Countrywide Financial

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Countrywide Financial:
The Subprime Meltdown

Course:| MAN3065| | Team or Group #:| 8|
Date submitted:| 02/27/13|
Reference#:| 726077| |
Term:| 2012-2| |
Days:| M & W| |
Time:| 7:05pm – 8:20pm| |
Prof: | Hoa N. Burrows, CPA|

Countrywide Financial:
The Subprime Meltdown
Questions:
1. Are subprime loans an unethical financial instrument, or are they ethical tools that were misused? We believed subprime loans are ethical tools that were misused. Subprime loans involve “lending to borrowers, generally people who would not qualify for traditional loans, at a rate higher than the prime rate” (Ferrell et al 385) meaning that it is a financial instrument in which borrowers benefit from accessing capital that otherwise would have been denied to them, and financial institutions benefit from charging a higher interest. What made subprime loans so attractive was the fact that it enabled low-income individuals and minorities (no qualifies for regular loans) to have access to homeownership. In the right hands, in the right time, a subprime loan could signify an important tool for different minorities to improve the quality of their lives by obtaining financing for more than just home mortgages but also school tuition, for example (Iacono). However, as the Countrywide Financial case illustrates, there is wide misuse of this tool by institutions that engage in indiscriminate lending for the sake of short-term profits at the risk of major financial downturn, as in the 2008-2009 financial crisis. (Ferrell et al 388) Moreover, while lending money to low-income and minority families justifies a higher interest rate due to the risk of debt default, lending money to families that would very unlikely be in the capacity to fully repay their mortgage is a threat to both the financial institution - who would had lost the invested money - and the borrowers who would be forced to face foreclosure; but even more threatening were...
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