...financial collapse of 2008 with the political effort to expand home ownership to those people who were not qualified under traditional market constraints (Yandle, 2010, p.346). Nevertheless, the attractiveness of the subprime loan market to brokers cannot be denied as the significant growth of that market between the years of 1994 and 2008 was accompanied by an increase in wealth for many lenders. The greatest growth occurred between 2004 and 2008 after the passage of the Community Reinvestment Act and the American Dream Downpayment Act. (Jennings, 2009, p. 434; Yandle, 2010, p. 347). First, let us discuss the ethical shortfalls of the lenders. As the standards for mortgage constraints were relaxed as a result of political pressure on Fannie Mae and Freddie...
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...Urban Development policy, Reinvestment Act, and the Federal’s low interest rate policy. These were the incentives that the government provided that ultimately caused the economic crisis of 2008. During the mid-1900s the government set up regulations to help Americans own homes and this made it possible for lenders to lend money to everyone, regardless of income. This was the American dream that people work so hard for. So when it was made possible by the government regulations, there was no stopping Americans from jumping on that wagon. The home owing process was made possible by HUD (Department of Housing and Urban Development) regulations that required lenders like Fannie Mae and Freddie Mac to accept loans with little or no interest down (Pozen, 2010, p. 28). The loans held by Freddie Mac and Fannie Mae went from 25% in 1990 to 45% in 2001 (Gwartney et al., 2008, pg. 481). They owe about half of the United States’ mortgage markets. Then there was the Reinvestment Act that reduced the conventional lending standards to meet the requirement for banks, as Pozen stated, “to extend loans in proportion to the share of minority populated in their market area” (p. 8). The Reinvestment Act allowed banks to loan to the lower income neighborhoods. These were neighborhoods that can barely keep up the cost of living. This act made it possible for people with little or no money to buy homes that they could not afford or would never had...
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...Angelica Olivarez 430 ethics Fannie Mae Accounting Scandal 2001 Ethics is based on how people should act through well-based standards. Ethics on the other hand, does not describe the way people actually act. Ethics is a prescriptive term in which people should always aim to make the right decision. Those who act on ethics do not rationalize their actions founded own perceived self-interest. The accounting profession has its own understanding and framework of ethics. Accounting applications of ethical reasoning can become a common dilemma faced by auditors, internal auditors and all others who work in the business field. For example, The American Institute of Public Accountants (AICPA) Code requires CPAs to place the interest of the public first. To place the interest of the public first means that CPAs should not place themselves, their client or their employer’s interest above the public. Many business dilemmas involve managers, CPAs, and/or top management who have placed their interest above the public’s interest. An example of an accounting and business dilemma where the public interest was not placed first is Fannie Mae accounting scandal in 2001. Fannie Mae is the Federal National Mortgage Association, a government supported entity that assist lower and middle income Americans to buy homes. The Federal Home Loan Mortgage Corporation (Freddie Mac) also assists lower and Middle Americans to buy homes. Both supported entities gain special treatment and “aimed to increase...
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...established the HOLC, which was designed to slow down the quickly rising foreclosure rate. Under this act, long-term self-amortizing fixed rate mortgages became the new norm. The second act in the New Deal was the National Housing Act. The FHA was created in this act. This protective measurement was used to help the lenders maintain foreclosed homes by adding automatic insurance payments to active loans. The FHA also expanded the use of a fixed rate long-term home loan. In 1938, the American government formed Fanny Mae to provide a secondary market for home mortgages. This secondary market gave lenders the opportunity to sell mortgage notes to fanny when the bank needed funds for new mortgages. Up to 1938, all mortgages were privately owned. With the addition of the secondary market, both private and government agencies bought bundled bank mortgage packages. This secondary market also provided lenders with cash to fund additional home loans. There were no new changes in Fannie Mae In...
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...Tania Ibarra September 10th 2013 Phil 305 Over the past years, banks have played a major role in the economy. A role big enough that made Americans feel an obligation to own a home. The American dream of home ownership has been greatly affected over the past years because of the financial crisis in regards to the housing market. In 2009, President Obama reopened the issue about the crisis in the housing market aiming specifically for companies that took advantage of the financial crisis. Those companies, better known as Fannie Mae and Freddie Mac made huge profits because it was easy enough for them to risk bets by buying mortgages. When people bought houses they could not afford, banks took those individuals’ situation and gave mortgages out to those individuals. When the amount of mortgages starting increasing, and people starting losing their homes, earning bad credit, and losing their jobs, president Obama decided it was time to take action. The Glass- Steagall Act was built on a firewall between investment and owning. The purpose of it was to prevent commercial banks from interfering with the banking investment business. It was believed that banks were too involved in investments, which risked the costumer’s money. Since banks had a huge amount of money, they would risk it in investments, making those investments not so leverage. It was when banks started giving out more and more loans and shifting money from one place to another, the Glass- Steagall Act went into...
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...The Woman, The Myth, The Legend: Mae West—American Woman Abstract Born Mary Jane West in 1893, Mae was a strong, vivacious woman whose career spanned vaudeville, the small stage, The Great White Way and the silver screen. She is known for her over-accentuated figure and use of double entendres. Born the daughter of a prize fighter and immigrant, she grew up in the city of New York. She was doted on, as well as encouraged, by her mother, Tillie. She began performing at the age of four and was soon on stage where she came to life. She rarely attended school; getting her education on the stage instead. She became sexually active at a young age and learned to use her sexuality in her acts. After a number of years on stage and touring with various troupes, Mae began composing her own material. With the help of a writer, she produced a number of plays, many of which never made it to production. She always insisted on having control over her parts and lines, sometimes infuriating directors. Night After Night, her first movie, was her first foray in Hollywood and had her rewriting the entire role from its original version. The writer and director were against it, but Mae convinced studio heads to test both versions. They all agreed that Mae’s revisions were the way to go. While not a starring role, she stole the show as the hatcheck girl says to her, “Goodness, what beautiful diamonds,” Mae responds, “Goodness had nothing to do with it!” Mae continued making movies with constant...
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...Dodd-Frank Act and The Consumer Protection Agency. Finance 5000 Webster University Mr. Smith Patrick Overby Overby41@gmail.com/ 915-540-1267 Spring 2 2015 INTRODUCTION The Wall Street Reform and Consumer Protection Act or the Dodd-Frank Act was signed into law in 2010 due the financial collapse of the economy. It provided regulatory protection for the consumer and oversight on how banks issued loans. It provided a blueprint for how to approach to resolving the challenges that the financial markets can create. The framework of the law resembles The New Deal in the 1930s because of the Great Depression. The reforms implemented by the Dodd-Frank Act will have far-reaching effects on the financial system and our economy. The Dodd-Frank Act allows company stockholder to determine the type of compensation packages of that management receive. Businesses must create a committee to assess and decide the amount awarded to their leaders. There are myriad of viewpoints towards Dodd-Frank from the detractors and proponent of the law. Individuals who are against the law believe that it is inflexible and will hurt businesses. The supporters of the law understand that this will limit the power of the financial institution. Dodd-Frank Act In 2008, the country was going through one of the worst financial crisis in history that resembled the Great Depression of the 1930’s. It not only affected the U.S. but also threatened the total collapse of large financial institutions...
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...House Republicans scoffed at Obama’s suggestion to fund the jobs proposal by raising taxes on high-end earners, private jet owners, and oil and gas companies. They gently rejected his call for extending unemployment insurance benefits without the promise of reform. They compared the president’s infrastructure bank program to embattled financial institutions Fannie Mae and Freddie Mac, describing both as black holes for tax dollars. That’s not all. Anything that looks like the 2009 stimulus law won’t fly either, so more than $45 billion for rehabilitating schools and homes is essentially dead on arrival. “I don’t believe members are going to be interested in pursuing that,” House Majority Leader Eric Cantor (R-Va.) told reporters Monday. “I’m certainly not. There are perhaps laudable goals behind all the proposals, [but] the fact is we don’t have the money. And we’ve got to prioritize. And right now, it’s about getting people back to work.” The surest bet is Obama’s $240 billion proposal to slash the payroll tax in half for workers and employers. Republicans are increasingly questioning whether the tax holiday actually creates jobs, but if they oppose it, they could be blamed for a tax hike next year once the current holiday expires. This could be a significant win for the president. But a different tax provision — Obama’s $4,000 tax credit for employers that hire the long-term unemployed — probably isn’t likely to pass, as Republicans signal a coolness to the idea...
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...How has the company chosen to improve its knowledge of customers and therefore its decision making? Analyze the management, organization, and technology dimensions of the solution. HSBC, as with other banks, took advantage of many poor consumers looking to own their own home. These consumers had low credit scores, are in default or have low income, which means there was a higher probability of them not paying back the loan. These banks took advantage by not explaining the entire process of how the amount will double and the interest rate will become adjustable after a couple years. This led to many subprime mortgage loan holders to not meet payments and eventually lose their home. Because of this HSBC was one of the first banks “announce a billion dollar write-off linked to its exposure to subprime mortgages.” (Modell) HSBC improved one way by advancing their technology. Data is collected and sent to one team of specialized individuals who make sure that all is correct for approval. HSBC also implemented a new process using Experian-Scorex decision support software. This new software will help HSBC with their decision making process. It “allows HSBC to identify the value of each customer and create tailored product packages.” (Finextra) George Lennox, a senior manager at HSBC, stated “Strategy Management will undoubtedly become an integral part of our business and we expect that it will make more than 50 billion customer decisions annually for us as we roll it out across...
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...Countrywide Credit Industries in New York. Their goal was simply to provide home loans nationwide. They eventually opened more establishments in other major cities in the United States. Success seemed inevitable as they rose to the top of the loan industries and went public in selling trade shares. They acquired the Treasury Bank N.A. that they renamed Countrywide Bank FSB in 2001, and then renamed again the following year as Countrywide Financial Corporation. Their decent became more apparent in 2007 just a couple of years before they sold out to Bank of America. With the astounding numbers of mortgages in default, a general liquidity crisis unfolded before the public in 2008. The walls began to come tumbling down when losses at Fannie Mae and Freddie Mac began to mount and the American Insurance Group announced that they were unable to back the guarantees. The values of securities against loans were losing value. It was indeed catastrophic to the financial loaning institutions involved with the housing market crash that year. Their strategies of granting subprime mortgages backfired terribly. Having given out loans to so many borrowers with low credit scores and little money for downpayments came back to bite them on the backside bringing their kingdom down and forcing them to sell out. The relaxed standards used by the organization proved to be a failure in the end. Though home ownership increased, so...
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...Fannie Mae and Freddie Mac Fannie Mae and Freddie Mac are private corporations that were established by Congress and are referred to as government sponsored enterprises or GSEs. They are the largest “packagers” of individual mortgages into mortgage backed securities (MBS) which they guarantee against loss. We will be addressing the following threats to your financial institutions stability. Counterparty risk. Internal and external vulnerability and threats. Stemming the tide of losses from overly aggressive practices in lending continues to retard the marketplace and has yet to reach equilibrium. The use of macro measures is of critical importance in returning the company to profitability. \ The use of Macroeconomic Measures, Using Aggregate Data. These measures approach threats to financial stability from the top down: Is aggregate credit growing too fast? Are credit underwriting standards falling? Are asset prices too high relative to fundamentals? “In an internal boom-bust cycle, an initial market upswing entices new investors and rising prices until additional capital or investors’ nerves are exhausted.”(Evanoff, Kaufman, and Malliaris, 2012). “This process can be amplified by capital rules that encourage banks to increase leverage when the economy is expanding and loan losses are low.” (Hanson, Kashyap, and Stein, 2011). “In the ensuing bust, a credit crunch can occur as participants switch from lending too much to lending too little.” (Brunnermeier, 2009). A selling...
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...Racism is defined as the poor treatment of or violence against people because of their race. In America, images of slavery and the Civil Rights Era would quickly display that racism is a topic from our past. However, the second part of the racism states that it is a belief that some races are better than others. The belief component of racism is still a major factor in our society. Images of these racial beliefs cannot be googled, but the current conditions of minorities are always captured in images of run-down communities and violence. These images create a belief amongst Americans and other nations that minorities (particular African Americans) are low-grade people. Racism shows its face in many areas, but in more of a subtle way. It is so subtle that many may think it does not still exist. Many people would be greatly insulted if they were accused of being a racist. The injustices are so great in number that it becomes a natural way of life for generations of minorities. In comparison, whites have inherited such an entitlement for success that it’s their natural way of living. In a time when we have elected the first African American president, it is obvious that progress has occurred. That indeed is true. Progress does not mean elimination. Racism has not been eliminated from this generation, it just looks different. African Americans may not have to endure slavery or segregation laws, but racial injustices are still a constant. Racism is not a thing of the...
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...The sub-prime crisis has led to a financial crisis in 2008 to 2009 that impacted many countries around the world. Discuss the causes of the sub-prime crisis and the major parties responsible. Many parties were responsible for the sub-prime crisis during the period of 2008 to 2009. This essay will be discussing the parties responsible for the sub-prime crisis and how the different party’s action causes others to go deeper into the bad situation. Sub-prime is a course of action of borrowers with a defamation or deficient record. Moneylenders will utilize a prestige scoring framework to close which credits a borrower may fit the bill for. Sub-prime credits convey more credit danger, and in that capacity, will convey much higher investment rates also. The US sub-prime home loan emergency was the catalysis of the discriminating emergency and later cause the subsidence that started in 2008. The reason for sub-prime emergency rise up out of sub-prime credits or otherwise called sub-prime home loan, the improvement of this credit began broadening amid the 1990s and such weight is ordinarily seen in programmed auto advances, home value which are lodging credits and home loan giving. Sub-prime credits are higher-danger advances named B to D credits, where D credit being the most noticeably awful credit which brings about a higher investment rate, which additionally mean a higher danger to the banks. Anyhow it appear to be not to be a load issue, from the notion of the finical organization...
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...quarter of 2008 Lehman’s stock value decreased by 73% due to exorbitant losses which in turn led to 1,500 employees becoming unemployed. Lehman’s stock value decreased further when propositions for the Korean Development Bank to buy the struggling bank fell through. As a result of a steadily declining market value, “Swiss Re estimates its overall net exposure…as approximately CHF 50 million.” In addition to the foreign markets, U.S. investor confidence diminished causing the S&P 500 and the Dow Jones to plummet in September 2008. Due to the size of the bank, its collapse has been accused as the major force behind the downward spiral of economies, domestic and foreign. Had the U.S. government assisted Lehman Brothers as it did with Fannie Mae and Freddie Mac and AIG, investor confidence across the globe may not have faltered as it did which in turn would not have negatively impacted the world markets. On the other hand, if the government had assisted Lehman the question comes to mind as to who would foot the bill for such a massive bailout? The government already provided AIG alone $85 billion in federal assistance. This movement put a bad taste in the mouths of individuals due to AIG’s upper management awarding themselves with lavish bonuses and vacations after the bailout. It was also believed that Lehman Brothers was “too big to fail” and with such an air of arrogance and AIG’s discretionary spending of the government loan, the government most likely was trying to make an example...
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...Introduction What provoked the largest financial crisis since the Great Depression? The answers include a diverse array of immediate and deeper causes in the housing and financial sectors of the U.S. economy. While the recessions initial spark was found in housing, U.S. government policy in addition to careless behavior on the part of both lenders and borrowers, along with poor corporate governance can be linked to the massive subprime loans that ultimately turned into the subprime crisis. Self-interest by subprime lenders and Government Sponsored Entities (Fannie Mae) are also liable for escalating the crisis. Among these factors, here I will mainly discuss three principal causes that have come to my attention; the housing price bubble, poor governmental oversee, and the subprime mortgage-lending boom that it fed. The Housing Bubble: From 1980 to 1997 the real price of housing in the United States had remained relatively stable. After controlling for inflation and differences in house size and quality, we still see that the average price of a home in 1997 was only 2% more than the average price one century earlier. This flat trend had ultimately ended beginning in the late 1990’s and early 2000’s. When the housing prices had peaked in 2006, the average price was close to twice the long-term average price from 1980 to 1997. Only six years later did the price return the long-term trend (Shiller Housing Price Index). The origin of the housing bubble is much similar...
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