Countrywide Financial: The Subprime Meltdown

Case Study Answers: Countrywide Financial: The Subprime Meltdown

1. Are subprime loans an unethical financial instrument, or are they ethical but misused in a way that created ethical issues?

Subprime loans have come known to be some of the most unethical financial tools that were used in the mortgage industry. Such loans are known to trap unsuspecting customers when they are trying to purchase a home, burying them deeply beneath mounds of debt. During the height of the financial industry’s success, it was customary for the mortgage companies to market the subprime loans to the people who were either already in debt or could not qualify for a traditional loan due to their insufficient financial history. In exhibiting such discriminatory behavior, the mortgage companies at this point in time failed to protect its customers’ best interests by not informing the targeted population of all of the consequences that could result from the use of the financial tool. Instead, mortgage lenders were sure to choose their words wisely when only informing their customers of the benefits that the subprime loans had the ability to cause an individual.

2. Discuss the ethical issues that caused the downfall of Countrywide Financial.

The biggest ethical issue that contributed to the demise of Countrywide Financial is owed to the fact that the company targeted the low-income minority families to use the subprime loans as a means of financing their homes. Such behavior was deemed to be unethical due to the fact that Countrywide Financial would have made a profit off of their use of subprime loans no matter how the situations transpired. For example, using the subprime loan, Countrywide Financial would have succeeded whether or not a customer was able to keep up with their monthly payments due to the high interest rates that were associated with the loan.

• Besides, Countrywide Financial was one of the top providers of the liar loans and it kept on carrying out the financial practices which were highly unethical and were based on misguiding the clients and loan takers.

3. How should Bank of America deal with potential ethical and legal misconduct discovered at Countrywide?

Bank of America is regarded among the most popular banks in the United States of America. The nationally recognized company has had a very long stint in the financial industry. The company’s longevity has been owed to the extensive amounts of success that the bank has experienced throughout its existence. With this being said, it is important for Bank of America to not allow their recent acquisition of Countrywide Financial to tarnish the great reputation that the Bank of America company has worked so hard to create for itself. For this reason, it is imperative that Bank of America exhibits some sort of damage control on behalf of Countrywide Financial’s unethical practices. The company could start by making a public apology to each and every customer that Countrywide Financial has managed to injure during the market financial meltdown. In doing this, Bank of America would be able to improve the reputation that has resulted of Countrywide Financial’s inability to be truthful with tits customers. Hopefully such damage control will ultimately encourage society to forgive Countrywide Financial and not take out the frustrations that they have with the lending company on that of Bank of America.