February 27, 2016 / 8:35 PM / 3 years ago

Buffett defends Clayton Homes after critics fault its lending

NEW YORK, Feb 27 (Reuters) - At last May’s annual meeting of his Berkshire Hathaway Inc, Warren Buffett said he had “no apologies whatsoever” for the lending practices of the company’s Clayton Homes mobile home unit, which had been accused in a published report of predatory lending.

He still doesn’t.

“Kevin Clayton has again delivered an industry-leading performance,” Buffett wrote on Saturday in his widely-read letter to Berkshire shareholders, referring to Clayton’s chief executive.

Buffett’s defense may add to the focus on Clayton, which generates just 2 percent of Berkshire’s profit and normally gets little notice relative to Berkshire units such as the BNSF railroad and Geico auto insurer.

Still, Clayton sold more than 34,000 homes last year, and has tripled its market share since Berkshire paid $1.7 billion for it in 2003, Buffett said.

Manufactured homes are often bought by people with low credit scores and incomes.

Last year, the Seattle Times published reports, prepared with the Center for Public Integrity and BuzzFeed News, that said Clayton drove black, Latino and Native American borrowers into subprime loans they could not afford, and promoted a racist corporate culture, even against its own workers.

The Maryville, Tennessee-based company has “categorically and adamantly” denied discriminating, and said it neither uses race and ethnicity in its lending, nor tolerates discrimination against its workers.

In his letter, Buffett did not explicitly note the reports.

Buffett said Clayton makes about 35 percent of all mortgage loans on manufactured homes, averaging $59,942, and keeps nearly all on its books, ensuring the need to lend carefully.

Buffett quoted former U.S. Congressman Barney Frank, co-sponsor of the 2010 Dodd-Frank financial reforms, about the importance of mortgage lenders retaining the risks on for loans they make.

He also said this makes Clayton different from lenders that sowed the 2008 financial crisis by making reckless loans that Wall Street later packaged into securities that were bought by investors, many of whom who should have known better.

Buffett said Clayton’s diligence has enabled its $12.8-billion mortgage portfolio to perform well.

He also said that diligence has been endorsed by regulators from the federal government and 25 U.S. states that have in the last two years examined Clayton 65 times.

“The result? Our total fines during this period were $38,200 and our refunds to customers $704,678,” Buffett wrote.

He said just 2.64 percent of Clayton’s manufactured home loans went into default last year, and 95.4 percent of borrowers were current on payments at year-end.

In January, four Democratic members of the House Financial Services Committee called on the U.S. Department of Justice and Consumer Financial Protection Bureau to “pursue appropriate corrective action” against Clayton. None has been announced. (Reporting by Jonathan Stempel in New York; Editing by Nick Zieminski)

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