(Bloomberg) -- A lender owned by Warren Buffett’s Berkshire Hathaway Inc. knowingly issued “unaffordable” home mortgages by ignoring the insufficient income or assets of some borrowers, a top financial regulator alleged in a lawsuit Monday.
The Consumer Financial Protection Bureau sued Vanderbilt Mortgage & Finance Inc. in US District Court for the Eastern District of Tennessee, claiming the firm’s lending process “ignored clear and obvious red flags that certain consumers would not be able to repay their loans according to their terms,” according to the complaint.
“Vanderbilt knowingly traps people in risky loans in order to close the deal on selling a manufactured home,” CFPB Director Rohit Chopra said in a statement. “The CFPB’s lawsuit seeks to not only protect homebuyers, but also honest lenders helping people to finance the purchase of an affordable home.”
Vanderbilt is a unit of Clayton Homes Inc., a builder of single-family homes founded in 1956 in Tennessee. Berkshire acquired Clayton in 2003.
“The CFPB’s lawsuit is unfounded and untrue, and is the latest example of politically motivated, regulatory overreach,” Maryville, Tennessee-based Vanderbilt said in an emailed statement. “Vanderbilt Mortgage follows the law, and the facts bear that out. Despite regularly blessing Vanderbilt Mortgage’s underwriting practices in the past, the CFPB is now demanding compliance with an unknown and unknowable new ‘standard’ not addressed in the law.”
Berkshire Hathaway, based in Omaha, Nebraska, didn’t respond to a request for comment on the lawsuit.
Vanderbilt relied on unrealistic expectations of what borrowers would need financially after making their mortgage payment for essentials such as food and health care, according to the complaint. As a result, many of the firm’s customers accrued additional fees, defaulted and eventually lost their homes, the CFPB said.
Members of Congress called for inquiries into the business model in 2016, following media reports of minority borrowers being charged higher interest rates than their White counterparts.
--With assistance from Alexandre Rajbhandari.
(Updates with Vanderbilt comment in fifth paragraph.)
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