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

Feb 3rd, 2012
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Subprime loans are loans that were offered to borrowers whose credit scores were below the acceptable rating of 570. The mortgage lenders made significant earnings by lending to this type of borrower. However, as recent as 2007, these borrowers began to not pay their mortage payments and thus the mortgage market dropped significantly. This activity relates to Subprime loans and risks they pose to the lender and ambiguity of various aspects to the borrower. Using Case 7.4, answer all of the questions. After reading the document and before answering the questions, initiate your paper with the problem statement; The problem to be investigated is ________________________.

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Subprime Loans: The Under-the-Radar Loans That Felled a MarketThe purpose of this research is to impart a scholastic opinion on the topic of the ethics of subprime mortgage lenders, the teachings from isolated individual ethical choices, the effects of incentives on lenders in terms of types of loaning products offered to potential borrowers, the role of subprime mortgage, the systematic effects of the subprime market, and last but not least the number of stakeholders in relationship between subprime lender and borrower. Before instituting the research paper, it is, in the first place, necessary to discern the definition of subprime mortgage. Subprime mortgage is a class of mortgage that is usually disbursed to borrowers with a lower credit score because traditional mortgages are not possible to be dispensed to them for the obvious atypical risks of default, because lenders charge borrowers higher interest rates depending upon the amount of risk they consider to be facing compared to conventional mortgages in order to compensate themselves for carrying added risks of default (Investopedia, 2012). The subprime mortgage crises were the prime cause of 2008 financial debacle, which eventually led to financial meltdown causing national and international economic fiasco. A mortgage broker acts as a mediator between a borrower and his lender, but he is not personally involved in the underwriting or authorizing of loans but recovers an origination fee usually referred to as yi

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