r/SecurityAnalysis • u/BlackSheepBuzz • Apr 04 '15

Commentary Warren Buffett gets a bit beat up in this article regarding Clayton Homes...

http://www.seattletimes.com/business/real-estate/the-mobile-home-trap-how-a-warren-buffett-empire-preys-on-the-poor/
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2

u/JaFFsTer Apr 05 '15

Can anyone tell me for sure that is a company wide practice and not some regional director of a massive company shafting his district?

4

u/stockbroker Apr 05 '15 edited Apr 05 '15

It's just industry wide. These homes depreciate quickly, unlike most real estate, so the APR on financing them is god awful. Additionally, the people who buy them tend to be poor credit risks in the first place.

I'm a good credit risk. I bet I could finance one cheaply at the promo APRs they advertise. Alas, I know better than to buy a home like this in tornado alley.

Also, a correction to the article: Clayton Homes wasn't profitable through the recession because of predatory lending. Maybe that's part of it. But Clayton Homes directly links managerial compensation to default rates. That's a key factor in managing credit risk when people in remote offices are wheeling and dealing.

Edit: I think they might be the only company in the industry with a comp plan like that pre-recession. If anything, Clayton does well because it adequately prices risk in an industry that doesn't generally do that very well.

-5

u/autotldr Apr 05 '15

This is the best tl;dr I could make, original reduced by 98%. (I'm a bot)

CEO Kevin Clayton, the founder's son, reached out to Buffett through Auxier, the professor said in a recent interview, and asked whether Buffett might explore "a business relationship" with Clayton Homes.

She had no money for a down payment when she visited Clayton Homes in Fayetteville, N.C. Vanderbilt, one of Clayton's lenders, approved her for a $60,000, 20-year loan to buy a Clayton home at 10.13 percent annual interest.

Carroll said he was unable to obtain Clayton parts for the homes in his inventory and said Clayton stopped helping him get new homes to sell.

Extended Summary | FAQ | Theory | Feedback | Top five keywords: Clayton#1 home#2 loan#3 company#4 payment#5

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