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Ethical Problems in Subprime Mortgage Crisis - Essay Example

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Ethical Problems in Subprime Mortgage Crisis

The lack of transparency and accountability had distorted the decision-making process for granting the loans, weakened the banking and finance system and allied industries and eroded public confidernce in the subprime lending sector.
First, the international credit rating agencies gave investment-grade ratings to the securitization transactions holding the subprime mortgages. This consistent high ratings misled the corporate and individual investors and large banks to invest heavily in subprime stocks since the ratings did not reflect the high default rates and foreclosures which were beginning to show in this sector. This is highly unethical since many international banks were duped into investing in housing stocks which did not reflect real market values or in some cases were actually worthless.
Second, the mortgage brokers failed to be transparent enough to determine if the prospective borrowers really had the capacity to pay the debt. They were more concerned about earning their financial commissions from the sales of homes. This is unethical since they were giving a resource (asset) to persons who cannot afford it. There is a need to link their compensation to the financial performance of their respective loan accounts.
Third, the mortgage lenders ...Show more

Summary

According to USA Today, US $300 billion in subprime Adjustible Rate Mortgages (ARMs) will reset before the end of the year to higher interest rates. This means higher interest payments and a harder time for refinancing by the borrowers. Many middle-class Americans have been hit the hardest in the subprime crisis and these homeowners have already prepared and submitted their foreclosure filings.
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Ethical Problems in Subprime Mortgage Crisis essay example
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