In 2003, when Warren Buffett bought Clayton Homes, I was excited. I was working in the prefab business at the time and thought that this meant that the park model type home might finally get some credibility and break out of the traditional trailer park. In 2009, when Clayton introduced the i-house, I thought we were on the verge of a real breakthrough. No more horror stories about abusive sales practices, usurious mortgages and shady dealers, but a high quality product sold to a new, more sophisticated market, sort of a Lexus/Toyota split between the low and high end, with green modern trailer parks to go with it.
Now it is 2015, the i-house is dead, and Clayton Homes is severely criticized in a joint investigation by the Center for Public Integrity and the Seattle Times. They claim that Warren Buffett’s mobile home empire preys on the poor and that
the “billionaire profits at every step, from building to selling to high cost lending.”
The report claims that different dealers, supposedly in good old American competition, are all owned by Clayton. That interest rates are usurious, sometimes topping 15%. That “Clayton customers report deceptive and predatory deals including loan terms that changed abruptly, surprise fees and pressure to take on excessive payments.”
More than a dozen Clayton customers described a consistent array of deceptive practices that locked them into ruinous deals: loan terms that changed abruptly after they paid deposits or prepared land for their new homes; surprise fees tacked on to loans; and pressure to take on excessive payments based on false promises that they could later refinance.
When he bought Clayton, Buffett “declared a new dawn for the moribund mobile-home industry” and promised standards of lending where people had to put down real down payments and commit to monthly payments that they could honestly afford. Evidently that didn’t happen. And when people get into trouble, the manufacturers can be vicious. One couple in trouble wanted to refinance, to make it all good, and were told by the dealer that they were on the hook and they would take it anyway if they didn’t pay. “We don’t care. We’ll come take a chainsaw to it — cut it up and haul it out in boxes.”
You may think this is harsh and not possibly true, but this is the way they talk. When I wanted to renegotiate the purchase of the Sustain Minihome due to my total failure to sell any in my previous career, I was told “we don’t care, we will take it and push it off a cliff and come after you for the rest of your life for the payments.” This is why I still own a MiniHome.
In its defence, Clayton calls the investigation misleading. They make some good points; interest rates are higher because mobile homes are not good security, there is no underlying land value and they don’t last as long as houses.
However you can’t avoid the fact that they are sold to people who have been hit hardest by the stagnation in wages and the loss of manufacturing jobs. They are most susceptible to what Clayton calls a “ a significant life-event – divorce, job loss, or medical issue.”
(The Center for Public Integrity responds here)
The tragedy of it all is that the mobile home concept makes sense. It can actually be built at relatively high density; it has the economies of scale that come from assembly line production; The designs are quite efficient; separating land ownership from building ownership makes the price of entry a whole lot lower; it can be a real community with shared common resources.
Instead, it is tainted and its residents are abused. What a lost opportunity.