Ethics of Sub-Prime Lending

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Spenser Yeager
Ethics Final
Ethics of Sub-Prime Lending

Introduction
As a topic for this research paper, I decided to analyze the ethics behind the recent mortgage crisis in the United States. Banks were approving people for loans very easily, to people they knew would not be able to pay them back. Thus, many people were buying homes, missing payments, getting foreclosed on, and ruining what credit they had. Throughout this paper I intend to show how the practices that the banks were using were unethical. I will show who stakeholders were, and analyze them through Utilitarian and Kantian standpoints. A Utilitarian standpoint weighs the hedons and dolors in a situation. Ultimately it says that the most ethical thing to do is whatever is for the greater good. The hedons are people that are positively impacted from a situation, while the dolors are the people that are negatively impacted from a situation. Determining if a situation is ethical or not is decided by assessing the impact on hedons and subtracting them by the impact dolors. According to a Utilitarian standpoint, if the impact to the hedons outweigh that of the dolors, then said practice is ethical. A Kantian standpoint does not look into consequences like the Utilitarian standpoint; instead it looks at categorical imperatives. According to founder Immanuel Kant, “the rightness or wrongness of actions does not depend on their consequences but on whether they fulfill their duty.” A Kantian belief is not based solely on what is for the greater good, but if something is seen as right or wrong to do. A good person is good because of the intentions that they have, whether enjoyable or not.

Background of U.S. mortgage crisis
The mortgage crisis in the United States over the past few years has been a very traumatic experience for many people. During the mortgage crisis, many lenders were not following the normal government guidelines for issuing mortgages. These include checking a borrower’s debt to income ratio, running a credit history check, and making sure the borrower is employed. During this time many lenders were not using these guidelines and allowed people with an impaired credit history to take out a sub-prime mortgage. A sub-prime mortgage is one that does not meet government funded organizations guidelines; it is a riskier loan for the lender because it is generally given to borrowers that have a lesser ability to repay. Generally, sub-prime mortgages are given to people with higher debt, low credit scores, and low incomes. This allows more people the opportunity to own a home. This is generally good for the lenders because it allows them to charge higher prices for loans because of the risk associated with dealing with the borrower. Also, lenders see the ability to charge late fees for late payments, and ultimately repossess a home, because until the last payment of a loan is paid, the lender is the one who holds the title to the property. As a result of sub-prime mortgages, many people have found themselves with a large amount of debt that they are unable to pay. With this, banks have repossessed many homes and borrowers are losing out. What banks did not foresee happening though, was the drastic drop in home values. There for, while the borrowers were being hurt as they were losing their homes, so were the lenders. Because of this, many financial institutions started to go bankrupt because the homes they now owned were not worth nearly as much as what was paid for them. As a result of this, the government started to issue large amounts of bailouts in order to help keep some of these financial institutions from going bankrupt. Utilitarian Standpoint

In the mortgage crisis there are many hedons and dolors to be named. The hedons are people such as the mortgage bankers/companies, real estate agents, people selling homes, the people buying homes, and the United States government. The mortgage bankers/companies...
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