The problem to be investigated is the ethics and effects of subprime loans on the financial institutions, borrowers and stakeholders. The subprime market was created to provide borrowers with a FICO score below 570 access to home loans. Inopportunely these loans were a major financial risk as most of the borrowers did not have the long-term income to pay for the high interest rate loans. (Jennings, 2012)
Subprime loans started out as a generous, philanthropic idea. Giving people who had bad credit the opportunity to own a home regardless of their income or past credit issues showed compassion and caring for the poor, middle class and elderly who couldn’t possibly qualify for a home loan under the previous strict lending standards. However, predatory lenders used this vulnerable groups desire to live the American dream, to own a home, against them. Billions of dollars were made by loan companies and similar financial institutions by writing relaxed standards loans for borrowers as fast as they could. (Jennings, 2012) To make matters worse, lenders knowingly wrote loans to speculators who had no intention of ever living in the home; or at least no longer than it would take to flip the property. In a marketplace with quickly rising property values, the adverse impact of this activity was completely shadowed, and yet lurking in the background is the one market constant, what goes up must come down.
Mortgage Brokers ethics
The unethical aspect of this business practice is straightforward; that the individual brokers and loan companies knew beforehand that the borrowers would not be able to maintain the payments for these loans, and that the speculators would dangerously inflate the market. However they were more concerned with t...
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Jennings, M. M. (2012). Business Ethics, Case Studies and Selected Readings (Seventh edition.).
Lynn, S. R. (2008, January). Reflections on the Market Correction. Mortgage Banking, 68.4, 82-84, 86-87. Retrieved from: http://search.proquest.com.proxy1.ncu.edu
Morial, M. (2011, March 23). Stop the lies about the financial meltdown. Michigan Chronicle. Retrieved from: http://search.proquest.com.proxy1.ncu.edu
Sale, H. A. (2011, March). The new “Public” Corporation. University in St. Louis Legal Studies Research Paper No. 11-04-01, 74, 137. Retrieved from: http://ssrn.com/abstract=1832619
Walker, T. (2007, March 14). Lending woes spook market: Default problems in subprime sector trigger broad sell-off similar to downturn two weeks ago. The Atlanta Journal- Constitution, C (1). Retrieved from: http://search.proquest.com.proxy1.ncu.edu
Just as the great depression, a booming economy had been experienced before the global financial crisis. The economy was growing at a faster rtae bwteen 2001 and 2007 than in any other period in the last 30 years (wade 2008 p23). An vast amount of subprime mortgages were the backbone to the financial collapse, among several other underlying issues. As with the great depression, there would be a number of factors that caused such a devastating economic
Simon, David. "The Attorney-Cleint Privilege As Applied to Corporations." Yale Law Journal 65.7 (1956): 953-90. Print.
In the essay “The Mansion: A Subprime Parable,” Michael Lewis unfolds the real face of the American dream. He talks about his own personal experience in his look out for a house and his struggle with the house he rented. Most Americans have bought houses they cannot afford. Banks offered loans, they have lent mortgages that many don't have enough financial resources to pay them back. Agents have falsely guaranteed that real estate prices will be in constant rise, they promised them that there will be no declination in prices.
The real estate industry is thriving with approximately sixty-eight percent of all Americans being homeowners. With low interest rates, 1st time home buyer down payment assistance programs, and government funded educational opportunities (i.e. the Home Ownership Center of Greater Cincinnati), the real estate and mortgage lending industries will continue to flourish. However, there are some unethical lending practices that are threatening the housing industry as a whole.
A majority of mortgage defaults that Americans used were on subprime mortgage loans, which were high-interest-rate loans lent to people with high risk credit rates (Brue). Despite knowing the risks, the Federal government encouraged major banks to lend out these loans to buyers, in hopes, of broadening ho...
In the article Predatory Lending and the Devouring of the American Dream, the article talks about how subprime mortgages were a booming success in the mid- nineties to the early two-thousands. It was a success because subprime mortgages offered an opportunity for people with bad credit history or people from the lower class of society to actually be able to purchase a home. The only consequences of doing subprime mortgages is that there is a high interest rate which makes paying off the home in a reasonable time impossible. More and more people started to apply for subprime mortgages, therefore, causing a crisis. The crisis was because people could not keep paying on their homes, so foreclosures happened. The percent of people applying and getting approved for subprime loans went up anywhere from seven to eight percent every year which also was a contributing factor in the crisis. The fact that the perfect home went up nine hundred square feet in four years, and eighteen years later was up by eighty-five hundred square feet is just an example of how the American Dream was going up in size but down in value.
"Subprime Mortgage Crisis - A Detailed Essay on an Important Event in the History of the Federal Reserve." Subprime Mortgage Crisis - A Detailed Essay on an Important Event in the History of the Federal Reserve. N.p., n.d. Web. 04 May 2014.
Cabral, R. (2013). A perspective on the symptoms and causes of the financial crisis. Journal of Banking & Finance, 37, 103-117
Throughout modern civilization, the American republic is widely known for its dependency upon the realm of business. Equally as vital, looms the ever-present hand of the American law system. “All beings have their laws: the Deity…man his laws” (Montesquieu,1), this statement serves true in founding that law is consistently a necessary portion in society because all society desires law. As a consequence of the continual presence of law, careers aimed to interpret the crevices of laws, and to defend them, are synonymously as necessary in society. Absolutely, the gain of America’s economy is a direct reflection of the lawyers who protect them. Lawyers are a necessity to the nation; serving their purpose as defenders of the law. The system of corporate law is undoubtedly the cornerstone of corporate finance, and as citizens begin to thrive more immensely in a capitalistic nation, legal representation will be the trailblazer to the continuation of the American system of corporations. As I embark upon the journey of excellence into the world of corporate law, I endeavor to change the way business is defended, upheld, and represented.
In terms of looking at how credit rating agencies affected the market as a whole, they played a role within the mortgage crisis as they gave way to a real estate credit bubble. The mortgage crisis seems to have b...
The subprime mortgage crisis is an ongoing event that is affecting buyers who purchased homes in the early 2000s. The term subprime mortgage refers to the many home loans taken out during a housing bubble occurring on the US coast, from 2000-2005. The home loans were given at a subprime rate, and have now lead to extensive foreclosures on home loans, and people having to leave their homes because they can not afford the payments. (Chote) The cause and effect of this crisis can be broken down into five major reasons.
Storyline 1: In year 2005, hedge fund manager Michael Burry of Scion Capital recognized an asset bubble in the U.S housing market and anticipates the collapse of the housing market in the 2nd quarter of year 2007 if interest rates rise in adjustable rate mortgages. Michael sees an opportunity to profit on this collapse by creating a credit default swap market, which would allow him to bet against market-based mortgage backed securities.
Eight years ago, the world economy crashed. Jobs were lost, families misplaced, hundreds of thousands of people left shocked and confused as they watched the security of their world fall to pieces around them. In, “The Big Short,” a film directed by Adam McKay and based on the book written by Michael Lewis, viewers get an inside perspective on how the financial crisis of 2008 really happened. Viewers learn the truth about the unethical actions and irrational justifications made by those who unwittingly set the world up for failure. Two main ethically tied decisions are brought into question when watching the film: how could anyone conscionably make the decision to mislead investors by misrepresenting mortgage backed securities (MBS), and why
The Principle of Separate Corporate Personality The principle of separate corporate personality has been firmly established in the common law since the decision in the case of Salomon v Salomon & Co Ltd[1], whereby a corporation has a separate legal personality, rights and obligations totally distinct from those of its shareholders. Legislation and courts nevertheless sometimes "pierce the corporate veil" so as to hold the shareholders personally liable for the liabilities of the corporation. Courts may also "lift the corporate veil", in the conflict of laws in order to determine who actually controls the corporation, and thus to ascertain the corporation's true contacts, and closest and most real connection. Throughout the course of this assignment I will begin by explaining the concept of legal personality and describe the veil of incorporation. I will give examples of when the veil of incorporation can be lifted by the courts and statuary provisions such as s.24 CA 1985 and incorporate the varying views of judges as to when the veil can be lifted.