A mortgage lender in Tennessee was sued over allegations it spent years duping customers into mortgages they couldn't afford, forcing them to sometimes lose their homes or declare bankruptcy.
Employees at Vanderbilt Mortgage and Finance used an unusual formula to calculate how much applicants could afford to pay on a home loan, according to court documents filed Monday from the Consumer Financial Protection Bureau. The federal regulatory agency said the formula did not factor in an applicant's other monthly bills — like food, healthcare, gas and utility bills. Knowing this, Vanderbilt lenders still approved mortgages for people who essentially had no means to pay off the loans, the CFPB said in its lawsuit.
"For example, Vanderbilt approved a loan to co-applicants with 33 debts in collection, insufficient assets to pay those debts, and two young children," the lawsuit said. "The borrowers fell behind on their payment eight months after getting the mortgage."
While the lawsuit is asking a judge to force Vanderbilt to pay damages and restitution but did not disclose a specific dollar amount, Vanderbilt denied the allegations within the suit and described the case as "the latest example of politically motivated, regulatory overreach."
A company representative said in an email that "the CFPB examined tens of thousands of Vanderbilt Mortgage loans and identified less than 0.8 percent, over a six-year period, that allegedly should not have been made. Many of those loans have not been delinquent. Vanderbilt Mortgage follows the law, and the facts bear that out."
In the email, Vanderbilt also said the CFPB blessed the company's underwriting process in the past but is now asking for compliance "with an unknown and unknowable new `standard' not addressed in the law."
It added that "far from protecting American consumers, the CFPB’s lawsuit will deprive credit-worthy borrowers of owning a home."
The CFPB, launched in 2011, is an independent agency of the U.S. government that has the authority to oversee business practices and return money to consumers.
Loans for manufactured homes
Applicants who applied for mortgages through Vanderbilt were looking to buy a manufactured home — prebuilt residences also known as mobile homes — from Clayton Homes, CFPB officials said. Vanderbilt and Clayton Homes, the nation's largest producer of manufactured homes, are owned by conglomerate Berkshire Hathaway. The CFPB is accusing Vanderbilt of violating federal underwriting laws and other charges.
The United States is in the middle of a housing affordability crisis, where home prices are continuing to grow out of reach for middle-class Americans, and housing inventory has been slow to keep up with demand. Some housing experts believe manufactured homes can help solve those issues, specifically because manufactured homes are cheaper to build and can be completed much faster than traditional single-family homes.
"Because manufactured housing is inherently low-cost housing, it could be a part of the solution to the affordability crisis," a 2022 study from the Urban Institute concluded. "Manufactured homes cost significantly less than site-built housing, and the quality and appeal of manufactured homes built to U.S. Department of Housing and Urban Development standards has improved drastically."
At its core, the CFPB lawsuit takes issue with Vanderbilt's lending strategy and not Clayton's manufactured homes operation.
“Vanderbilt knowingly traps people in risky loans in order to close the deal on selling a manufactured home,” Rohit Chopra, the CFPB’s director, said in a statement. The “lawsuit seeks to not only protect homebuyers, but also honest lenders helping people to finance the purchase of an affordable home,” he said.
Vanderbilt has used its formula since 2014, and the practice has caused a laundry list of financial burdens on customers, according to the CFPB lawsuit. Some borrowers were hit with late fees and penalties from Vanderbilt once their loans became delinquent while others went into default and had their homes repossessed, the lawsuit said. In another example, the lender approved a loan for a couple who had three children and seven debts in collection.
"Vanderbilt assumed unreasonably low monthly living expenses for this family of five, which would have left them with $57.78 in net residual income," the lawsuit stated. "A year after the mortgage was issued, the borrowers missed a payment and eventually went into default."