This module described various predatory practices by businesses. Using scholarly resources, describe some specific examples of predatory practices. Should the debtor or borrower bear some responsibility, at least in some instances? Explain why or why not?
Predatory business practice is an unethical, predatory approach that a business undertakes to control the market or maximize profit. There are several predatory practices in play today like predatory lending, predatory mortgage servicing, predatory borrowing, predatory pricing etc. For this short paper, predatory lending will be discussed in detail.
Predatory lending: predatory lending is “imposing unfair and abusive loan terms on borrowers” (No Author, 2006). The borrowers are induced into agreeing loan terms that are difficult to defend.
Predatory lending in home mortgages: The whole process of predatory lending in home mortgages begins with subprime loan, a type of mortgage made to borrowers with poor credit card rating. These borrowers are more like to default on a loan and lenders use this as a reason to charge them higher interest rates based on credit risk rating and in some case the lenders charge excessive interest rate than it is required. Due to their history of default and their poor credit histories, these borrowers qualify only for subprime loans. Predatory lenders sometimes inflate the value of the property in order to qualify the borrowers with poor credit history. The subprime loan, handed out without any regard for the debtor’s ability to repay, usually uses home as collateral. In cases where the monthly mortgage payments exceeded the debtor’s monthly income, foreclosure of the property was inevitable.
Another type of abusive tactic that the lenders use is cal...
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... Deposit Insurance Corporation (FDIC), Department of Housing and Urban Development (HUD), and Office of Thrift Supervision (OTS) have conducted and funded initiatives to raise consumers’ awareness of predatory lending practices. Government strategies along with consumer awareness are only way to combat predatory lending practices pursued by unscrupulous lenders.
References:
No Author. Federal Deposit Insurance Corporation, Office of Audits. (2006). Challenges and FDIC efforts related to (06-011). Retrieved from FDIC Public Information Center website: http://www.fdicoig.gov/reports06/06-011-508.shtml
Larson, M. D. (2001, July 26). Lenders drop single-premium credit insurance. Retrieved from http://www.bankrate.com/brm/news/mtg/20010726a.asp
Peterson, C. L. (2006, Sep 7). Predatory structured finance. Retrieved from http://www.doanlaw.com/pdf/Securitization.pdf
Takem’s is an appliance store in the state of Virginia serving the residents of the Appalachian regions of Virginia, Kentucky, Tennessee, and West Virginia. The business model which is currently being conducted in the appliance store has been called into question by one of the customers who has recently purchased a computer on credit. The owner of the store, Tommy, is now contemplating what should be done to handle this situation and protect his interest in the future. In this discourse, the author attempts to reveal to the reader the alleged infractions that Takem’s may be liable for regarding the situation with his customer, Ms. Sally
Predatory lending usually occurs when financial institutions take unfair advantage of consumer’s financial needs by extending credit with terms that compensate them over and beyond the credit risk. Predatory lending comes in different forms, but always involve the consumer paying high interest rates and exorbitant fees. Some predatory lending practices include:
The United States Attorney’s Office Eastern District of Pennsylvania. Predatory Lending. Retrieved October 31, 2011. http://www.justice.gov/usao/pae/Documents/predatorylending.htm
Collateral for the defaulted loan. Distressed real estate involves making a distressed purchase. According to Financial Crisis (2011), “[A] distressed purchase is whereby the property owners are usually in a foreclosure/short sale situation.” Foreclosure applies to a residential real estate loan in which a bank or creditor repossesses a home because of nonpayment. The institution will legally possess the right to resell the property as collateral for the defaulted loan. The selling price can be sold at a price equal to or greater than the original loan. The reason distressed properties can be bought at a lower price is the institution has already received a series of payments toward the original home loan. In many situations the lender can sell the house for a lower cost than the normal market value, leaving the buyer the opportunity to make a purchase at a lower selling price than market value and reselling the property at a profit (Demand Media, 2011).
Jake Clawson Ethical Communication Assignment 2/13/2014. JPMorgan Chase, Bailouts, and Ethics “Too big to fail” is a theory that suggests some financial institutions are so large and so powerful that their failure would be disastrous to the local and global economy, and therefore must be assisted by the government when struggles arise. Supporters of this idea argue that there are some institutions that are so important that they should be the recipients of beneficial financial and economic policies from government. On the other hand, opponents express that one of the main problems that may arise is moral hazard, where a firm that receives gains from these advantageous policies will seek to profit by it, purposely taking positions that are high-risk, high-return, because they are able to leverage these risks based on their given policy. Critics see the theory as counter-productive, and that banks and financial institutions should be left to fail if their risk management is not effective.
Leading up to the crisis of the housing market, borrowers got mortgages without understanding the terms. Banks were giving out loans to people the banks weren't sure could pay the money back. The closer to the crisis, the higher the frequency of illegitimate loans and mortgages. Because there were so many mortgages on houses that could not be paid back, millions of mortgages were foreclosed on, and the houses we...
A majority of mortgage defaults that Americans used were on subprime mortgage loans, which were high-interest-rate loans lent to people with high risk credit rates (Brue). Despite knowing the risks, the Federal government encouraged major banks to lend out these loans to buyers, in hopes, of broadening ho...
“Ask why.” This was the slogan for the company Enron—a company riddled with corporate crime. The documentary Enron: The Smartest Guys in the Room describes the corrupt practices of this once seventh-largest company in the United States. Examining this film allowed me to “ask why” this company engaged in these criminal practices, and why corporate crime exists, in general. Currently, there is no real theory attempting to explain white collar crime, so instead, in this essay I will be looking at 5 different factors that I believe are helpful for understanding corporate crime including: corporate culture, the drive for profit, the structure of organizations, socialization and learning, as well as a motivated and persuasive leader.
An Explanation of Corporate Crime This analytical source review will analyse and detail the views and opinions of four different sources including: The sociology of corporate crime: an obituary, Corporate Crime, Corporate Crime at the tip of the iceberg and White Collar and Corporate Crime. The topic this review will be primarily concerned with is corporate crime, the topic will be examined and the notion of ignorance towards the subject will be addressed. However in order to research and provide a review on the subject in hand a brief definition of corporate crime is required. White collar crime and corporate crime are referred to as the same subject however, Gary and Slapper argue that the term white collar crime should be restricted to the study of crimes by the individually rich or powerful which are committed in the furtherance of their own interests, often against corporations for which they are working.
The subprime mortgage crisis is an ongoing event that is affecting buyers who purchased homes in the early 2000s. The term subprime mortgage refers to the many home loans taken out during a housing bubble occurring on the US coast, from 2000-2005. Home loans were given at a subprime rate, and have now led to extensive foreclosures on home loans, and people having to leave their homes because they can not afford the payments. The cause and effect of this crisis can be broken down into five major reasons. When subprime mortgages began to flourish, the term housing bubble came into existence.
Author Unknown (1994). The Federal Reserve System: Purposes and Functions (5th ed.) Published by Library of Congress
Mortgage loans are a substantial form of revenue for the financial industry. Mortgage loans generate billions of dollars in the financial industry. It is no secret that companies have the ability to make a lot of money by offering a variety of mortgage loan products. The problem was not mortgage loans but that mortgage companies were using unethical behavior to get consumer mortgage loans approved. Unfortunately, the Countrywide Financial case was not an isolated case. Many top name mortgage companies have been guilty of unethical behavior. Just as the American housing market was starting to recover from its worst battering since the Great Depression, a new scandal, an epidemic of flawed or fraudulent mortgage documents, threatens to send not just the housing market but the entire economy back into a tailspin (Nation, 2010).
Klevorick, Alvin K. "The Current State Of The Law And Economics Of Predatory Pricing." American Economic Review 83.2 (1993): 162. Business Source Complete. Web. 15 Apr. 2014.
The movie “Glengarry Glen Ross” presented a series of ethical dilemmas that surround a group of salesmen working for a real estate company. The value of business ethics was clearly undermined and ignored in the movie as the salesmen find alternatives to keep their jobs. The movie is very effective in illustrating how unethical business practices can easily exist in the business world. Most of the time, unethical business practices remain strong in the business world because of the culture that exists within companies. In this film, the sudden demands from management forced employees to become irrational and commit unethical business practices. In fear of losing their jobs, employees were pressured to increase sales despite possible ethical ramifications. From the film, it is right to conclude that a business transaction should only be executed after all legal and ethical ramifications have been considered; and also if it will be determined legal and ethical to society.
Ritter, Lawrence R., Silber, William L., Udell, Gregory F. 2000, Money, banking, and Financial Markets, 10th edn, USA.