this story. Click here to read the rest at the Center for Public Integrity.

This story is part of Finance. The latest investigations about U.S. financial reform, corporate accountability and consumer finance. Click here to read more stories in this investigation.

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Copyright 2014 The Center for Public Integrity. This story was published by The Center for Public Integrity, a nonprofit, nonpartisan investigative news organization in Washington, D.C.