The Pros And Cons Of Subprime Loans

937 Words2 Pages
bulb-icon

Recommended: Effects of subprime mortgage crisis

Subprime loans can be harmful to the economy as it has been displayed in Countrywide’s financial struggles. Subprime loans can be classified as ethical acts provided by lending agencies. Loans such a subprime loans are considered ethical because they cater to more of a middle-class family. Also, subprime loans can be classified as unethical. Subprime loans which are hastily defaulted, and are sometimes outright fraud have taken over the housing and automobile industry (Coppola & Butters, 2017). More than fifty percent of loans distributed are classified as subprime loans. In today’s economy, subprime loans are sky-rocketing because more and more people are struggling financially. Subprime loans can be ethical because lenders can offer lower …show more content…

Subprime loans can cause extreme stress on borrowers because the interest rate is so much higher than the traditional loans which force borrowers to pay more. Naturally, when higher interest rates are offered, more money will be lost by the lender. Another reason why subprime loans are considered unethical is that it increases the number of delinquent loans. Delinquent loans are loans that the borrower has not paid back or are overdue on their payments. Naturally, when it comes to delinquent loans, lenders are forced to make rational decisions to benefit themselves (Gardner & Mills, 1989). The financial crisis played a significant role in why subprime loans are unethical. During the financial crisis, houses became too much of an expense because borrowers were obtaining less income. Therefore, the housing market crashed, and many people were left evicted. Banks began to foreclose on houses that people could simply not afford anymore (Ferrell, Fraedrick, & Ferrell, 2015). Other significant industries were also suffering because of this financial downfall. The automobile industry began to experience customers or borrows who could not pay their car note. In this result, the car became repossessed by banks, and the dealing auto sector was at an all-time

Show More
Related

  • Pros And Cons Of Predatory Lending

    898 Words  | 2 Pages

    Predatory lending usually occurs when financial institutions take unfair advantage of consumer’s financial needs by extending credit with terms that compensate them over and beyond the credit risk. Predatory lending comes in different forms, but always involve the consumer paying high interest rates and exorbitant fees. Some predatory lending practices include:

    Read More

  • Critical Analysis Of Gretchen Morgenson's 'The Debt Trap'

    735 Words  | 2 Pages

    The first major point that Gretchen Morgenson makes in her article “The Debt Trap” is how lenders have found ways to make a bigger profit from borrowers in the recent years. Shes states that for example, “the rates that credit card companies charge borrowers rose from 17.7 percent in 2005, to 19.1 last year”. That difference added to billions of dollars charged annually. She stated that overall, these lenders increased “junk fees by fifty percent in recent years”. In the capitalistic society that we live in, these lending companies are doing everything they can to make as much of a profit as they can. If this means shoving Americans into the ground in the profit, they do not seem to feel bad about it one bit. This has created a problem with

    Read More

  • The Pros And Cons Of The Great Recession

    1024 Words  | 3 Pages

    December of 2007 saw the beginning of the worst economic downturn in memorable history; not since the end of the Great Depression in 1939 has the world seen such a devastating and long-lasting economic breakdown. The Great Recession shook the public’s faith in the capitalist system and silenced those who claimed a modern economy was impervious to another broad collapse like the one in 1929. Discontent and mistrust from the public has built not only with large corporations and the financial sector, but also with the government whose legislature and policies in recent decades seem to coincide with the interests of private corporate power-houses. These lenient policies contributed directly to the recession that affected individuals across the globe. Stunted wages, increased poverty,

    Read More

  • Similarities Between the Great Depression and the Great Recession

    974 Words  | 2 Pages

    Leading up to the crisis of the housing market, borrowers got mortgages without understanding the terms. Banks were giving out loans to people the banks weren't sure could pay the money back. The closer to the crisis, the higher the frequency of illegitimate loans and mortgages. Because there were so many mortgages on houses that could not be paid back, millions of mortgages were foreclosed on, and the houses we...

    Read More

  • What Are The Pros And Cons Of Student Loan Debt?

    1271 Words  | 3 Pages

    "Debate on Student Loan Debt Doesn 't Go Far Enough." Applebaum, Robert. Hill (2012). Print.

    Read More

  • Causes of the 2008 US Recession

    1519 Words  | 4 Pages

    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...

    Read More

  • Countrywide Case Summary

    259 Words  | 1 Pages

    Countrywide’s ambition to help more Americans take part in the “American dream” of homeownership was a noble gesture. However, as noble as the goal was Countrywide failed to protect themselves and the same people they desired to help. The demographic of borrowers Countrywide marketed to were specific: low-income and minorities. Countrywide saw a need and a wide open opportunity to make money, however, they also took a large risk with offering loans to borrowers that would not have met the standards for a “traditional” loan. At first the borrowers were able to keep up with their loan payments (the economy was stable and the job market was solid).

    Read More

  • The Pros And Cons Of The Great Recession

    1272 Words  | 3 Pages

    The Great Recession of 2007-2009 was very harmful to the economy of the United states. Many people lost their jobs and were forced to work at lower wages, so the demand for consumer goods dropped. Homeowners were also hurt because the value of housing and real estate crashed. This decrease in wealth pushed back the retirement age for many people.

    Read More

  • The Foreclosure Crisis: Human Greed, Entitlement, and Deception

    2099 Words  | 5 Pages

    First, the causes of the foreclosure crisis must be examined. I don’t think that the causes are all that complicated. In the end, the cause is twofold: First, people were buying houses they couldn’t afford, and banks were lending money to these people. Second, banks were engaging in unscrupulous lending practices. They were charging people money that these people neither were expecting to pay nor were able to pay. They were advertising one interest rate and actually putting another in the contract. I’m not sure what the law says about this last bit, but that sounds a lot like ‘fraud’ to me. If my reader disagrees, then I ask him to imagine the following:

    Read More

  • The Issue of Payday Loans

    1828 Words  | 4 Pages

    One cold morning Sam Black woke up with aching chest pain. Troubled by this new condition he went to see his Heart Doctor. Little did Sam know that hours later he would be lying on the operating table in route for a triple bypass surgery. The surgery went as planned, but it was not the last of them. Sam was sent to many specialists and rehabilitation centers, building a large bill, which they had no money to pay them with. He still pays several grand a year for the medication he is prescribed. Years after the operation Sam and his wife, Elsie, have narrowly escaped foreclose, however the most problematic debt they have is the hundreds of small term loans with interest rates in the triple digits. Elsie once said in an interview regarding the loans they had to take out, “You can’t really keep up with them” (Wright, 2011). Almost a decade later Sam has trouble speaking and has to carry around an oxygen tank. This is a normal couple that got caught in the continuous cycle of payday loans. Like other millions of Americans The Black family settled for shady overpriced short-term loans.

    Read More

  • Transforming Your Paper into a Presentation

    1045 Words  | 3 Pages

    I guess most of you’ve heard the words Subprime Crisis again and again on TV when you were a middle school student 6 years ago. You may not know what it was when you were a child.

    Read More

  • 2008 Financial Crisis Essay

    1536 Words  | 4 Pages

    The "subprime crises" was one of the most significant financial events since the Great Depression and definitely left a mark upon the country as we remain upon a steady path towards recovering fully. The financial crisis of 2008, became a defining moment within the infrastructure of the US financial system and its need for restructuring. One of the main moments that alerted the global economy of our declining state was the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and after this the economy began spreading as companies and individuals were struggling to find a way around this crisis. (Murphy, 2008) The US banking sector was first hit with a crisis amongst liquidity and declining world stock markets as well. The subprime mortgage crisis was characterized by a decrease within the housing market due to excessive individuals and corporate debt along with risky lending and borrowing practices. Over time, the market apparently began displaying more weaknesses as the global financial system was being affected. With this being said, this brings into question about who is actually to assume blame for this financial fiasco. It is extremely hard to just assign blame to one individual party as there were many different factors at work here. This paper will analyze how the stakeholders created a financial disaster and did nothing to prevent it as the credit rating agencies created an amount of turmoil due to their unethical decisions and costly mistakes.

    Read More

  • The Cause and Effect of the Subprime Mortgage Crisis

    1310 Words  | 3 Pages

    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. Home loans were given at a subprime rate, and have now led to extensive foreclosures on home loans, and people having to leave their homes because they can not afford the payments. The cause and effect of this crisis can be broken down into five major reasons. When subprime mortgages began to flourish, the term housing bubble came into existence.

    Read More

  • Ethical Issues In The Big Short Movie

    1581 Words  | 4 Pages

    Individuals like the two young and rambunctious mortgage consultants portrayed in the film gave loans to anyone and everyone that could sign the paper, regardless of the recipient’s ability to pay the loan in full. It is doubtful that all consultants fully understood the ramifications of their actions, but undoubtedly the overall disregard for consequence was the start of the collapse. Mortgage consultants mislead and tricked people into loans they could never afford by playing on their desire to live the American dream. Distributing adjustable rate loans to individuals without jobs, without collateral is unconscionable. Unfortunately, from their perspective they were helping these individuals. In a twisted way, these consultants were acting ethically from a utilitarian point of view. The consultants won because they received utility in the form of a bonus for distributing the loans, and the loanee won because they could now afford the home of their dreams. What the consultants didn’t consider in their calculations were the long term results and utility of their actions, unethically building the flawed foundation of the housing

    Read More

  • Ethics and Social Responsibility

    1750 Words  | 4 Pages

    The subprime mortgage crisis of 2007 highlights how financial institutes acted out of their self-interests and neglected the consequences of their actions on the community and society at large. Investors pursued after higher returns through engaging in risky investments involving subprime mortgages. When the housing bubble burst, the subprime mortgage industry collapsed and caused a financial liquidity crisis (BusinessWeek, 2007). The action of the financial institutes had a spill ove...

    Read More

More about The Pros And Cons Of Subprime Loans

Open Document