By Yuka Hayashi
WASHINGTON -- Manufactured-home sellers would regain the ability to steer customers to their own financing arms in a banking bill making its way through Congress, likely a big boost for Warren Buffett's Clayton Homes Inc.
Clayton Homes, a unit of Berkshire Hathaway Inc. and the dominant player in the manufactured-housing sector, spent $280,000 on lobbying last year to free the industry from postcrisis rules that barred mobile-home sellers from engaging with buyers on financing options, according to OpenSecrets.org.
Manufactured housing, popular in rural regions, costs less than brick-and-mortar properties and comes with sales and financing strategies more in line with the auto industry than real estate. Buyers are less likely to show up at a dealer having arranged financing, and the industry argues being subject to broader housing restrictions has hurt it.
The bill, expected to clear the Senate by next week, includes a provision that would exempt manufactured-housing companies from lending rules covering other parts of the housing market -- a likely boon for these firms, which earn a big chunk of their profits by lending people money to buy the homes. Under the provision, sellers would be allowed to refer customers to lenders, including affiliated ones, as long as they receive no compensation for the referral and disclose the ties.
Clayton Homes is a dominant player in this market, and consumer advocates say the bill would further expand its advantage. The company, which Berkshire Hathaway acquired in 2003, accounts for roughly half of U.S. sales of manufactured homes. Its two affiliated lenders together accounted for 38% of all financing for such homes in 2016, compared with 3.5% for Wells Fargo & Co., the No. 3 lender, according federal government data.
Currently, companies such as Clayton Homes hand out lists of potential lenders to customers but can't have any further discussions about financing options.
"The provision on manufactured housing, by no means, helps smaller lenders. It helps the behemoths that are already dominating the market," said Doug Ryan, director of affordable homeownership at Prosperity Now, a consumer-advocacy group.
Clayton Homes said the changes in the bill would help both the industry and consumers. "Clayton supports consumer protections that promote competition, lower the cost of compliance, and improve transparency for customers when they make lending decisions," the company said. The bill "will help customers choose the best lender for their needs -- even when that is not a Clayton-affiliated lender," it added.
In 2016, about 80,000 manufactured homes came to the market for an average price of $70,600, accounting for roughly 9% of all single-family homes, according to the Manufactured Housing Institute, a trade group.
Unlike traditional homes, manufactured homes don't usually appreciate in value. A small share of buyers also own the land, and can get traditional mortgages if they qualify. Most buy only the buildings, which are considered personal property, not real estate. Interest rates on financing for the homes, known as chattel loans, are sometimes up to 5 percentage points higher than comparable mortgages, according to a Consumer Financial Protection Bureau report.
Roughly 22 million Americans, or about 7%, live in manufactured homes, many in Southern and Western states. Housing experts say demand will grow in coming years as retirees and young families see them as attractive alternatives to traditional homes.
Both the industry and homeowner advocates say manufactured homes offer a solution to the recent shortage of affordable housing, even as they disagree on how to make that happen.
Some lawmakers and the industry say the bill would help increase sales by allowing retailers to match customers, who often have blemished credit histories, with lenders willing to provide loans.
Industry executives say stringent rules on loan costs and marketing practices in the 2010 Dodd-Frank regulatory-overhaul law have driven out some lenders, depressing home sales. "By passing this provision, it is going to help bring more lenders back," says Lesli Gooch, chief lobbyist for the Manufactured Housing Institute.
Others say the bill would further suppress competition and increase the already high costs of manufactured housing loans as retailers steer more of their customers to affiliated lenders.
"The [manufactured home] lending market is already inefficient and it seems this provision will probably make it slightly more inefficient," said Ryan Lumb, an analyst who covers manufactured homes for Green Street Advisors, a real-estate research firm.
The debate over manufactured housing highlights a challenge facing policy makers: the drop in homeownership among lower-income buyers. Postcrisis regulations have expanded homeowner protections against predatory lending and foreclosure. But they have also discouraged banks from lending to borrowers perceived as risky, resulting in more renters. The current bill includes other contentious provisions, including ones that exempt most lenders from strict mortgage-underwriting requirements and from laws intended to prevent lending discrimination.
Clayton's lobbying expenditure in 2017 was primarily aimed at promoting changes in financing rules, including the one featured in the current bill, according to OpenSecrets.org. The Manufactured Housing Institute, in which Clayton plays a leading role, separately spent $889,000, a record for the group, on similar lobbying.
Berkshire Hathaway's latest annual report explains why the company is focused on changing lending regulations, rather than local government zoning rules that are widely blamed for curbing mobile-home sales. "A significant portion of Clayton Homes' earnings are generated from lending activities," the parent company said.
In 2015, a shareholder asked Mr. Buffett about allegations of predatory lending practices and high fees at Clayton Homes. Mr. Buffett said he made "no apologies whatsoever" for how the company does business, adding, "Clayton has behaved very well."
Write to Yuka Hayashi at [email protected]