Ethical Issues with Subprime Loans

The U.S. subprime mortgage crisis was a set of events and conditions that led to a financial crisis and subsequent recession that began in 2008. It was characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backed by said mortgages. These mortgage-backed securities (MBS) and collateralized debt obligations (CDO) initially offered attractive rates of return due to the higher interest rates on the mortgages (Watkins, J.P 2011)

Subprime loan was created to help people or households with less than perfect credit records, moderate incomes, or limited wealth to have the opportunity to buy a house or refinance an existing home. There are so many ethical issues surrounding subprime loans which are simply the kind of loan that were offered to borrowers whose credit scores were below the acceptable rating of 570. (Gilbert, J. 2011). Through this type of loan mortgage companies and their lenders had an increase in their earnings by lending to this type of borrower. However, after a short period of time the borrowers were unable to repay what they borrowed and this led to the drastic and significant fall in the mortgage industry.

The role of leadership decision-making in the subprime loan financial crisis

The decision making process in the financial world is a very critical issue; this is because any decision that are reached will definitely affect other institution, or other people. It is therefore important that whoever that is in a financial decision making position must be required to be responsible, accountable, and honest.

Because these three factors were lacking in the decision making process in subprime loan cases that was why many corporate and financial misconduct amidst in subprime lending left many people to wonder whether ethics in leadership should be of greater focus. Government and public officials including the Securities and Exchange Commission and the United States Senate questioned organizational leaders over their dubious, seemingly, and misguided decision-making. They wonder how such gross misconduct could occur even when organizational policies and guidelines exist to safeguard against unethical practices. (Thiel, 2012)

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