On January 12, 2016, four members of Congress--including Housing Financial Services Committee Ranking Member Maxine Waters--called on the U.S. Department of Justice and the Consumer Financial Protection Bureau to conduct an inquiry into lending practices of manufactured home giant Clayton Homes, as detailed in an investigative report by the Seattle Times and BuzzFeed News. The report found that minorities received less favorable loans terms than they do from other lenders and faced deceptive and abusive collection practices. The article also profiled disturbing examples of discrimination against Clayton employees.
As a leading nonprofit advocate for the use of manufactured housing done right as an affordable housing solution, CFED believes the federal government should begin an investigation into this matter.
As expected, Clayton Homes immediately released a statement strongly denying any discriminatory practices by Clayton or its wholly owned subsidiary lender, Vanderbilt Mortgage. In response, the Seattle Times published a point-by-point response to the statement.
The reporting makes serious claims about the practices and the impact of manufactured home loans originated by Vanderbilt. (Clayton also owns 21st Mortgage, the nation's largest manufactured home lender. These two Berkshire Hathaway-controlled firms originate about 35% of all manufactured home loans.) For example, while credit scores are not available in the federal mortgage databases on which reporters in part based their stories, the article finds that Vanderbilt has charged minority borrowers higher rates and fees than white borrowers. These claims are even more meaningful since the writers compared Vanderbilt's rates to those of other lenders, which strongly suggest Vanderbilt overcharges minority customers as compared to other lenders in the market.
Why should this concern federal regulators? The financial crisis from which we just emerged saw higher rates of foreclosures among these populations and subsequently stripped wealth from communities of color at far greater rates than for white homeowners and neighborhoods. As has been well-documented, in the run-up to the crisis, lenders offered African-American and Latino borrowers home loans that were much more costly than the ones for which they actually qualified. Unfair lending in the early part of this century devastated the balance sheets of families and communities. If, as the Seattle Times piece suggests, this is now happening in the manufactured housing market--a segment that serves a much lower-income demographic than site-built market--federal agencies need to investigate. All homeowners, regardless of income, housing choice and, most clearly, race, should have access to the best loans for which they qualify.
The Times/BuzzFeed piece highlights what many housing advocates have said for years, that the manufactured home loan market operates unlike traditional mortgage markets as it is dominated by a few lenders, has no meaningful secondary market and, until the implementation of critical Dodd-Frank reforms in January 2014, had little regulatory oversight.
This last point is one reason why the results of the investigation are so troubling. Industry and a handful of members of Congress, even before the regulations took effect, have worked to undercut the new rules, which protect consumers from high-cost loans and steering by manufactured home dealers to affiliated lenders. The article underscores why the steering rule is so vital.
Both 21st Mortgage and Vanderbilt are subsidiaries of Clayton Homes, yet they serve different parts of the market. 21st has long looked to independent retailers for borrowers, while Vanderbilt has generally relied on Clayton-branded dealers to develop leads. Clayton is also the nation's largest manufacturer and retailer of homes. It is unsurprising, then, that Clayton would incentivize employees to ensure that a customer uses a Clayton lender to finance a Clayton home bought from a Clayton dealer.
The Times/BuzzFeed article revealed how the firm pushes a "capture rate" to press staff into directing applicants to Vanderbilt. The writers found, unsurprisingly, that employees failed to promote the loan offerings of competitors, despite federal rules. The audio recording detailing a lender's deception about lending on the Navajo reservation is devastating and should worry the industry. The Department of Justice and the CFPB need to determine how widespread this type of behavior is.
Clayton and other major industry players have long argued that their products deserve to be better integrated into the housing mainstream. We agree that many of today's manufactured homes offer a families a lower-cost, high-quality homeownership option. We also know that manufactured home loans can be done right, but only if underwritten without regard to race. Industry and its supporters should welcome the chance for a federal investigation to determine if this has been the case.