Jump to content
House Price Crash Forum
Sign in to follow this  
The Knimbies who say No

Buffett's Approach To Mortgage Lending

Recommended Posts

At Clayton, we produced 23,343 homes, 47% of the industry’s total of 50,046. Contrast this to the peak

year of 1998, when 372,843 homes were manufactured. (We then had an industry share of 8%.) Sales would have

been terrible last year under any circumstances, but the financing problems I commented upon in the 2009 report

continue to exacerbate the distress. To explain: Home-financing policies of our government, expressed through

the loans found acceptable by FHA, Freddie Mac and Fannie Mae, favor site-built homes and work to negate the

price advantage that manufactured homes offer.

We finance more manufactured-home buyers than any other company. Our experience, therefore,

should be instructive to those parties preparing to overhaul our country’s home-loan practices. Let’s take a look.

Clayton owns 200,804 mortgages that it originated. (It also has some mortgage portfolios that it

purchased.) At the origination of these contracts, the average FICO score of our borrowers was 648, and 47%

were 640 or below. Your banker will tell you that people with such scores are generally regarded as questionable

credits.

Nevertheless, our portfolio has performed well during conditions of stress. Here’s our loss experience

during the last five years for originated loans:

Year

Net Losses as a Percentage

of Average Loans

2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.53%

2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.27%

2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.17%

2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.86%

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.72%

Our borrowers get in trouble when they lose their jobs, have health problems, get divorced, etc. The

recession has hit them hard. But they want to stay in their homes, and generally they borrowed sensible amounts

in relation to their income. In addition, we were keeping the originated mortgages for our own account, which

means we were not securitizing or otherwise reselling them. If we were stupid in our lending, we were going to

pay the price. That concentrates the mind.

If home buyers throughout the country had behaved like our buyers, America would not have had the

crisis that it did. Our approach was simply to get a meaningful down-payment and gear fixed monthly payments

to a sensible percentage of income. This policy kept Clayton solvent and also kept buyers in their homes.

Home ownership makes sense for most Americans, particularly at today’s lower prices and bargain

interest rates. All things considered, the third best investment I ever made was the purchase of my home, though I

would have made far more money had I instead rented and used the purchase money to buy stocks. (The two best

investments were wedding rings.) For the $31,500 I paid for our house, my family and I gained 52 years of

terrific memories with more to come.

If only more took a similar view. Unadulterated Capitalism at its best. The rest of the letter is well worth a read:

http://www.berkshirehathaway.com/letters/2010ltr.pdf

Share this post


Link to post
Share on other sites

Sensible & wise people are vanishing from this world..... :rolleyes:

Someone should push these comments from a financial genius who never gets it wrong into the direction of Mr Shapps.

Share this post


Link to post
Share on other sites
Guest sillybear2

Buffett ain't a bad bloke for a paper pusher, there's no comparison to an asshat like Trump, but beware of false idols when it comes to all that "Sage of Omaha" stuff. Remember Buffett hasn't produced any wonder drugs or designed any magical products to benefit humanity, he has simply used the dividends of an insurance business to leverage up and buy assets and companies so he ended up on the right side of an ever-inflating fiat money system, it's a nice lesson in compounding.

Share this post


Link to post
Share on other sites

Buffett ain't a bad bloke for a paper pusher, there's no comparison to an asshat like Trump, but beware of false idols when it comes to all that "Sage of Omaha" stuff. Remember Buffett hasn't produced any wonder drugs or designed any magical products to benefit humanity, he has simply used the dividends of an insurance business to leverage up and buy assets and companies so he ended up on the right side of an ever-inflating fiat money system, it's a nice lesson in compounding.

Check out his billion dollar donations to the Bill & Melinda Gates Foundation. You could argue these donations along with his pledge to donate most of his net worth upon his death may have a positive impact on those wonder drugs and magical products you mention.

Share this post


Link to post
Share on other sites
Guest sillybear2

Check out his billion dollar donations to the Bill & Melinda Gates Foundation. You could argue these donations along with his pledge to donate most of his net worth upon his death may have a positive impact on those wonder drugs and magical products you mention.

Yes, that's really positive and admirable, though setting up foundations is often a creative tax dodge, not that the government would have exactly spent it wisely, of course. That's not to take anything away from Buffett or question his intentions, he's a very modest man, but there is now a class of plutocrat who believe they owe nothing to wider society and are actively using their money and influence to lobby for the abolition of estate tax in the US, with the support of fake popularism. I guess that's "wealth cascading down the generations", but not quite in the way they imagined.

Edited by sillybear2

Share this post


Link to post
Share on other sites

Buffett ain't a bad bloke for a paper pusher, there's no comparison to an asshat like Trump, but beware of false idols when it comes to all that "Sage of Omaha" stuff. Remember Buffett hasn't produced any wonder drugs or designed any magical products to benefit humanity, he has simply used the dividends of an insurance business to leverage up and buy assets and companies so he ended up on the right side of an ever-inflating fiat money system, it's a nice lesson in compounding.

I wouldn't say I idolise him as some do(I don't idolise anyone really ) but at the same time I think society would benefit greatly if more companies were run along similar lines. e.g. (P14):

In its electric business, MidAmerican has a comparable record. Iowa rates have not increased since we

purchased our operation there in 1999. During the same period, the other major electric utility in the state has

raised prices more than 70% and now has rates far above ours. In certain metropolitan areas in which the two

utilities operate side by side, electric bills of our customers run far below those of their neighbors. I am told that

comparable houses sell at higher prices in these cities if they are located in our service area.

MidAmerican will have 2,909 megawatts of wind generation in operation by the end of 2011, more

than any other regulated electric utility in the country. The total amount that MidAmerican has invested or

committed to wind is a staggering $5.4 billion. We can make this sort of investment because MidAmerican

retains all of its earnings, unlike other utilities that generally pay out most of what they earn.

As you can tell by now, I am proud of what has been accomplished for our society by Matt Rose at

BNSF and by David Sokol and Greg Abel at MidAmerican. I am also both proud and grateful for what they have

accomplished for Berkshire shareholders.

Remeber we have pensioners dying in the cold because they cannot afford to heat their houses. Who needs a wonder drug if all you need is reasonable priced utilities. The basic ideas that company profitability is made via restraint in pay, good use of capital and forward planning rather than an assumption that the costs of any largesse can simply be passed on to customers and therefore no attempt should be made to control it (as happens all too often) are a great social good.

Share this post


Link to post
Share on other sites
Guest sillybear2

Sounds like Buffett ain't sweating MidAmerican's assets or monopoly status properly, he should learn from our utilities, where profits and winter deaths rise in tandem. :ph34r:

Of course you could argue a public utility should be just that, public, and nobody should have to rely on the generosity of the current owner.

Edited by sillybear2

Share this post


Link to post
Share on other sites

Yes, that's really positive and admirable

sillybear2 that video is an amazing peice of work, very clean and informative at telling people about the corruption. I can't help but think you are not taking full advantage of this video though so I have some suggestions. Either you bought the video from Rob Wicks or you are Rob Wicks, either way this can be done.

First of all you need to place Rob Wicks name/ details at the end of the video and perhaps as a footnote underneath as that's your crucial monetizing method. If you just bought the video from him, then you will need to agree with him about some agreement whereby he funds your marketing in return for giving you exposure.

The next step is Facebook. You are probably already marketing on Facebook to some extent. But the aim here is you want to help get some more customers for this Rob guy, so you make some ads and target people earning over 30k/ year which means you are likely to find some middle/ high level managers for medium-large companies who may be very interested in buying Rob's animations. After these very targeted adverts give Rob a few customers, you can start targeting a wider range of audience as Rob (or you, if you are Rob) will have more financial incentive to do so.

Two birds with one stone, make a little money on the side while pushing the greater cause. Not sure if you are already doing this but you could also try linkbuilding it by submitting articles to article directories, it's a semi-skilled method that can work well- not that I use it myself.

Also try writing a very good article and submitting it to a newspaper, possibly mentioning to the reporter that she can take ownership of the article if she is polite enough to give your site a mention/link near the top. So you'll get a lot of traffic from the newspaper- both through people clicking the link and physical readers browsing to your site, you'll also get a lot of link power from a big newspaper website if they place a link.

Edited by Saberu

Share this post


Link to post
Share on other sites

Long term, prudent lending policy doesn't allow for instant riches in the financial world. If rewards (ie bonuses) had more emphasis on actual quality (ie arrears level, default level) over the loan term, instead of quantity we'd see a huge improvement in stability in this sector.

Unfortunately it appears that banking is infected with get-as-rich-as-you-can-as-quick-as-you-can types who will break the system for everyone to satisfy their own greed.

More buffetism, less spivism.

Share this post


Link to post
Share on other sites
Guest sillybear2

There's also a class of welfare claimants who feel the same way!

Yup, and they both use each other as an excuse to f**k over everyone else.

Share this post


Link to post
Share on other sites

Another gem from the same letter:

But a house can be a nightmare if the buyer’s eyes are bigger than his wallet and if a lender – often

protected by a government guarantee – facilitates his fantasy. Our country’s social goal should not be to put

families into the house of their dreams, but rather to put them into a house they can afford.

How true

Edited by cheeznbreed

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.