Author Topic: Very negative article on Clayton  (Read 10907 times)

abitofvalue

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Very negative article on Clayton
« on: April 03, 2015, 11:59:17 AM »
Looks like a series of negative articles are about to be coming Berkshire's way, Re: Clayton Homes

http://www.seattletimes.com/business/real-estate/the-mobile-home-trap-how-a-warren-buffett-empire-preys-on-the-poor/

http://www.publicintegrity.org/2015/04/03/17024/warren-buffetts-mobile-home-empire-preys-poor

Hard to know what to make of it - if the examples are true and actually representative of even a tiny tiny percentage then this could get a little ugly..


cubsfan

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Re: Very negative article on Clayton
« Reply #1 on: April 03, 2015, 02:23:46 PM »
That is really ugly. There are usually 2 sides to every story, so will be very interested to hear Berkshire's response.
It does bother me the company did not comment extensively if they were contacted by the authors.


mjohn707

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Re: Very negative article on Clayton
« Reply #2 on: April 03, 2015, 02:25:58 PM »
I didn't read the seattle times article, but I don't think the public integrity article makes  much sense.  It seems like they're accusing clayton of deliberately writing loans so that they could later repossess the borrowers' homes.  I think it would be unlikely that clayton wants repossessions because they're generally pretty unprofitable.  Is this what everyone else is getting from the article?
« Last Edit: April 03, 2015, 02:32:08 PM by mjohn707 »
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Tim Eriksen

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Re: Very negative article on Clayton
« Reply #3 on: April 03, 2015, 03:10:59 PM »
The articles are very similar.  It makes sense to me.  They are saying Clayton is abusing the poor.  They sell them overpriced mobile homes at high rates, often with last minute substantial rate changes, push them (or build it into the loan) to use related Clayton companies for overpriced insurance, etc.  Of course Clayton hopes the buyer makes every payment on their depreciating home, but if they don't they get the benefit of having done the loan as personal property instead of real estate.  This allows for quick repossession.  They fix it up and try and sell it to another sucker at a much higher price.  Wash, rinse, repeat.

So in other words, what Buffett says about Clayton doesn't match up at all with how Clayton operates. It presents itself as helping the poor person get a an affordable home, but in reality it is further impoverishing them.  The graph on Clayton's rates versus competitors is pretty damning.  To charge on average 7% points (~ 11%) higher than a typical home loan (~4%) for a house that depreciates at about 3% per year, entraps the poor.  Based on Berkshire's annual reports I would have assumed that Clayton was benefiting form a lower cost of funding, and issued loans at similar rates.  These articles paint a much different story.

I too would love to hear Berkshire's response.

BTW I will go on record as predicting that Buffett's reputation is going to take a huge swing for the worse over the next 20 years.   

   

gfp

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Jurgis

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Re: Very negative article on Clayton
« Reply #5 on: April 03, 2015, 04:22:55 PM »
I am not going to justify Clayton.

One thing to note though: if they cannot sell their mortgages to Fannie/Freddie, they might have to charge quite higher rates for 20+ year loans. This is the same argument people make about 30 year mortgage availability and rates that would be much higher if Fannie/Freddie would not buy them with government backstop.

This does not justify some other things in the articles if they are prevalent.
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NormR

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Re: Very negative article on Clayton
« Reply #6 on: April 03, 2015, 04:38:58 PM »
How to put a slant on the numbers ...

Quote
When Vanderbilt was required to obtain appraisals before finalizing a loan, company officials wrote, the home was determined to be worth less than the sales price about 30 percent of the time.

In other words, 70 percent of the time the appraisal was higher.   :o

mjohn707

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Re: Very negative article on Clayton
« Reply #7 on: April 03, 2015, 05:30:44 PM »
The articles are very similar.  It makes sense to me.  They are saying Clayton is abusing the poor.  They sell them overpriced mobile homes at high rates, often with last minute substantial rate changes, push them (or build it into the loan) to use related Clayton companies for overpriced insurance, etc.
It wouldn't shock me if it came out that they were using bait and switch tactics, but it's a lot harder to do in the mortgage area than with vehicle loans or something because mortgage lenders have to deliver a reliable estimate of loan costs well ahead of the mortgage closing.  To bait and switch it seems like Clayton would be violating federal respa laws which seems crazy. 

Of course Clayton hopes the buyer makes every payment on their depreciating home, but if they don't they get the benefit of having done the loan as personal property instead of real estate.  This allows for quick repossession.  They fix it up and try and sell it to another sucker at a much higher price.  Wash, rinse, repeat.

My understanding of federal laws is that this practice would not be allowed except in the case of a 2nd home or a rental property.  Your personal residence should be protected by the federal repo rules even if you lived in a title vehicle or a boat


To charge on average 7% points (~ 11%) higher than a typical home loan (~4%) for a house that depreciates at about 3% per year, entraps the poor.  Based on Berkshire's annual reports I would have assumed that Clayton was benefiting form a lower cost of funding, and issued loans at similar rates. 
The points seem on the high side, but 11-15% contract rates doesn't seem excessive to me for the level of risk based off the credit scores they're talking about
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Tim Eriksen

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Re: Very negative article on Clayton
« Reply #8 on: April 03, 2015, 05:37:16 PM »
How to put a slant on the numbers ...

Quote
When Vanderbilt was required to obtain appraisals before finalizing a loan, company officials wrote, the home was determined to be worth less than the sales price about 30 percent of the time.

In other words, 70 percent of the time the appraisal was higher.   :o

I don't think you can put a positive spin on it.  This isn't a transaction between two "unsophisticated" private parties where it may be more likely that the price is higher than appraisal.  How many traditional home builders have 30% of their sales come in below appraisal?  Probably none.  How many manufactured home sellers?  That would be interesting to know.

wellmont

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Re: Very negative article on Clayton
« Reply #9 on: April 03, 2015, 07:14:20 PM »
and now he's getting into used cars.  ???