Wednesday, February 17, 2016

Buffeted By Reality - Clayton Homes & The American Nightmare

Berkshire Hathaway chairman Warren Buffet
The wild swings the stock market has taken over the past six weeks have made anyone fortunate enough to have a 401k through an employer, investments through a broker, or maybe some stocks purchased through an IRA account, a little bit nervous.

So a third day of solid gains in the Dow, S&P 500 and NASDAQ today comes as a relief for many.

As a modest investor, I'm not a panicky day-trading reactionary, I keep my eye on the long-term picture.

In general, I follow the investment philosophy advocated by Warren Buffet, the folksy, plain-spoken  chairman of the massive, Omaha, Nebraska-based holding company Berkshire Hathaway.

Buffet, a multi-billionaire and generous philanthropist with a net worth of about $66.7 billion, is the second-wealthiest individual in the United States and widely recognized for his down to earth, no-nonsense approach to investment.

While I don't deify the guy or anything, I've always admired his intelligence, investment savvy, and the fact that he's pledged to give away 85% of his fortune to the Bill and Melinda Gates Foundation when he passes away.

In some ways many Americans view him affectionately as their (extremely) "rich uncle".

Clayton Homes sales office in Salt Lake City, Utah
So it was troubling for me to read that the largest mobile home builder in the United States, Clayton Homes, appears to be dabbling in the same kinds of bait and switch tactics on home owner's mortgages that was such a major factor in the sub-prime mortgage crisis.

Clayton Homes is owned by Buffet's company Berkshire Hathaway.

Berkshire Hathaway owns, or has controlling stakes in a wide range of large companies; it's not like Buffet oversees the day-to-day operations of Clayton Homes.

But based on some startling investigative journalism maybe he should be.

Back in December Daniel Wagner of and Mike Baker of The Seattle Times published the results of a joint investigation into claims that Clayton Homes are boosting profits by using the socioeconomic status, race and/or ethnicity of home buyers to charge higher mortgage rates.

To hear Buffet himself tell it, as he has in televised interviews in response to charges that Clayton Homes is engaged in wide-scale consumer fraud, the company is simply trying to provide home loans for borrowers of modest means who wouldn't otherwise have access to a home loan.

But hidden fees, deceptive lending practices, verbal agreements that turn out to be false are just some of the parts of this classic tale of exploitation.

It's an unfortunate reality that some businesses can reinforce institutional racism and classism in this country by using bias based on race, ethnicity or economic status as a means to treat customers differently.

In fact, with the help of billions in capital investment from Berkshire Hathaway, Clayton Homes and it's subsidiary companies have systematically bought up competitors to gain a near monopoly of America's mobile home market.

As the joint - Seattle Times article notes, Clayton Homes, either directly or through its subsidiary lending arm Vanderbilt Mortgage controls some 72% of the African-American mobile home mortgage market.

In one particularly glaring example that has parallels in the consumer and auto lending industries, according to the article, federal statistics show "that Vanderbilt typically charges black people who make over $75,000 a year slightly more than white people who make only $36,000 a year."

But Clayton Homes' exploitation of buyers is not just a black and white issue at all.

Clayton victim Ellie Carosa and her granddaughter.
In April of 2015, The Center for Public Integrity and The Seattle Times published the results of an extensive joint investigation into the practices of Clayton Homes and some of the 18 other companies operating in the mobile home industry under different names that Clayton and Berkshire Hathaway own - companies that many unsuspecting buyers don't realize are in fact, Clayton Homes.

Some of the stories are heart-breaking, like disabled 67-year-old grandmother Ellie Carosa (pictured left) of Napavine, Washington.

According to the CPI - Seattle Times investigation, Carosa put down $40,000 in savings she inherited to purchase a $65,000 used mobile home from Clayton that later turned out to be worth only about $35,000.

As the report details, Clayton sales reps misled Carosa into taking out a 20-year mortgage at 9% interest through Clayton-subsidiary Vanderbilt Mortgages to finance the remaining $25,000 cost of her massively-overpriced mobile home - leaving her stripped of her savings, heavily indebted to Clayton Homes and saddled with a mobile home she can't sell worth thousands less than her down payment.

Take a few minutes and read some of these stories for yourself, these aren't just people who were seeking an easy mortgage to buy a house then refinance it and take the money and run; these were hard working Americans duped by classic bait and switch tactics that border on criminal.

Tim Smith, victim of Clayton's Oakwood Homes
One of the most disturbingly insidious aspects of racism and classism in America is the way in which it allows companies and businesses, from small "mom and pop" stores to large corporations, to justify treating customers differently, and unfairly, simply because of the color of their skin, ethnicity, where they live, or the amount of money they make.

The housing industry in this nation has a particularly long and complex track record of working with banks and lenders to do just that.

Sadly, for many unfortunate mobile home owners of limited means in this country, Berkshire Hathaway figured out how to turn Clayton Homes into a company that brings the role of contractor, builder, lender, insurance-provider all under one roof to systematically exploit mobile home buyers.

And when things go bad, they've also got the aggressive collection agents to harass unsuspecting buyers into making payments they can't afford - or repo agents and trucks to come and haul off what they thought would be their small slice of the American dream.

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