Every year billionaire investor Warren Buffett releases an annual letter to Berkshire Hathaway shareholders, unraveling the inner workings of his conglomerate’s performance, including its stake in the housing affordability crisis.

The public letter gives insight into a company that’s far from easy to become a shareholder in. At time of publication, Yahoo! Financevalued a share of Berkshire Hathaway at $ 255,980. 

Aside from his acclaimed investment advice highlighted here in an article in Quartz by Ashley Rodriguez, the 29-page document also details the status of Clayton Homes.

Clayton Homes specializes and receives most of its revenue from the sale of manufactured homes. However, Buffet noted that it derives the bulk of its earnings from its large mortgage portfolio.

According to the letter, last year, Clayton became America’s largest homebuilder, delivering 42,075 units that accounted for 5% of all new American homes.

While the company did branch out in 2015 and purchase its first site-builder, Clayton’s focus will always be manufactured homes.

For added context, a lot of other large builders produce more dollar volume than Clayton since site-built homes command much higher prices.

However, it’s manufactured homes that are significantly helping America’s affordability crisis.

An article in Bloomberg by Patrick Clark stated last year that despite the negative stigma that surrounds mobile homes, it doesn’t mean the manufactured houses don’t have a role to play in the housing process, especially when it comes to affordability.

The article sated, “While mobile homes often make the most sense in sparsely populated areas, there’s no reason they can’t be used to increase the stock of affordable housing in U.S. cities.”

According to Buffet, manufactured homes account for about 70% of new American homes that cost less than $ 150,000, and Clayton manufactures close to one-half of the total.

The focus on the low-cost homes does come with side effects though.

The letter stated that last year Clayton had to foreclose on 8,304 manufactured-housing mortgages, about 2.5% of its total portfolio, attributing the data to customer demographics

“Clayton’s customers are usually lower-income families with mediocre credit scores; many are supported by jobs that will be at risk in any recession; many, similarly, have financial profiles that will be damaged by divorce or death to an extent that would not be typical for a high-income family,” the letter stated.  

“Those risks that our customers face are partly mitigated because almost all have a strong desire to own a home and because they enjoy reasonable monthly payments that average only $ 587, including the cost of insurance and property taxes. Clayton also has long had programs that help borrowers through difficulties,” it continued.

The company added that loss mitigation is in its own and the borrowers best interest.

Last year about 11,000 borrowers received extensions, and 3,800 had $ 3.4 million of scheduled payments permanently canceled by Clayton.

“The company does not earn interest or fees when these loss-mitigation moves are made. Our experience is that 93% of borrowers helped through these programs in the last two years now remain in their homes. Since we lose significant sums on foreclosures – losses last year totaled $ 150 million – our assistance programs end up helping Clayton as well as its borrowers,” the letter stated. 

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