Mortgage Crisis

What Caused the Mortgage Crisis?

BUS311: Business Law 1

Instructor: Marla Muse

Jacqueline Sanchez

January 14, 2013

Many people in our society wonder; what caused our economy to fail? The current state of our economy was caused by many different factors. One of the biggest offenders that caused the recession is the mortgage industry. Consumers were talked into faulty loans, not explained the whole truth about the loans they were signing up for, and lenders forging information on loan documents to approve consumers for loans they didn’t qualify for and couldn’t afford.

So what are the legal issues in this issue? The major issue with the mortgage crisis is the falsification of information. Many mortgage lenders would input false information regarding the consumer’s income so the consumer would qualify for a higher dollar amount even if the consumer cannot afford the mortgage payments.

“Banks offered easy access to money before the mortgage crisis emerged. Borrowers got into high risk mortgages such as option-ARMs, and they qualified for mortgages with little or no documentation. Even people with bad credit could qualify as subprime borrowers. Fraud on the part of homebuyers and mortgage brokers helped make the mortgage crisis more serious. Mortgage applications were not checked for accuracy as well as they should have been. As long as the party never ended, everything was fine.” (Pritchard, 2011)

As far as the mortgage representatives who were honest; many applications were not examined thoroughly nor was documentation required to prove certain claims on credit qualification. The banks and lenders were more focused on processing as many applications as possible to get more profit instead of making sure every loan was a quality loan.

Now we know the legal issues but what is it that makes this unethical? Part of the issue is that the Mortgage lenders were not 100% truthful with the customers. Since there was dishonesty in the contract many...