Interpret Ethical Issues with Subprime Loans
In paper will consist of a blog on the interpreting Ethical Issues with Subprime Loans. According to the United States Department of Housing and Urban Development defined subprime loan “a type of mortgage loan for individuals who do not qualify prime rate loans due to blemished or limited credit histories. These loans carry a higher rate of interest than prime mortgage loans to compensate for increased credit risks (4). These loans were created to allow individuals and households with blemished or limited credit histories, modest incomes, or insufficient funds for a down payment that otherwise would be prevented in buying a house or refinance an existing home. Since the early 1990s, the subprime mortgage market was slowly making a dent, but not until 2001 when the subprime mortgage market exploded due to the housing boom, and continued through 2006 (3, 5). In an eleven-year span between 1994 to 2005, the subprime loans have increased $630 billion, from $35 billion to $665 billion (5). With the housing started to bubble in 2006, according to Nassar (2007), the first three-quarters over 60% of all mortgages entering foreclosures were subprime, compared to 30% in 2003 (5). This caused the subprime market to collapse, which caused the housing crisis that led to the financial crisis in the United States. This blog will look at ethical issues surrounding subprime loans, and the risks they pose to the lender and borrower. Next, critiquing the role of leadership decision-making in the subprime loan financial crisis. Then evaluate subprime loans with the notion of social responsibility. Furthermore, comparing and contrasting the resulting consequences for these actions. Finally, m...
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...oan money to the customers, instead purchased the conventional conforming loans from the secondary mortgage market.
What measures have been taken since that time to assure this will not happen again
The following measures that have been taken since the subprime mortgage loan finacial crisis of 2007-2008, to help prevent this from happening again. The United States government bailout for financial institutions that were distraughted by the subprime mortgage crisis that led to the financial crisis, in which President George Brush signed the Emergency Economic stabilization act of 2008 ( ). This act creates the Troubled Asset Relief Program (TARP), which help the ailing banks with funds invested from taxpayer funds. Then in 2009, President Obama announces a U.S. program, the Homeowner Affordability and Stability Plan that is to help homeowners avoid foreclosure.
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- 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 und... [tags: Business Ethics]
1842 words (5.3 pages)
- A subprime loan is a mortgage loan type whereby borrowers with below par credit scores, limited funds for a down payment, and/limited income documentation are lent funds at adjustable, above-market interest rates so as to purchase a home that is valued at or above the fair market value. Notably, a housing boom resulted when real estate agents, mortgagers, appraisers, home builders, and politicians pushed the concept of home ownership to the nation and started approving large amount of subprime loans to reach a broader range of home buyers.... [tags: Mortgage, Subprime mortgage crisis]
1096 words (3.1 pages)
- 1. Origins and evolution of the US subprime mortgage market: Subprime debts are loans that do not conform to the criteria for “prime” or “conforming” debts, and thus are expected to have a lower probability of full repayment. This assessment is usually made based on the borrower’s credit history and score, debt service-to-income (DTI) ratio, and/or loan-to-value (LTV) ratio. In the United States (US), borrowers with low credit scores, DTIs above 55 percent, and/or LTV ratio over 85 percent are likely to be considered subprime, reflecting the greater difficulty subprime borrowers have in making down-payments and the propensity of these borrowers to extract equity during refinancing.... [tags: Subprime mortgage crisis, Debt, Subprime lending]
1393 words (4 pages)
- Over the past several years, members of Congress and the Department of Defense (the Department) were notified about the negative effects exorbitant high interest payday loans were having on service members and their families. In 2006, the Department made a report to Congress Senate Banking Committee tilted “The Report of Predatory Lending Practices Directed at Members of the Armed Forces and their Dependents.” This study explored the pitfalls and the ramifications of exorbitant high interest payday loans directed at service members and their families.... [tags: Payday Loans]
1209 words (3.5 pages)
- In the recent years, there have been increased incidences of unethical behavior and misconduct in the financial sector. This probes the question of whether ethical standards have declined in the industry as whole. Just to highlight a few, the New York Times recently reported that RBC Capital Markets, an investment bank, was fined $76 million by SEC when the company was found guilty of working on both sides of Rural/Metro $440 million deal, therefore resulting in conflict of interests. Similarly, Reuters reported that UBS and Barclay’s officials were involved in fixing Libor (London Interbank Offered Rate).... [tags: Subprime mortgage crisis, Goldman Sachs]
1595 words (4.6 pages)
- Everyone has faced an ethical decision sometime in life, whether or not she or he has realized it. Ethics is a rational procedure in which an individual makes decisions based on what they believe is right or wrong. Individuals are not the only ones who can make these decisions. Large corporations and even small businesses can find themselves facing many ethical dilemmas in the workplace. It is obvious that the public does not respond well when it comes to an unethical business practice.... [tags: Ethics, Business ethics, Subprime mortgage crisis]
738 words (2.1 pages)
- Introduction The current student loan issue is a complex crisis with multiple culprits as well as victims. For one, academic institutions in and of itself cannot deny their responsibility for instigating the crisis. For example, when was the last time, at least in recent years, that anyone heard of a university actually lowering their tuition fees. In reality, year after year the trend has been for universities to increase rates. In fact, according to Larry Abramson of NPR, “tuition and other costs have been going up faster than inflation, and family incomes can’t keep up" (2012).... [tags: Student Loan Issues, College, Education]
1692 words (4.8 pages)
- The argument over who should be at fault for the subprime mortgage crisis and housing market collapse in the United States has been a heated debate. Even though home foreclosure keeps rising, there should be some accountability for the economic meltdown resulting from the subprime mortgage situation. Should we blame banking institutions, mortgage lenders, brokers, and investors for this crisis. Should minorities be blamed for recklessly accepting loans and defaulting on them after realizing they could not meet their obligation.... [tags: Economics ]
1589 words (4.5 pages)
- The subprime mortgage crisis The argument over who is at fault for the housing market collapse has been a heated issue amongst government, politicians, banking institutions, and mortgage lenders. The subprime mortgage crisis is an ongoing financial issue and real estate nightmare for the United States economy. A dramatic increase in mortgage delinquencies and foreclosures has caused a significant adverse effect on banking institutions and financial markets. Due to this mortgage crisis, the housing market subsequently has crumbled resulting in a record numbers of home foreclosure and more are still looming in the horizon.... [tags: Economics]
1378 words (3.9 pages)
- Sometimes, when people buy a home for first time, they usually get subprime mortgage rates. Lenders grant these types of rates are to borrowers whom their credit history is not sufficient to get a typical mortgage. Sometimes, these borrowers have bad or even insufficient credit history. Subprime mortgages regularly offer loans that are interest only. These loans, that are “interest-only,” are easier for buyers to afford. When you get one of these loans, the lender does not require you to pay any of the principle for the first few years of the loan.... [tags: Finance]
1167 words (3.3 pages)
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