Financial Misconduct Essay

1993 WordsJul 17, 20148 Pages
Financial misconduct is something that has affected our country immensely in the last few years. With the growing home foreclosures due to banks lending more than one can afford. Countrywide Financial is an example of a mortgage company that provided many subprime loans to individuals that were not able to repay the loans and ended up defaulting driving foreclosure rates through the roof. Countrywide Financial played a huge role in financial misconduct when they started pushing subprime loans. Their ethical issues were based on what was legal instead of what was right to gain profit on the sale of homes even to those who really couldn’t afford to purchase one or at least not for the amount of the loan that was provided to them. Subprime loans were a huge benefactor to Countrywide Financials success and rapid growth; it was also what contributed hugely to its later downfall (Ferrell, Fraedrich, & Ferrell, 2011). What is a subprime loan? A subprime loan is a mortgage loan made available to borrowers who don’t qualify for a traditional loan due to credit or financial issues, these types of loans come with much higher interest rates then prime loans (Cornett, n.d.). Subprime loans have higher interest rates due to the risk for the financial institute since the repayment rate for subprime loans is pretty low, meaning most are defaulted on. Subprime loans became popular in the early 2000’s as they were offered to many people who didn’t normally qualify for a traditional loan, providing growth in house sales and giving many an opportunity to own their own home when they didn’t think they could (Cornett, n.d.). There are three types of subprime loans, first is an interest-only mortgage where the borrower pays only the interest for certain amount of time, the second one allows borrowers to pay a smaller amount monthly then what is needed to reduce the amount

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