Subprime Loans: The under-the-radar loans Essay example

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The problem to be investigated is the ethics and effects of subprime loans on the financial institutions, borrowers and stakeholders. The subprime market was created to provide borrowers with a FICO score below 570 access to home loans. Inopportunely these loans were a major financial risk as most of the borrowers did not have the long-term income to pay for the high interest rate loans. (Jennings, 2012) Subprime loans started out as a generous, philanthropic idea. Giving people who had bad credit the opportunity to own a home regardless of their income or past credit issues showed compassion and caring for the poor, middle class and elderly who couldn’t possibly qualify for a home loan under the previous strict lending standards.…show more content…
What was the real purpose for developing this system? Was the subprime concept brought before any regulating authorities before it was established? Were long term studies on the effect of the subprime mortgages carried out? Where were the watchdogs? Who vetted out these companies to verify they were genuine established businesses and not simply shells developed to make a fast buck and get out of business quick before the obvious consequences of their actions appeared? Once the effects of the housing bubble were evident who was responsible for managing the fallout? Creating a scapegoat is not a practical way to respond to the handling of business difficulties, therefore I will not attempt to place blame on any individual or group. Instead, I would suggest that future economic and financial policies be originated with proper governmental and legal supervision, managed by ethical business leaders, and maintained by individuals within companies that have a vested interest in the successful outcome of the program. Stock market ripple effects The effect of the submarket mortgage practice is now known as the housing bubble. Financial losses that were connected to the sudden drop in home values caused the collapse of Lehman Brothers and Bear Stearns. An 18% stock drop occurred in one week, just as companies were failing. Many other

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