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A mortgage lender that specializes in providing financing for manufactured homes has landed in hot water with federal regulators, who claim the company “saddled borrowers in the greatest need with mortgages that they couldn’t reasonably afford to repay.”
Maryville, Tennessee-based Vanderbilt Mortgage and Finance — which also does business as Silverton Mortgage — is accused of violating the Truth in Lending Act and Regulation Z. Regulation Z requires that all mortgage lenders document and verify borrowers’ income to determine whether they have the ability to repay the loan they’re applying for.
Vanderbilt, which mostly provides financing for homes built by its parent company, Clayton Homes Inc., “ignored clear and obvious red flags that certain consumers would not be able to repay their loans according to their terms,” the Consumer Financial Protection Bureau alleged in a Jan. 6 complaint.
In a statement provided to Inman, Vanderbilt characterized the CFPB’s allegations as “unfounded and untrue, and … the latest example of politically motivated, regulatory overreach.”
Vanderbilt said the CFPB examined “tens of thousands” of loans “and identified less than 0.8 percent, over a six-year period, that allegedly should not have been made.” Vanderbilt “follows the law, and the facts bear that out,” the company said.
On its website, Clayton Homes says that it’s “Opening doors to a better life,” by offering “attainable, modern homes for sale.” Clayton Homes claims it and subsidiaries including Schult Homes, Crest Homes, Karsten Homes, Golden West Homes and SEhomes built more than 52,000 manufactured and site-built modular homes across the country in 2023.
In its complaint, the CFPB alleged that Vanderbilt used “implausible estimates” of monthly expenses that underestimated how much borrowers would need to pay their mortgage and still “keep food on the table” and meet other living expenses.
In some cases, the lender violated its own policy and made loans to borrowers who lacked the income to cover their mortgage and basic living expenses even as calculated by Vanderbilt’s “artificially low estimates” of living expenses, which were not adjusted for the higher cost of living in different parts of the country, the government alleged.
Rohit Chopra
“Vanderbilt knowingly traps people in risky loans in order to close the deal on selling a manufactured home,” CFPB Director Rohit Chopra said in a statement. “The CFPB’s lawsuit seeks to not only protect homebuyers, but also honest lenders helping people to finance the purchase of an affordable home.”
A nonbank lender, Vanderbilt sponsors 287 mortgage loan originators working out of 35 branch offices in Alabama, Arizona, Florida, Georgia, Indiana, Kentucky, Missouri, North Carolina, Ohio, South Carolina and Tennessee, according to records maintained by the Nationwide Multistate Licensing System (NMLS).
The CFPB alleges that Vanderbilt uses a “residual income model” to determine if borrowers have the ability to repay the mortgage they’re applying for. The model subtracts applicants’ self-reported monthly costs for food, healthcare, gasoline and utility bills from their monthly income to see if they can also make their monthly loan payments.
In cases where borrowers self-report $0 in living expenses, “Vanderbilt substitutes its own, proprietary living-expense estimate” based on family size “that are unreasonable for a single borrower and increasingly unreasonable as borrower’s family size grows,” prosecutors alleged.
In one example cited in the CFPB’s complaint, Vanderbilt estimated a family of five that already had seven debts in collection would be left with only $57.78 in net income a month if they took out a mortgage, but approved a loan that became delinquent after a year.
In another case, Vanderbilt approved a mortgage for a single mother with two dependents and nine debts in collection although the lender calculated it would leave her with no residual income. The loan was sent to collections when she missed a mortgage payment after only four months in the home, the CFPB alleged.
The CFPB also pointed to more than 200 complaints it has received from consumers about Vanderbilt’s practices.
Vanderbilt said its underwriting processes “exceed the legal requirements for assessing a borrower’s ability to repay loans by considering both monthly debt-to-income ratio and residual income, while the law only requires the use of one or the other.”
The company says it goes further than the law requires, “by taking the greater of the borrower’s actual reported expenses or an estimated living expense for the family size, similar to that used by the Federal VA loan program.”
“Despite regularly blessing Vanderbilt Mortgage’s underwriting practices in the past, the CFPB is now demanding compliance with an unknown and unknowable new ‘standard’ not addressed in the law,” the company said. “Far from protecting American consumers, the CFPB’s lawsuit will deprive credit worthy borrowers of owning a home.”
Editor’s note: This story has been updated to include a statement by Vanderbilt Mortgage and Finance.
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