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 under the previous strict lending standards. However, predatory lenders used this vulnerable groups desire to live the American dream, to own a home, against them. Billions of dollars were made by loan companies and similar financial institutions by writing relaxed standards loans for borrowers as fast as they could. (Jennings, 2012) To make matters worse, lenders knowingly wrote loans to speculators who had no intention of ever living in the home; or at least no longer than it would take to flip the property. In a marketplace with quickly rising property values, the adverse impact of this activity was completely shadowed, and yet lurking in the background is the one market constant, what goes up must come down.
Mortgage Brokers ethics
The unethical aspect of this business practice is straightforward; that the individual brokers and loan companies knew beforehand that the borrowers would not be able to maintain the payments for these loans, and that the speculators would dangerously inflate the market. However they were more concerned with their short-term monetary gain than the long term effects of their actions. (Jennings, 2012)
Some questions that arise when giving consideration to the ethical implications of the subprime mess are: Where did the subprime originate from? What was the real purpose for developing this system? Was the subprime concept brought before any regulating authorities before it was established? Were long term studies on the effect of the subprime mortgages carried out? Where were the watchdogs? Who vetted out these companies to verify they were genuine established businesses and not simply shells developed to make a fast buck and get out of business quick before the obvious consequences of their actions appeared? Once the effects of the housing bubble were evident who was responsible for managing the fallout?
Creating a scapegoat is not a practical way to respond to the handling of business difficulties, therefore I will not attempt to place blame on any individual or group. Instead, I would suggest that future economic and financial policies be originated with proper governmental and legal supervision, managed by ethical business leaders, and maintained by individuals within companies that have a vested interest in the...