Countrywide Financial and the Subprime Crisis

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Case Study: Countrywide Financial and the Subprime Crisis In the early 2000s, Countrywide Financial was the largest provider of home loans for borrowers, with one in six loans originating with it. It created “House America” in 1992 to enable more people to qualify for home loans and make smaller down payments. Loan transactions reached $1 trillion in 1993. Countrywide Financial had a great reputation and everything going for it. A huge factor contributing to the company’s success was subprime lending, or lending to borrowers who didn’t qualify for traditional loans. However, this reason for success also became the central contributor to its downfall. The Countrywide Financial case showed subprime loans easily contribute to unethical behavior. I think the idea of the loan isn’t unethical in itself, but the way it was packaged. If you take away the fraudulent behavior, the idea of a subprime mortgage isn’t too corrupt. Subprime borrowers generally have bad credit (under 620) or no credit history, low income, maxed out credit cards, poor debt-to-income ratio, et cetera. Handing out subprime loans gives opportunity for lower-income households to raise their wealth and their credit score. But going from not being able to afford a traditional loan to taking out a loan the size of a house is a jump. People were given the ability to live above their means. Assisting those with debt, bad credit or jobs that don’t pay much to survive is noble; the reasons for handing out these loans and the greed that took over made it completely unethical. There were many ethical issues that contributed to the downfall of Countrywide Financial. People were enticed into the real estate market but were not equipped financially to persevere. Subprime borrowers also were generally uneducated on loan borrowing and inexperienced. It seems consumers were encouraged or at least
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