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Mortgage loans are a substantial form of revenue for the financial industry. Mortgage loans generate billions of dollars in the financial industry. It is no secret that companies have the ability to make a lot of money by offering a variety of mortgage loan products. The problem was not mortgage loans but that mortgage companies were using unethical behavior to get consumer mortgage loans approved. Unfortunately, the Countrywide Financial case was not an isolated case. Many top name mortgage companies have been guilty of unethical behavior. Just as the American housing market was starting to recover from its worst battering since the Great Depression, a new scandal, an epidemic of flawed or fraudulent mortgage documents, threatens to send not just the housing market but the entire economy back into a tailspin (Nation, 2010).
Countrywide Financial got greedy and started to make questionable and unethical decisions to make money. Countrywide Financial preyed on consumers that could not qualify for conventional loans and those that could to make more money with subprime loans. Countrywide was found guilty of mortgage fraud. The U.S. government is seeking to have Bank of America Corp. pay nearly $864 million in damages after the company was found liable for mortgage fraud (Subramanian, 2013).
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Subprime loans are ethical but misused in a way that created ethical issues. Subprime loans are loans made to borrowers, generally people who would not qualify for traditional loans, at a rate higher than the prime rate depending on factors like credit score, down payment, debt-to-income ratio, and payment delinquencies (Ferrell, O., Fraedrich, & Ferrell, L., 2010). Subprime loans help consumers get mortgage loans that do not qualify for a conventional mortgage loan product.
It is normal practice for financial companies to charge consumers with credit history issues higher interest rates. It is justifiable because consumers with credit history issues that have had problems paying other creditors back in the past are more of a credit risk. Mortgage subprime loans are no different. Subprime loans become an ethical issue when financial companies use unethical practices to make subprime loans just in order to make more money.
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The downfall of Countrywide Financial was a result of the company’s unethical practices. Countrywide wanted to make home loans available for consumers that otherwise would not qualify for a traditional home loan product. Subprime loans are priced higher due to the risk of the borrower.
These individuals purchased items under pretense thinking they would be able to buy a home despite their mishaps such as outstanding medical debts, divorce issues and unemployment factors that Countrywide was willing to disregard. “Countrywide creates specialized divisions to work to help the borrowers and actively informed their customers about their options (Ferrell, 2011) p.388.” Therefore, allowing these poor people to own their property would be a dream that could come true, which was a misleading strategy. In fact, throughout the article, I would find examples of various ways this dream became a nightmare. For example, a lot of these homes were funding through government access, which means, we all know the amount of trouble an individual can encounter from defrauding the government. However, Countrywide neglected to look beyond the consumer’s purchasing of the property. In fact, the company did manage to supply the user with the funds for purchasing the property and making the return payment process economically convenient for the customers to repay. However, they never explored the risk factors or expose the users to the entire loan process. These methods cause a great strain on the company by making them appear as dishonest and the customers by making them leery of entrusting any other organization these are the ethics that caused the meltdown of Countrywide financial
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...
subprime mortgages were major factors of the collapse of the 2007-2009 economy collapse. All of America suffered from the 2008 recession.
Wells Fargo account fraud scandal One of the most recent white-collar crimes involved Wells Fargo, a banking and financial services provider. In 2016, San Francisco-based bank Wells Fargo (WFC) employees secretly created millions of unauthorized bank and credit card accounts without permission of their customers. Opening about 1.5 million fraudulent deposit accounts and submitting 565,443 credit card applications allowed Wells Fargo employees to boost their sales targets and receive bonuses. Consequently, customers were wrongly charged fees for accounts they did not know existed. In this business crime scenario, Wells Fargo is involved in paying $185 million in fines and refunding $5 million to affected customers.
1) Summary of cause of the economic meltdown. In the film “Too Big to Fail”, Wallstreet began giving out loans, they would then sell to investors. Plenty of money was made, pressure was put on the lenders for more loans to be given out. Lenders already gave loans to people with good credit scores.
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.
As Wells Fargo convicted all the requirements of fraud they are involved to the business crime called fraud, they are liable to their fraud crime. There was a false statement which respectively conducted to the injury to the alleged victim as a result. Wells Fargo has been ordered to pay $185 million in fines, but that's a pittance compared with the $5.6 billion the bank earned in just the second quarter of this year. Meanwhile, the bank's victims weren't just nickel-and-dimed with overdraft and maintenance fees. Many of them took "significant hits" to their credit scores for not staying current on accounts they did not even know about. They will likely have difficulty securing home and car loans at reasonable rates for years to come, simply because their bank decided to defraud
Freddie Mac was accused of either lying or misrepresenting the facts in order to make the amount of risk they were taking appear smaller. Investigators believed that this was done in order to comfort investors. The mortgages they were talking about, the ones that were considered risky were sub-prime loans, and they were prone to failure. A lot of these people should never have been given loans with interest rates that high. It was the job of Freddie Mac to hel...
Banks failed due to unpaid loans and bank runs. Just a few years after the crash, more than 5,000 banks closed.... ... middle of paper ... ... Print.
Countrywide’s business tactic was “Fund ‘em”. If a person does not have a job, or any assets the answer was still “Fund ‘em”. This is a practice called subprime lending which allows loan...
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.
Keeping in mind that the main reason for the mortgage crisis is the high number of defaulted home loans, which triggered foreclosures and sell offs. The other four contributing factors include high-risk loans, the bust in the housing market, mortgage fraud, and speculation. High-risk loans are loans that are over leveraged, where the financing is done more than the suggested values to be given. (Greenspan) This can result in immediate sell off when the property falls below that loan amount and to avoid further loss the banks start raising the installment. The housing market has seen pressure as a result of the over pressure on most homeowners by increasing rates. This affects people ability to make the payments, resulting in defaults. This is the problem with the burst in the housing market. The third major factor that is causing the mortgage crisis is, mortgage fraud.
In previous years the big financial institutions that are “too big to fail” have come to realize that they can “cheat” the system and make big money on it by making poor decisions and knowing that they will be bailed out without having any responsibly for their actions. And when they do it they also escape jail time for such action because of the fear that if a criminal case was filed against any one of the so called “too big to fail” financial institutions it...
In “Case Against Bear and JPMorgan Provides Little Cheer”; McLean blames the economy crisis on the companies, banks that sold mortgages they weren’t suppose to. Smith is familiar to these companies since he himself worked for one. Both authors have experienced and witnessed the wrongdoings or certain corporations but these large corporations do not get penalized for it. Companies like Goldman Sachs, JPMorgan and Bear have lost their real purpose, which is to serve their clients, but instead look for their own wealth. Smith explains that the business world was not always like this; it was a place where clients trusted their companies.
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