Warren Buffett conceded Monday that mobile-home borrowers likely default on their loans at much higher rates than the 3 percent figure he gave to Berkshire Hathaway shareholders at their recent annual meeting.
Buffett touted the 3 percent default rate to shareholders in order to rebut claims of predatory lending in a recent investigation by The Seattle Times and The Center for Public Integrity into Berkshire’s mobile-home subsidiary, Clayton Homes.
But Buffett’s number only counted loans that defaulted in a one-year period.
In an interview Monday, CNBC’s Becky Quick asked Buffett whether a Times story about the shareholders meeting was correct in saying the default rate was much higher when accounting for the performance of those loans over several years.
“They are correct,” Buffett replied, but noted that others report defaults as a one-year rate.
At the shareholders meeting, Buffett seemed to imply that 97 percent of consumers with Clayton financing successfully pay off their loans.
The Wall Street Journal reported: “Only about 3 percent of Clayton’s $12 billion of mortgages on 300,000 homes go sour, Mr. Buffett said. The rest of the borrowers are able to pay off their loans within a 20-year time frame on average.”
CNBC’s Alex Crippen tweeted a similar characterization: “Buffett at (shareholder meeting): 3 percent of Clayton borrowers won’t be able to pay back and lose their home, but 97 percent do and get a good home at low cost.”
The Omaha World-Herald, Buffett’s hometown paper that’s owned by Berkshire Hathaway, also reported: “He said only 3 percent of Clayton’s buyers default, a small percentage, especially since many of them have poor credit histories. It wouldn’t be fair to deny the remaining 97 percent a chance to buy homes because of those defaults, Buffett said.”
Most mobile-home financing is done with personal-property loans, not mortgages. Kenneth Rishel, an industry consultant for 40 years, has said the industry-wide failure rate on nonmortgage mobile-home loans is 28 percent. Clayton is by far the industry’s largest lender, doing six times more mobile-home loans than anyone else.
Citing his own research and conversations with Clayton executives, Rishel said Clayton’s two lenders have failure rates of 33 percent and 26 percent.
In a short interview with The Seattle Times over the weekend, Clayton Homes Chief Executive Officer Kevin Clayton called those numbers “totally wrong.” But he reiterated that the company would not provide comparable figures.
“We’re not going to disclose all of our competitive information,” he said.
Buffett also told CNBC on Monday that he frequently sees a variety of consumer complaints about his businesses, but that hasn’t been the case with Clayton.
“In the last three years … I have not received one letter — and all the letters get to me — I have not received one letter from Clayton Homes,” Buffett said.
But in just the last three years in the state of Tennessee, home to Clayton, more than two dozen people have filed complaints to the attorney general’s office about Clayton and its subsidiaries.
And one Clayton borrower from North Lewisburg, Ohio, watching CNBC on Monday morning, said he was baffled by Buffett’s remarks. Ted Murphy said he had sent a variety of messages to Clayton about what he deemed was a “bait-and-switch” the company previously made on its loan terms.
“I don’t care who he is, but he’s not telling the truth,” Murphy said he told his wife as they watched Buffett. Murphy said the couple feel trapped in their Clayton loan, still owing $40,000 on a home he believes is worth maybe $10,000.
Murphy said he sent his most recent complaint to Clayton a few months ago. After watching Buffett make his claim on CNBC, he immediately sent another.
