Chapter 5. MAD Mortgages—The "Great" Against the Powerless


The manufactured housing industry's business model centered on the ability . . . to unload terrible loans on naïve lenders . . . The consequence has been huge numbers of repossessions and pitifully low recoverie[s].

 --Warren Buffett, Berkshire Hathaway 2003 Annual Report

Berkshire Hathaway's 2003 annual report arrived in my mailbox in April 2004. Reading it, I learned that Berkshire Hathaway had acquired Clayton Homes, the largest U.S. manufacturer and marketer of manufactured homes. Unlike Oakwood Homes, a Berkshire Hathaway investment that lost money in 2002, Clayton Homes is well managed and practices sound lending through its Vanderbilt Mortgage and Finance Inc. affiliate. Clayton Homes is noted for the good character of its management in an industry rife with corrupt practices where buyers who could not afford homes were steered into fee-bloated loans created by lenders who should not have lent to them. Warren had learned about those practices the hard way after purchasing the distressed debt of Oakwood Homes, another manufactured housing company, which went bankrupt in 2002. Warren wrote: "Oakwood participated fully in the insanity."[83]

Oakwood Homes (Oakwood) designed and manufactured modular homes and sold them either directly to home buyers or to independent retailers. Oakwood provided loans to buyers of its homes. On its own, Oakwood did not have money to lend. Oakwood got money through a line of credit from Credit ...

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