Between 1969 and 2003 Countrywide Financial grew exponentially until it became the largest mortgage lender in the United States. Strengthening their credibility with loan programs such as, “House America” and “We House America”, both of which aimed to lower mortgage qualification requirements for low-income and minority consumers. In order to profit from these risky loans Countrywide knowingly falsified lender information allowing those with no assets to obtain loans and offered subprime loans to those who qualified for regular loans. Such actions lead to a surplus of housing, housing prices to fall, and ultimately numerous foreclosures. Many consider these unethical behaviors as a key contributor to the United States 2008-2009 economic recession. As a group, in this paper, we plan to answer the following questions: 1. Are subprime loans an unethical financial instrument, or are they ethical tools that were misused? 2. Discuss the ethical issues that caused the downfall of Countrywide Financial. 3. How should Bank of America deal with potential ethical and legal misconduct discovered at Countrywide?
Are the subprime loans an unethical financial instrument, or are they ethical tools that were misused?
To understand subprime loans we have to go back to Orange County, California in the 1970s. During that time rural farmland was being converted into suburbs. And subprime lending was created as a way for people to buy homes even if their credit was poor. Essentially, subprime lending is when financial institutions make loans to people who may have difficulty maintaining the repayment schedule. These loans are characterized by higher interest rates, little or no collateral and less favorable terms in order to compensate for higher credit risk. Subprime loans fall into three categories: First is the interest-only mortgage, in which borrowers pay only the loan’s interest for a set period of time....