Berkshire Hathaway, the holding company headed by Warren Buffett and Charlie Munger, owns Clayton Homes, the largest producer of manufactured housing in the U.S. Clayton Homes finances almost 200,000 homeowners. The market they serve is below average in credit risk and with a thin cushion, at best, when times get tough.

From Warren Buffett’s annual letter to shareholders: “[Clayton’s homeowners’] median FICO score is 644, compared to a national median of 723, and about 35% are below 620, the segment usually designated ‘sub-prime.'” Yet, they have had no unexpected losses.

The “delinquency rate on loans we have originated was 3.6%, up only modestly from 2.9% in 2006 and 2.9% in 2004. Clayton’s foreclosures during 2008 were 3.0% of originated loans compared to 3.8% in 2006 and 5.3% in 2004.” In contrast, TransUnion reported that the national average for mortgage delinquency was 4.58%.

“Though Berkshire’s credit is pristine – we are one of only seven AAA corporations in the country – our cost of borrowing is now far higher than competitors with shaky balance sheets but government backing. At the moment, it is much better to be a financial cripple with a government guarantee than a Gibraltar without one.”

“The present housing debacle should teach home buyers, lenders, brokers and government some simple lessons that will ensure stability in the future. Home purchases should involve an honest-to-God down paymentof at least 10% and monthly payments that can be comfortably handled by the borrower’s income. That income should be carefully verified.”

“Putting people into homes, though a desirable goal, shouldn’t be our country’s primary objective. Keeping them in their homes should be the ambition.”

Amen, Warren.