Feb 25 Warren Buffett on Saturday used part of
his annual letter to Berkshire Hathaway Inc
shareholders to defend the businesses practices of one of his
conglomerate's lesser-known but more controversial operating
units: Clayton Homes.
The mobile home unit, which Berkshire bought for $1.7
billion in 2003, came under fire in reports two years ago in the
Seattle Times accusing Clayton of driving black, Latino and
Native American borrowers into unaffordable subprime loans, and
promoting a racist corporate culture.
Clayton has forcefully denied such allegations, and
Buffett's annual letter came to its defense for the second
"Clayton and Berkshire have been a wonderful partnership,"
Buffett wrote. "Kevin Clayton came to us with a best-in-class
management group and culture. Berkshire, in turn, provided
unmatched staying power when the manufactured home industry fell
apart during the Great Recession."
Manufactured homes are often bought by people with low
credit scores and incomes, with financial profiles that Buffett
said can be easily damaged by divorce or death.
He called such demographics a factor in Clayton's decision
to foreclose on 8,304 manufactured housing mortgages last year,
or 2.5 percent of its portfolio, at a cost of $150 million,
compared with 8,444 foreclosures costing $157 million in 2015.
But he said the Maryville, Tennessee-based unit also gave
loan extensions last year to 11,000 borrowers, and canceled $3.4
million of payments from 3,800 borrowers.
About 94 percent of loan balances were current on payments,
down from 95 percent a year earlier, Berkshire said.
For all of 2016, Clayton's pretax profit rose 5 percent to
$744 million, mainly from its $13.3 billion mortgage portfolio.
Revenue rose 18 percent to $4.23 billion, mainly from the
sale of 42,075 homes, equal to 5 percent of all new American
homes, Buffett said.
Clayton accounts for about 2 percent of Berkshire's overall
profit. The Omaha, Nebraska-based parent has more than 90
operating units including insurers, energy providers, food and
apparel producers, furniture and jewelry makers, and a railroad.
(Reporting by Jonathan Stempel in New York)