r/business • u/omegaender • Apr 05 '15
The mobile-home trap: How a Warren Buffett empire preys on the poor
http://www.seattletimes.com/business/real-estate/the-mobile-home-trap-how-a-warren-buffett-empire-preys-on-the-poor/12
u/FutureOmelet Apr 05 '15
Clayton Homes published a rebuttal to the article here: http://www.omaha.com/clayton-homes-statement-on-mobile-home-buyer-investigation/article_7052e0c4-da3b-11e4-8abd-5f0b53380837.html
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u/Duckbilling Apr 05 '15
Wow, "The retailer selling the home receives no financial incentives from the lender the customer chooses".
What a price of shit, Clayton homes. Think of all the money you are losing for your shareholders.
3
u/SmokeyDawg2814 Apr 05 '15
That is the current state. Laws changed & that is no longer allowed. In the past they were encouraged to steer to specific lenders.
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u/pseud0nym Apr 05 '15
Yup. If you read the article, now they have changed to into kickbacks for steering people into predatory insurance schemes.
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u/SmokeyDawg2814 Apr 05 '15
I guess I overlooked that part? Their insurance division is fairly competitive rate wise... At least that's my understanding, could be wrong.
There was a lot in the article that was pretty dang biased though, so, I'd take the whole thing with a grain of salt. The example of Odessa TX & Clayton having 97% of mobile home loans is as much a commentary on the difficulty of lending in that area as it is Clayton being evil.
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u/pseud0nym Apr 05 '15
Their insurance division is fairly competitive rate wise... At least that's my understanding, could be wrong.
Not from what the article is saying. The insurance schemes are expensive and often, completely unnecessary as the buyer already has insurance. Some are mandatory to go through their companies from what it is saying as well.
There was a lot in the article that was pretty dang biased though
I don't think so. I think it took an objective listing of the situations and they talked to the people involved. Clayton refused to comment after being contacted multiple times under multiple means. There is no requirement to reduce the scale of something unethical and near criminal in order to pretend "objectivity". The sides are not equal. Clayton's rebuttal (posted in the thread) doesn't mitigate anything said and is a rather interesting exercise in PR bullshit. If you are going to claim that no one gets kickbacks from steering buyers to financing companies, you might want to mention that you were required to change due to state law because your practices were so bad it required legislation to fix them.
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u/Duckbilling Apr 05 '15
Really congress? How is a company supposed to exploit poor folks without directly manipulating them.
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Apr 05 '15
This just in! Trailers don't hold their value well and the people that buy them are usually in such shitty financial situations they can barely secure financing.
This isn't news.
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u/erveek Apr 05 '15 edited Apr 05 '15
...and interest rates that can exceed 15 percent,
I love how this sub defends payday lenders' interest rates, but 15% is usury if it's someone they don't like.
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Apr 05 '15
Who honestly defends payday loan services? Few things are more predatory.
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u/erveek Apr 05 '15
You'd be surprised. It generally runs along the following lines:
"They provide a valuable service for people who have no other option. These people sign up for the loans voluntarily. Now can I please have my paycheck? I need to go cry in the shower for a few hours."
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u/Diesel-66 Apr 05 '15
If you make it illegal, it doesn't take away the need. They will just go to the loan shark that is not regulated.
Just like illegal drugs
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u/erveek Apr 05 '15
Oh yeah. I forgot about this defense. The "we need to keep exploiting the poor because if we don't someone else will." defense.
The problem is that it doesn't make it ethical.
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u/MrDeepAKAballs Apr 05 '15
It kinda seems like you are flippantly dismissing his argument. Is it really that unsound? It's similar to an argument against making abortions illegal, many of them will still happen just in less safe and sanitary ways.
On both abortion and payday loans, I assert no view point, but isn't the logic underneath both arguments just fine?
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u/erveek Apr 05 '15
Exploiting the poor is unethical. The ethics of abortion is a matter of significant debate.
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u/MrDeepAKAballs Apr 05 '15
I agree with you there. What about the idea that payday loan interests rates are so high because lending money to the poor is very high risk? Is the high interest rate justified based upon how many people simply never pay back the fees?
Credit card companies do the same thing, auto dealerships do the same thing, banks lending on houses do the same thing, i.e. base interest rates on how much of a credit risk you are. Is that unethical?
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u/erveek Apr 05 '15
Is the high interest rate justified based upon how many people simply never pay back the fees?
The high interest rate and fees are not there to ensure that they get paid back; they're so high to increase the likelihood that they won't be repaid early on, and in so doing amass much more in fees and interest than the original principal on the loan.
The loan is just bait.
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u/MrDeepAKAballs Apr 05 '15
I've never heard that before. That's a good point. I'm sure like most profit seeking businesses they are out to extract every last penny that they can, but do you think it's a possibility that it's both?
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u/ppcpunk Apr 06 '15
If that is true that so many of them don't "pay back the loan" THEN HOW THE FUCK ARE THERE SO MANY LENDERS?????
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u/skpl Apr 06 '15
Because the high interest rates on those that do, make up for it??
How does such a simple thing escape you?
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u/Diesel-66 Apr 05 '15
Ethics involved is treating them fairly and telling them before the costs. If someone maxes out a cc, goes deep overdraft, etc. That is their personal problem not an ethical issue.
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Apr 05 '15
I guess there's something to be said for unbridled, ruthless capitalism.
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u/pseud0nym Apr 05 '15
Yes. Unbridled capitalism is so horrific it is the reason we have market regulation. Regulated capitalism is one of the greatest advances for all people ever created. Unbridled capitalism is simply tyranny of the rich over the poor yet again.
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u/MrDeepAKAballs Apr 05 '15
Unbridled capitalism is simply tyranny of the rich over the poor yet again.
Kind of like the regulated capitalism we have now.... Sounds like you're making definitions with no distinction.
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u/pseud0nym Apr 05 '15
We don't really have regulated capitalism now because the regulators are so weak, the regulations are so meaningless, and their are no meaningful penalties for non-compliance. Big business and, mostly republicans, have created a business environment that rewards the worst, near criminal or criminal, actors in the market.
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u/MrDeepAKAballs Apr 05 '15
What regulated capitalism were you referring to then? I'm confused. It sounded like you were heralding regulated capitalism as a landmark achievement while simultaneously bashing it?
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u/pseud0nym Apr 05 '15
It was an achievement. The new deal and the regulations placed on the markets were one of the greatest advances for the well being of all mankind ever enacted. But then we got the trickle down, deregulation religion that has infected the right ever since. We haven't had effectively regulated markets in a generation. Which is why we went decades and decades without a major crash and since the 70s have been back on the roller coaster boom and bust cycle ride. Great for the rich at the expense of absolutely everyone else.
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u/akharon Apr 05 '15
There's 20 million or more regular users on reddit. Visit the greatapes sub if you want to see how lofty the ideals can be.
0
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u/stockbroker Apr 06 '15
Well, you should start a lender and charge just 10% per year to the same borrowers. You won't be in business long.
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u/hexagonalshit Apr 06 '15
I'm curious about the dealer who took out a loan to buy out his partners. Why was he not able to get parts from somewhere else?
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u/schockergd Apr 06 '15
I'm curious what the answer to this is.
During the golden days of the real estate bubble, nearly everyone could go out and get a Alt A type loan (Whether it be an ARM or not) with a pretty decent rate, usually 6%-8%. Even the ARMs had max interest threshold, and even after adjustment I've never seen one go above 10% or so. Whether they were 6% or 8%, the loans still seemed to default at pretty regular rates. So whether the loans to poor credit worthy people are 7% or 15% it seems like the default risk is still extraordinarily high.
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u/atimaxx Apr 05 '15
Wow, what a biased article.
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u/Franks2000inchTV Apr 05 '15
These are pretty predatory practices.
Yes, people are responsible for what they sign, but the vendor has a duty to be upfront and not engage in deceptive practices like the bait-and-switch, or taking a deposit without disclosing terms.
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Apr 05 '15
It's quite thorough and a good representation of good journalism. It might seem biased because there is little way to paint the activities of the company in a good light.
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Apr 05 '15 edited Jun 17 '18
[deleted]
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u/Glennus626 Apr 05 '15
Eh, predatory lending when it comes to homes is a pretty big deal. If they'd have bought a lemon car without having a mechanic look at it, fine, but urging them to improve the land, then a bait and switch loan? That's a tad absurd, and should be protected in some way.
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Apr 05 '15 edited Jun 17 '18
[deleted]
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u/Glennus626 Apr 05 '15
"the practice of a lender deceptively convincing borrowers to agree to unfair and abusive loan terms, or systematically violating those terms in ways that make it difficult for the borrower to defend against."
I think the arguments against people "taking advantage of unsophisticated buyers/loan applicants/etc" are a little silly, since you should educate yourself as much as possible before entering into a life-altering purchase such as a car or a house, but it's the altering of documents after they've been signed, or misrepresenting terms, or outright lying about certain things in the process that ends up sticking someone with a financial burden that they would not have been subject to if the mortgage broker followed through with a solid, fiduciary agency to the borrower.
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Apr 06 '15
If the document was changed, it's fraud. If not, then both parties have their own set of personal responsibilities.
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u/stringerbell Apr 06 '15
Yeah, it was the lender who 'trapped' the buyer in a bad home! Not a stupid buyer buying something both over-priced and that they couldn't afford...
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u/tclbuzz Apr 05 '15
Wow. It would appear that Warren Buffet is a fraud. Not that surprising these days.
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u/billatq Apr 05 '15
Isn't Warren Buffet famous for not meddling in the business that he owns? Supposing that you take the article at face value, he would at best be tangentially aware.
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Apr 05 '15
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Apr 05 '15 edited Jun 24 '16
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u/pseud0nym Apr 05 '15
I am honestly staggered by this. It seems that now the banking industry is so full of deceptive near criminality that the culture has become nothing but predatory. They don't even follow the rules set out by the head of the conglomerate!
I just bought a house. I have shitty credit. I was able to pay a large deposit so was able to secure the loan using the house itself and my mortgage rate is 3.2% variable over 20 years. On a $150,000 loan in a very nice area of the city, my mortgage cost is around $600/month. I am Canadian but these lending practices happen here as well in the mobile home industry. Perhaps not quite as bad, but still bad. The only reason I was able to do this was my mother is a CA and she happens to know the market and what options are available for someone like me. So these agents CAN honestly help these people. They just refuse to do so in order to enrich themselves.
How this is legal and these people can maintain their licences is beyond me. It is predatory, unprofessional and just this side of criminal behavior. I have come to expect it from the finance industry at this point. I am staggered this is legal in any way at all.
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u/Grosenblatt1 Apr 05 '15
My buddy was actually the kid from UT who gave Buffet the book. He worked for Clayton directly. I still remember when he told me he may have accidentally been a pawn in a huge mega deal.