Strategic Management Case Study Module 7

1115 Words Mar 29th, 2013 5 Pages
Strategic Management Module 7 Case Study
Daryl L. Young
Thomas Edison State College

Strategic Management Module 7 Case Study
Housing Bubble and Its Burst Case Study Question 1: Explain the cause of the housing bubble and its burst in the mid-2000s. To what extent is this problem the result of ethical failure?
Housing Bubble
No single cause can fully explain the crisis but, in my opinion, the two major bases were legislation that promoted homeownership and subprime mortgages. To fully understand the environment that spawned the housing bubble, we’ll have to travel back to the 1930s, when the country was in the midst of the Great Depression. During this time frame, homeownership represented only about 40 percent of the U.S.
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5).
Countrywides’ Role
Case Study Question 2: Evaluate Countrywide’s role in the subprime mortgage debacle. Was the company’s conduct unethical or illegal?
Countrywide’s Role
From 2005 to 2007, Countrywide was the leading subprime lender in the country issuing $97.2 billion in subprime mortgages (Bloomberg Business Week, 2009) but only led in market share by 2 percent. The bottom 16 subprime mortgage-issuing firms accounted for $363.5 billion in mortgages (reference chart 1). Countrywide was responsible for 10 percent of a $1 trillion problem.

Conduct Unethical or Illegal Countrywide practices were illegal. Countrywide was charged with predatory lending practices (Thompson et al., 2012) and later reached a multi-state settlement for $8.68 billion (Huffman, 2008). “ Countrywide’s lending practices turned the American dream into a nightmare fore tens of thousands of families by putting them into loans they couldn’t understand and ultimately couldn’t afford,” said Attorney General Edmund G. Brown Jr., a co-leader of the negotiations for the states (Huffman, 2008). Countrywide settlement became the largest predatory lending settlement in history, dwarfing the nationwide $484 million settlement (Huffman, 2008). Case Study Question 3: Using this case as an example, who benefits and who gets hurt when a company engages in unethical or socially irresponsible behavior? In