Saddling Homeowners With Risky Loans
By THE EDITORIAL BOARDAPRIL 29, 2015
House Republicans, with the help of several Democrats, recently passed two bills to weaken new rules against predatory mortgage lending. Senate Republicans are now trying to win support for the same measures, arguing that the rules would impose “regulatory burdens” that unduly restrict credit.
That is way off base. The rules, called for in the Dodd-Frank financial reform law of 2010, require that lenders provide borrowers of complex, high-cost loans with written disclosure of the loan rate and maximum monthly payment as well as the consequences of default. They also require lenders to give mortgage applicants a list of counseling organizations that can educate them on risks, rights and responsibilities.
The rules seek to curtail the use of the riskiest loan features, like balloon payments, and to reduce conflicts of interest, like the use by lenders of affiliates in insurance and other related fields, that can result in borrowers being steered into overpriced loans.
The rules generally do not apply to loans with straightforward terms or prohibit risky loans to qualified, well-informed borrowers. Their purpose is to help prevent lenders from peddling deceptive and high-cost loans to unsuspecting borrowers.
Photo
Warren Buffett, right, with Kevin Clayton, chief executive of Clayton Homes.
Credit Nati Harnik/Associated Press One such lender, according to a recent article by The Seattle Times and the Center for Public Integrity, a nonprofit investigative group, is Clayton Homes, headquartered in Maryville, Tenn. Clayton is the nation’s biggest builder and seller of manufactured homes — basically mobile homes permanently affixed to their sites. It is also the biggest lender to buyers of manufactured homes, having increasingly dominated the industry since 2003, when it was acquired by Berkshire Hathaway, the conglomerate led by Warren Buffett. The report, which Clayton Homes claimed was misleading, said the company uses high-pressure sales tactics, exorbitant fees and excessive interest rates to bolster profits on loans that borrowers cannot afford for homes they often cannot sell or refinance.
One of the two bills approved by the House would effectively exempt loans for manufactured homes from the new anti-predation rules. The bill’s architect was Representative Stephen Fincher, a Republican from Clayton’s home base in Tennessee. Its potential victims are the kinds of consumers the law is meant to protect — the mostly older, lower-income buyers of manufactured homes in rural areas where affordable housing is scarce.
The White House has said it would veto the bills if need be, though the Republican tactic of passing piecemeal rollbacks to Dodd-Frank raises the possibility that the bill could be added to a larger measure.
In the meantime, shareholders who gather this week for Berkshire Hathaway’s shareholder meeting could ask Mr. Buffett what it is about basic consumer protection that Clayton Homes finds so threatening. |
