Countrywide Financial: The Subprime Accident Course:| MAN3065| | Team or Group #:| 8| Date submitted:| 02/27/13| Reference#:| 726077| | Term:| 2012-2| | Days:| M & W| | Time:| 7:05pm – 8:20pm| | Prof: | Hoa N. Burrows, CPA| Countrywide Financial: The Subprime Accident Questions: 1. Are subprime loans an bent banking instrument, or are they ethical accoutrement that were misused? We believed subprime loans are ethical accoutrement that were misused.
Subprime loans absorb “lending to borrowers, about bodies who would not authorize for acceptable loans, at a amount college than the prime rate” (Ferrell et al 385) acceptation that it is a banking apparatus in which borrowers account from accessing basic that contrarily would accept been denied to them, and banking institutions account from charging a college interest. What fabricated subprime loans so adorable was the actuality that it enabled low-income individuals and minorities (no qualifies for approved loans) to accept admission to homeownership.
In the appropriate hands, in the appropriate time, a subprime accommodation could announce an important apparatus for altered minorities to advance the affection of their lives by accepting costs for added than aloof home mortgages but additionally academy tuition, for archetype (Iacono). However, as the Countrywide Banking case illustrates, there is advanced abusage of this apparatus by institutions that appoint in aimless lending for the account of concise profits at the accident of above banking downturn, as in the 2008-2009 banking crisis. Ferrell et al 388) Moreover, while lending money to low-income and boyhood families justifies a college absorption amount due to the accident of debt default, lending money to families that would actual absurd be in the accommodation to absolutely accord their mortgage is a blackmail to both the banking academy - who would had absent the invested money - and the borrowers who would be afflicted to face foreclosure; but alike added aggressive were the amaranthine balance backed on these subprime loans, whose absolute accident were alone accepted by Countrywide Financial.
By chief to accommodate money indiscriminately, this aggregation concluded up misusing a banking apparatus that would accept contrarily brought on advance for its barter and the aggregation itself. 2. Discuss the ethical issues that acquired the atrophy of Countrywide Banking Altered ethical issues acquired the atrophy of Countrywide Banking including bent accomplishments of both the aggregation and the borrowers. Firstly, Countrywide Banking abolished the adjustable amount mortgage (ARM): Borrowers were told that they would not get abnormally afflicted with an accretion absorption amount as the amount of their acreage would access accordingly.
Nonetheless, back the recession came abounding of these borrowers apparent they were clumsy to pay. (Ferrell et al 386). Secondly, amid abounding of the accusations adjoin Countrywide, two of the capital ones were that “real acreage appraisers began to aerate the amount of homes to ensure that loans would go through. ” (Ferrell et al 387), and that they had a appropriate VIP abatement mortgage programs for high-end able-bodied able individuals who had no charge for discounts, alleged “Friends of Angelo”, Angelo Mozilo’s - Countrywide Banking CEO -friends including Senator Charles E. Schumer and Representative Henry A.
Waxman. (Ferrell et al 390) Fourthly, Countrywide Banking was behindhand in advisedly “giving out awful chancy loans to bodies who could not allow them for the account of quick profit” (Ferrell et al 389) which additionally brought out the catechism of whether the aggregation was additionally complex in bloodthirsty lending - ambiguous its borrowers. (Ferrell et al 389) On the alternative hand, borrower’s accomplishments were additionally bent as it was accurate they were backbiting in their accommodation applications: “90% of cheat accommodation applicants advisedly abstract their income, with three out of bristles overstating it by at atomic 50%. However this actuality alone seems to prove that Countrywide was allowance borrowers falsifying advice in adjustment to defended the loan. (Ferrell et al 389) 3. How should Bank of America accord with abeyant ethical and acknowledged delinquency apparent at Countrywide Having acquired Countrywide Financial’s debt and bad reputation, Bank of America should focus on disconnecting itself from antecedent affiliates that were a allotment of the above aggregation during their banking meltdown, such as ex CEO Angelo Mozilo, ex COO David Sambol, and ex CFO Sieracki (Ferrell et al 392).
In accession to this they should accomplish abiding that the appropriate advice is actuality promptly provided to pertaining authorities. Moreover, Bank of America should ensure that a able accident administration action is set up, continuing as able-bodied with programs to affluence accommodation agreement and anticipate borrowers from accident their homes, such as the Countrywide Comprehensive Home Preservation Program which helped consumers refinance their debt. Ferrell et al 388) In conclusion, Bank of America should abide with their accepted accomplishments whilst authoritative abiding the authorities are accepting the advice all-important to ability the basal of what absolutely happened at Countrywide Financial, and appropriately anticipate this bearings from anytime accident again. . Works Cited Ferrell, O. C. , John Fraedrich and Linda Ferrell. Business Ethics: Ethical Decision Authoritative and Cases. Mason: South-Western, 2011. Iacono, Tim. "Iacono Research". One-Third of Student Loans Are Subprime Loans. 04 02 2013. 22 02 2013 <www. iaconoresearch. com/2013/02/04/one-third-of-student-loans-are-subprime-loans/>.
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