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Mortgage Misdeeds Has CFPB & Berkshire In A Legal Battle

By Claire Moraa

  • The average 30-year fixed mortgage rate in the U.S. stands at 7%
  • The mortgage lending market is expected to increase from $14.14B in 2023 to $19.7B by 2032

CFPB is coming to the rescue of many Americans who might be caught between a rock and a hard place in their mortgages. The lawsuit against Berkshire Hathaway (BRKB +1.41%) alleges predatory practices and potential exploitation of consumers through unethical lending practices. The company is a subsidiary of Warren Buffett’s holding company and this is not its first rodeo either. His home manufacturer company–Clayton Homes was also under fire a few years back for similar predatory and exploitative practices.

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Why This Matters: Borrowers are already struggling if they need a loan to purchase a home. Afterall, 50% of America cannot afford a home so targeting and charging them excessive fees or misleading them into loans they cannot afford is predatory behavior. Further, the mortgage lender is owned by Berkshire Hathaway, one of the largest and most influential conglomerates in the world. The issue arises when the lender downplays the risks and costs associated with the loan and approves borrowers with artificial estimates. There’s a huge possibility of financial distress and borrowers defaulting leading to foreclosure, and long-term economic repercussions.

Clayton Homes has been accused of lending at interest rates of 15% or more, which is significantly higher than the average 30-year fixed mortgage rate in the U.S., which stands at 7%. This stark difference highlights the potentially predatory nature of Clayton Homes’ lending practices, as borrowers are subjected to rates more than double the national average, making it far harder for them to afford and sustain homeownership. The CFPB aims to protect consumers and hold financial institutions accountable for complying with fair lending standards. Still, the mortgage lending market is expected to increase from $14.14 billion in 2023 to $19.7 billion by 2032.

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Situational Awareness: With more consumers seeking mortgage loans, there is a heightened risk of predatory practices targeting vulnerable borrowers with inflated interest rates and fees. Regulatory oversight and consumer protection become critical to prevent exploitative lending, particularly as companies may be incentivized to prioritize profits over fairness. The CFPB needs to stay vigilant to protect homeowners and maintain a competitive, equitable lending environment. The outcome could set a precedent and prompt a shift in industry standards.

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