Countrywide Financial

countrywide Financial The Subprime Meltdown drift MAN3065 Team or Group 8 Date submitted 02/27/13 Reference 726077 Term 2012-2 Days M & W Time 705pm 820pm Prof Hoa N. Burrows, CPA nationwide Financial The Subprime Meltdown Questions 1. argon subprime brings an wrong financial instrument, or argon they ethical peckerwoods that were misused? We believed subprime loans are ethical tools that were misused.Subprime loans involve lending to borrowers, generally people who would not peg down for traditional loans, at a enjoin high than the prime calculate (Ferrell et al 385) meaning that it is a financial instrument in which borrowers attain from glide slopeing capital that other than would have been denied to them, and financial institutions benefit from charging a higher involvement. What made subprime loans so attractive was the fact that it enabled low-income individuals and minorities (no qualifies for regular loans) to have access to homeownership.In the right hand s, in the right time, a subprime loan could signify an primary(prenominal) tool for different minorities to improve the quality of their lives by obtaining financing for much than just home mortgages but also school tuition, for example (Iacono). However, as the Countrywide Financial case illustrates, there is wide misuse of this tool by institutions that engage in indiscriminate lending for the sake of short profits at the risk of major financial downturn, as in the 2008-2009 financial crisis. Ferrell et al 388) Moreover, while lending gold to low-income and minority families justifies a higher interest rate due to the risk of debt default, lending money to families that would very unlikely be in the capacity to fully compensate their mortgage is a threat to both the financial institution who would had disordered the invested money and the borrowers who would be forced to face foreclosure but even to a greater extent threatening were the endless securities backed on these s ubprime loans, whose real risk were solitary(prenominal) known by Countrywide Financial.By deciding to lend money indiscriminately, this corporation ended up misusing a financial instrument that would have otherwise brought on progress for its customers and the company itself. 2. Discuss the ethical issues that caused the downfall of Countrywide Financial Different ethical issues caused the downfall of Countrywide Financial including unethical actions of both the company and the borrowers. Firstly, Countrywide Financial misused the adjustable rate mortgage (ARM) Borrowers were told that they would not get negatively affected with an increasing interest rate as the value of their property would increase accordingly.Nonetheless, when the recession came many an(prenominal) of these borrowers discovered they were unable to pay. (Ferrell et al 386). Secondly, between many of the accusations against Countrywide, two of the important ones were that real estate appraisers began to infla te the value of homes to ensure that loans would go through. (Ferrell et al 387), and that they had a special VIP discount mortgage programs for high-end well sufficient individuals who had no need for discounts, called Friends of Angelo, Angelo Mozilos Countrywide Financial chief operating officer -friends including Senator Charles E. Schumer and exemplification Henry A.Waxman. (Ferrell et al 390) Fourthly, Countrywide Financial was negligent in wittingly giving out highly risky loans to people who could not collapse them for the sake of quick profit (Ferrell et al 389) which also brought out the promontory of whether the company was also involved in predatory lending direct its borrowers. (Ferrell et al 389) On the other hand, borrowers actions were also unethical as it was proven they were dishonest in their loan applications 90% of liar loan applicants knowingly overstated their income, with three out of five overstating it by at least 50%. However this fact only seems t o prove that Countrywide was helping borrowers falsifying information in order to secure the loan. (Ferrell et al 389) 3. How should Bank of the States deal with potential ethical and legal mess up discovered at Countrywide Having acquired Countrywide Financials debt and notional reputation, Bank of America should focus on disconnecting itself from previous affiliates that were a erupt of the former company during their financial meltdown, such as ex CEO Angelo Mozilo, ex COO David Sambol, and ex CFO Sieracki (Ferrell et al 392).In addition to this they should tie sure that the required information is being promptly provided to pertaining authorities. Moreover, Bank of America should ensure that a proper risk management policy is bewilder up, continuing as well with programs to ease loan terms and bar borrowers from losing their homes, such as the Countrywide Comprehensive Home Preservation course of study which helped consumers refinance their debt. Ferrell et al 388) In con clusion, Bank of America should continue with their reliable actions whilst making sure the authorities are getting the information demand to reach the bottom of what really happened at Countrywide Financial, and thus observe this situation from ever happening again. . Works Cited Ferrell, O. C. , John Fraedrich and Linda Ferrell. Business ethical motive Ethical Decision Making and Cases. Mason South-Western, 2011. Iacono, Tim. Iacono Research. One-Third of disciple Loans Are Subprime Loans. 04 02 2013. 22 02 2013 .