The Consumer Financial Protection Bureau is suing Vanderbilt Mortgage and Finance, a unit of Berkshire Hathaway subsidiary Clayton Homes, for risky lending practices that left many consumers bankrupt and without a home.
The lender, which originates manufactured home loans, knowingly ignored red flags in underwriting, including fabricating unrealistic estimates of living expenses for borrowers, the regulator claims.
The lawsuit filed Monday in a Tennessee federal court accuses Vanderbilt of violating the Truth in lending Act and Regulation Z's minimum underwriting standards. The 10-page filing doesn't specify the number of impacted borrowers, nor the potential damages or restitution for victims.
"Vanderbilt knowingly traps people in risky loans in order to close the deal on selling a manufactured home," said CFPB Director Rohit Chopra in a press release Monday.
The complaint focuses on a residual income model Vanderbilt began using in its underwriting in 2014. The model subtracts food, healthcare, utilities and other monthly debts including the mortgage from an applicant's monthly income, resulting in a residual net income. If a borrower didn't provide their living expenses, Vanderbilt used its own "Living Expense Estimate."
The lender's estimate relied on expense figures unreasonable for a borrower's family size, and didn't account for other variations in borrower characteristics or geographic locations,
Some of the shoddy calculations assumed families to have under $100 in residual net income per month. Vanderbilt also ignored its own policy and originated loans to borrowers with negative residual net incomes, with one single mother of two dependents calculated to have -$0.50 a month, according to the lawsuit.
In another example, the CFPB points to a loan for co-applicants with two young children with 33 debts in collection. That family fell behind on their mortgage payments in eight months.
"Many of these borrowers became delinquent on their loans within a few years of consummation and incurred late fees and penalties," the complaint read. "Many other borrowers filed for bankruptcy or eventually defaulted on their loans and lost their homes."
A spokesperson for Vanderbilt Monday called the lawsuit untrue and "politically motivated, regulatory overreach." The lender said it exceeds the legal requirement to assess a borrower's ability-to-repay by considering both their monthly debt-to-income ratio and residual income.
"Vanderbilt Mortgage goes further by taking the greater of the borrower's actual reported expenses or an estimated living expense for the family size, similar to that used by the Federal VA loan program," the statement read.
In reviewing Vanderbilt's business, the CFPB identified less than 0.8% of loans over a six-year period that allegedly shouldn't have been made, the statement continued.
"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," the lender said.
The lawsuit seeks to impose a civil penalty to be paid into a CFPB victim's relief fund.
Vanderbilt had over $3.5 billion in origination volume in 2023, according to publicly available data. The filing states Clayton Homes is the largest manufactured home builder in the nation.
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