Subprime Lenders And The Financial Crisis - 865 Words

Subprime loans are ethical tools which were wildly misused during the time leading up to the financial crisis in 2008-2009. Subprime lending targeted borrowers who would typically not qualify for standard loans for various reasons. These included low credit scores, low income, and history of late payments. The loans were offered at a rate higher than the market rate due to the increased risks of the borrowers. Many of the clients Countrywide supported were much less likely to be able to pay off their loans compared to traditional borrowers. In the years leading up to the financial crisis, the real estate industry was flourishing which encouraged even clients who could not afford fancy houses to use subprime loans to finance their homes.†¦show more content†¦Inflation of real estate appraisals also added to more reckless lending. Each of these factors contributed to the plethora of homeowners who could not afford their houses and pay their mortgages. If the idea of subprime l ending had remained pure, this financial tool could have helped many people change their lives for the better. However, businesses were careless and greedy enough to lend to increasingly risky clients, which ended up harming their businesses, their clients, and eventually the entire economy. During the early 2000s, when subprime lending reached its peak, Countrywide was extensively involved in risky transactions. To ensure that the company continued to grow and increase its profits, many ethical boundaries were tested. Incentives were offered to salespeople who were rewarded for taking risks. Subprime loans were given to clients who could not afford the loans and conversely those who qualified for traditional loans. Appraisers exaggerated housing values to reassure lending. Liar loans were one of the biggest areas of ethical concern when Countrywide was investigated in the late 2000s. These specific mortgages were given to clients who were not asked to provide proof of their indicated income. Borrowers would overstate their income in order to attain liar loans, possibly with the help of Countrywide personnel. These loans were handed out for the purpose of generating easy, short-term profits through increased fees and high interest