Subprime Loans: The Under-the-Radar Loans that Felled a Market
Subprime Loans, Social Responsibility, and Preventive Measures
Looking beyond who’s at fault for the housing crisis. Should there have been provisions available to assist homeowners with preventing default or should there be incentives to reduce the possibility of default? Hooker states that many banks did not perform due diligence in awarding the loan nor did they pass along pertinent information with the loan packages (2012). Hooker goes on to state (through a series of tests) that and that lenders should renegotiate terms as it is most likely in the best interest of all parties (2012). From a macro perspective, disruptions in financial markets create a domino effect. Jerome Stein details the European debt crisis and the relationship between the dollars owed to various countries (2011). For instance, [i]f Spain defaulted, then [this affected] assets of the British, French, and German banks…[i]f the Irish defaulted, the British and German banks…[are] affected” (Stein, 2011, p. 212-214)
Leaders have a responsibility to consider impending effects of the status quo. Decisions made from internal or external constraints may not necessarily follow current ethical frameworks (Thiel, Bagdasarov, Harkrider, Johnson, & Mumford, 2012). Decision making should be made with profit (or self-preservation) in mind, but organizations are held to a higher standard to include corporate social responsibility.
Changes have been made to strengthen the lending system; with some of the latest just taking effect this past June (Hansen, 2013). Some changes for Federal Housing Adminstration loans include increased mortgage insurance premiums, mandatory insurance for the life of the loan, and required ‘manual’ underwriting for borrowers with lower credit scores (Hansen, 2013). To assist with past foreclosures, Congress initiated the Mortgage Forgiveness Debt Relief Act of 2007 to offer an exception to taxation on forgiven loans that were not foreclosed (Carlton, 2008). These changes, as well as, a basic understanding of contributing factors towards the housing crisis and an emphasis on intrusive leadership can help prevent or reduce the next possible housing bubble.
Carlton, R. (2008). Mortgage forgiveness debt relief act of 2007. Harvard Journal on Legislation, 45(2), 601-618. Retrieved from http://www.harvardjol.com/wp-content/uploads/2009/08/601-618_Carlton.pdf
Hooker, J. (Performer) (2012). Business case studies part i [Web]. Retrieved from
Gottesdiener, L. (2013, May 2). Obama housing crisis [Web Graphic]. Retrieved from http://znetitaly.altervista.org/art/10676
Hansen, K. (2013). Higher mortgage insurance creating headache for borrowers. Phoenix Business Journal, Retrieved from http://www.bizjournals.com/phoenix/news/2013/02/14/ higher-mortgage-insurance-creating.html?page=all
Stein, J. (2011). The diversity of debt crises in Europe. Cato Journal, 31(2), 199-215. Retrieved from http://www.cato.org/pubs/journal/cj31n2/cj31n2-2.pdf
Thiel, C., Bagdasarov, Z., Harkrider, L., Johnson, J., & Mumford, M. (2012). Leader Ethical Decision-Making in Organizations: Strategies for Sensemaking. Journal Of Business Ethics, 107(1), 49-64. doi:10.1007/s10551-012-1299-1