Subprime loans and social responsibility

Subprime loans represent the worst in business social responsibility and led to the recession that began in 2007.  The decisions made by individual lending officers and brokers substantially contributed to the failure of numerous lending institutions and cost many of the populace to lose homes.  The officials handling these loans had a moral obligation and an ethical duty to the customer and the institution to be open, forthright, and honest.  Instead, many decided to engage in predatory and careless lending (Gilbert, p.88-89).

The many disconnects in the mortgage lending business are complex and convoluted.  No longer does the mortgage holder keep the mortgage in the local institution for the life of the loan, rather the loans are bundled together and sold to investors thus severing the personal connection at the local level.  Further, a loosening of underwriting standards removed the burden of accurate computations from the underwriter.  When the loans were bundled and sold, the risks were passed along to the purchaser, essentially absolving the underwriter from all repercussions.

This is the ultimate repudiation of social responsibility.  The discretionary decisions made by front line lending and underwriting personnel were not questioned as the profits were so phenomenal based on an incredible “increase in home values of 124 percent between 1997 and 2006” (Bianco, p.6).  There was little to no information integration, forecasting of future outcomes, or questioning the ethical and moral principles of subprime loans (Thiel, p.56-58).  It was rather stand-fast, hold your position, and follow the Goldman Rule (Thiel, p.63-66).




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