Explain Ethical Issues with Subprime Loans

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Ethical Issues with Subprime Loans Student’s Name Institution Date Ethical Issues with Subprime Loans: Blog The term subprime is defined as the credit ability or quality of a borrower who has a destabilized history of credit and a higher probability of defaulting on loan payment compared to prime borrowers. Following the financial crisis that hit America in 2007, much focus has been placed on the subprime lending industry considering the part this industry played in the aforementioned financial crisis. Most of the focus has been directed at the decisions of the lending institutions to offer these loans to people and the ethical issues associated with the total subprime loans. As such, this blog shall explain the ethical issues with subprime loans in three entries. First Entry: A summary of the concept of subprime loans and the risk they pose to the borrowers or lenders. The subprime lending created a new foundation of prospective profits for the lending institutions while creating investment opportunities for individuals with a destabilized history of credit worthiness. This concept allowed these people to obtain loans that were beyond the reach (Watkins, 2011). The most common form of subprime loans is the subprime mortgage. These loans are given at higher interest rates by the lending institutions with the aim of reducing or diluting the risks of losses, in the case of default in payment (Gilbert, 2011). Borrowers that are included in the category of subprime borrowers are considered to be those with a score of less than 600. Further, in most cases, the loans are first given at a teaser rate which usually reset after two years at an increased rate. This

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