U.S. House rolls back safeguards for mobile-home buyers

Introduction

The U.S. House voted Tuesday to roll back safeguards aimed at protecting mobile-home buyers from predatory sales tactics and high-interest loans.

The bill passed with strong support from Republicans, helped by a handful of Democrats. Other House Democrats objected vigorously, with several citing the findings of a recent investigation by The Center for Public Integrity and The Seattle Times.

The investigation, “The Mobile-Home Trap,” found high interest rates, excessive fees and predatory sales practices by industry leader Clayton Homes, part of Berkshire Hathaway, an investment conglomerate run by billionaire Warren Buffett.

The bill “would allow an incredibly profitable industry to make even more money by charging exorbitant fees to borrowers,” said Maxine Waters of California, the top Democrat on the House Financial Services Committee. If it’s enacted, she said, fewer people who take out costly loans would be protected against predatory lending.

The bill would reverse rules put in place as part of a sweeping financial overhaul in 2010 known as the Dodd-Frank Act. It would raise the interest rates permitted on some mobile-home loans before they trigger extra protections for borrowers such as pre-loan counseling. The bill also would let mobile-home salespeople work closely with buyers to arrange financing.

Every voting Republican but one supported it.

Clayton Homes, by far the biggest player in the mobile-home industry, earned $558 million before taxes in 2014, a 34 percent increase over the previous year.

Clayton lends at unusually high rates. Under federal guidelines, most Clayton loans are considered “higher-priced.” Those loans averaged 7 percentage points higher than the typical home loan in 2013, according to a Center for Public Integrity/Times analysis of federal data, compared with just 3.8 percentage points above for other mobile-home lenders.

The bill’s sponsor, Rep. Stephen Fincher, R-Tenn., said Democratic opposition to the bill “doesn’t hurt Warren Buffett, it hurts the people in Frog Jump,” the area in western Tennessee where he lives.

Customers, including several from Tennessee, told reporters that Clayton sales staffers steered them to finance at high rates with the company’s own lenders. Many said they were unaware that the lenders, Vanderbilt Mortgage and 21st Mortgage, were part of the same company that built and sold them their homes.

Former dealers also said the company encouraged them to put buyers in Clayton loans.

Under existing rules, sales reps on mobile-home lots may not provide a borrower with information about financing unless they first register as loan officers. Tuesday’s bill would exempt all mobile-home sales reps from registration unless they received extra pay for arranging financing.

Clayton last year built nearly half of the industry’s new homes. It finances more mobile-home purchases than any other lender by a factor of six. It sells property insurance on them and repossesses them when borrowers fail to pay.

Many buyers end up trapped in loans they can’t afford and in homes that are almost impossible to sell or refinance, the investigation found.

Clayton and Berkshire Hathaway did not respond to requests for comment Tuesday.

Republicans said passing the legislation would help poor borrowers get loans that they might not otherwise be offered.

They also said that mobile-home buyers need salespeople to help them understand financing options, and that mobile-home loans now trigger extra consumer protections too easily because such loans tend to be smaller than regular mortgages.

Fincher, the bill’s sponsor, received more campaign money from Clayton employees than any other candidate in the 2014 election cycle: $15,150. Clayton was his fourth-biggest financial backer, according to the Center for Responsive Politics, a nonprofit tracker of political money. Fincher’s office did not respond to a request for comment.

Clayton also donated $8,750 to Rep. Jeb Hensarling, R-Texas. Hensarling chairs the House committee that delivered Fincher’s bill to the floor.

Shortly before the vote, Waters proposed an amendment that would exempt from the rollback of rules for any lender that has “engaged in unfair, deceptive, predatory, or abusive lending practices.”

The amendment “is for veterans like Dorothy Mansfield, who should be honored for their sacrifices to this country — but were instead targeted. Just 18 months after being steered into a predatory mortgage she couldn’t afford, Mansfield was facing foreclosure.”

Mansfield is among the borrowers profiled in the Center for Public Integrity/Times story, published earlier this month. Waters also entered the story into the Congressional Record, the official archive of events and debates of the U.S. Congress.

The bill’s prospects in the U.S. Senate are uncertain. President Obama has said he will veto it if it passes both houses.