Case#8 Countrywide Financial: The Subprime Meltdown
1. Are subprime loans an unethical financial instrument, or are they ethical but misused in a way that created ethical issues? The Countrywide Financial case showed subprime loans easily contribute to unethical behavior. I think the idea of the loan isn’t unethical in itself, but the way it was packaged. If you take away the fraudulent behavior, the idea of a subprime mortgage isn’t too corrupt. Subprime borrowers generally have bad credit (under 620) or no credit history, low income, maxed out credit cards, poor debt-to-income ratio, et cetera. Handing out subprime loans gives opportunity for lower-income households to raise their wealth and their credit score. But going from not being able to afford a traditional loan to taking out a loan the size of a house is a jump. People were given the ability to live above their means. Assisting those with debt, bad credit or jobs that don’t pay much to survive is noble; the reasons for handing out these loans and the greed that took over made it completely unethical. I think subprime loans are an ethical in some ways but for the most part it’s got misused. One way that I think subprime was misused was the fact that when the economy began to slow down, people started working more and earning less money, subprime lending continued to lend to increasingly risky buyers.
2. Discuss the ethical issues that caused the downfall of Countrywide Financial? There were many ethical issues that contributed to the downfall of Countrywide Financial. People were enticed into the real estate market but were not equipped financially to persevere. Subprime borrowers also were generally uneducated on loan borrowing and inexperienced. It seems consumers were encouraged or at least aided to lie about their income, which would come back to damage them later. One of the ethical issues that caused the downfall of countrywide was allegations of Countrywide increasing its profits...
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