Subprime Loans: the Under-the-Radar Loans That Felled a Market Essay

1995 Words8 Pages
Subprime Loans: The Under-the-Radar Loans that Felled a Market The problem to be investigated is the subprime loans that felled the market. This paper will evaluate the ethics of the subprime mortgage brokers and what can be learned by the isolation of individual ethical choices. In addition, the paper will offer an assessment of how incentives affect lenders in terms of the types of lean products offered to potential borrowers. Also identified in this essay will be the place and role of subprime mortgages. Finally, this paper will give an analysis of the systemic effects of the subprime market as well as how many stakeholders were in the relationship between subprime lender and borrower. Subprime Lending Below prime mortgage financing, also known as subprime lending is the practice of issuing credit to high risk borrowers by not abiding by the normal government regulations when issuing mortgages (Jennings, 2012). Normal government lending guidelines include checking a borrower’s debt to income ratio, running a credit history check, and making sure the borrower is adequately employed (Rose, 2011). During the years of the subprime lending market, many lenders were not using these guidelines and allowed people with an impaired credit history to take out a subprime mortgage (Moulton, & Bozeman, 2011). Borrowers’ ability to service loans was evaluated based on income sufficient to cover only initial payments (Rose, 2011). On the other hand, the securitization process and the ability to transfer the default risk made mortgage banks and underwriters overlook mortgage brokers’ activity and lower their loan documentation requirements (Rose, 2011). Many people took subprime mortgage loans with little or zero equity and refinanced their loans later cashing out the profit from the rising home prices by taking bigger loans. The subprime market was fueled by

More about Subprime Loans: the Under-the-Radar Loans That Felled a Market Essay

Open Document