SUBPRIME LOAN SCANDAL

SUBPRIME LOAN SCANDAL

Background: Subprime loan scandal ethical issues evolved and unfolded from the initial expansions of mortgage credits which constituted borrowers who had previously had challenges acquiring mortgages which resulted in increased home prices (Schoen, 201, pp.805). Homebuyers found it a bit tedious to acquire mortgages, mainly if they had lower credit histories or prioritized higher-payment loans. Lenders are usually denied various mortgage requests unless they are protected by government insurance. In the circumstances with increased risk, families could acquire small-sized mortgages backed mainly by the Federal Housing Administration, while others are on the verge of facing decreased credit options. During the loan scandal era, ownership of homes fluctuated to about 65%, whereby the mortgage foreclosure rates were lower, and the house prices and home constructions majorly reflected increased income and interest rates (Brody2019, pp.67). As such, the decreased interest rates encouraged investment consumption and borrowing in the housing market, thus resulting in exacerbated global imbalances.

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Ethical issues: The types of ethical issues which occurred during the subprime scandal include personal issues, corporate espionage, and unethical accounting. Personal issues are depicted in this case when the investors found it difficult to gauge the risks involved in the pools since various risks labelled the loans that had been included in the pools into different groups. On the other hand, unethical accounting is exhibited when the debts are held by commercial institutions and then handed over to particular entities and then later catered for in the various financial statements of the institutions. As such, the various risks of subprime lending are majorly associated with widespread lender markets, which could be attributed to failures in addition to the customers who had initially applied for it.

Lending tax credit standards and underlying policies resulted in foreclosures and delinquencies. This issue was a significant risk to investors and lenders in the subprime mortgage market (Markham, 2015, pp.2004). Losses that emanate from such crisis led to closures, refunding and even takeovers of larger financial institutions, which are not only in the United States but also in various nations globally. As such, to lessen the various risks to investors, it would be crucial to mortgage-backed securities, which were majorly pooled by lenders and then sold to investors.

Due to the subprime lending in addition to increased crisis in the United States financial market, SEC has summoned most financial lending institutions on decision-making processes (Kidwell et al., 2016, pp.25). The idea came about due to temptations from institutions since the loans could easily be obtained and sold to investors. Leaders of such organizations believe that corporate entities result in the generation of profits for their stakeholders.

To sum it all up, ethical issues of the subprime loan scandal evolved and unfolded from the initial expansions of mortgage credits which constituted borrowers who had previously had challenges acquiring mortgages which resulted in increased home prices (Schoen, 201, pp.805). Decreased interest rates encouraged investment consumption and borrowing in the housing market, thus resulting in exacerbated global imbalances. The types of ethical issues which occurred during the subprime scandal include personal issues, corporate espionage, and unethical accounting. As such, I would recommend lessening the various risks to investors; it would be crucial to mortgage-backed securities, which were majorly pooled by lenders and sold later to investors.

 

 

References

 

Bródy, L. S. (2019). The limits to participation: dynamics of state-civil society relationships in Barcelona and Budapest.

Brooks, L. J., & Dunn, P. (2020). Business and professional ethics. Cengage Learning.

Kidwell, D. S., Blackwell, D. W., Sias, R. W., & Whidbee, D. A. (2016). Financial institutions, markets, and money. John Wiley & Sons.

Markham, J. W. (2015). A financial history of the United States: From Enron-era scandals to the subprime crisis (2004-2006); From the subprime crisis to the Great Recession (2006-2009). Routledge.

Pasley, R. S. (2017). Anatomy of a Banking Scandal: The Keystone Bank Failure-Harbinger of the 2008 Financial Crisis. Routledge.

Schoen, E. J. (2017). The 2007–2009 financial crisis: An erosion of ethics: A case study. Journal of Business Ethics146(4), 805-830.

SUBPRIME LOAN SCANDAL

 

POWERPOINT PRESENTATION OF THE CASE STUDY (MINIMUM 6 SLIDES)

 

– PowerPoint presentation should use some graphics to convey key concepts and have in slide citations.

– Use the notes section of PowerPoint to elaborate on key points.

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Background: How did the ethical issue unfold and evolve (3 PPT Slides)

Ethical Issues: Describe the type of ethical issues occurred i.e., = PERSONAL. (3 PPT Slides)

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