Ethics

Introduction The subprime lending crisis was a set of financial events that ultimately became one of the major catalysts in the great recession that followed. It also cause several banks to go under, and froze credit markets that inhibited business and consumer clients in the United States and across the globe. There are plenty of areas to place blame for the crisis. The culprits include consumers, credit rating agencies, regulators and the government. Perhaps the biggest blame was directed towards financial institutions that actually wrote these riskier loans. The combination of less stringent standards and higher risk lending products proved to create a housing bubble that burst in the most catastrophic proportions. There are several questions surrounding the crisis. Did the acts of financial institutions prove to be reprehensible, and should their social responsibility extend much further than what the public saw? Were profits the only concern of the corporations? Did the financial institutions lack a high level of corporate accountability to its stakeholders, including the community atlarge? These questions are examined to uncover where the problem occurred, as well as to determine a level of fault that should be placed on financial institutions. Background The most recent United States housing bubble began in the mid-1990’s, when the community investment act underwent reforms to reduce the costs and compliance burden that agencies faced under the current act. It also promoted several changes to banks’ credit policies in an effort to drive more home sales in the inner cities and rural communities. At this time Fannie Mae was able to receive affordable housing credits for buying subprime mortgages. This allowed Fannie Mae to easily meet the requirements set forth by HUD to buy a portion of

affordable housing mortgages made to the underserved community. It was anticipated that Fannie Mae would continue to impose high lending standards on subprime lenders....