Dealing with subprime loans, business and finance homework help
http://www.csun.edu/sites/default/files/royal-bank… (THIS IS THE CASE)
Main Question: Finally, Mary is concerned over the potential ethical dilemma of lending substantial amounts of funds to customers who have demonstrated an inability to manage their finances, or to not lend to them and deny an opportunity to move forward on home ownership. Is it ethical or not to extend loans in the subprime market?
I want help on the “Tucker Rule”: Explain how each one can be answered. There is no right or wrong answer, it is ethics and a very grey area.
- Profitability
- Legality
- Fairness
- Impact on rights of stakeholders
- Impact on environment
Some of the notes I have gathered, but maybe reading the case will be helpful.
- Facts: Subprime loans are used for people with lower credit scores. Granting subprime loans is generous and allows homeowners who cannot afford to pay off a regular loan have one, however it is a risk because banks may not be able to make a return on their investment.
- Issues: Does the good in giving these loans for homeownership positively outweigh the financial and economic risk.
- Stakeholders: Banks, Homeowners/People looking to own one, the economy and system as a whole (needs to be more descriptive)
- 4.Possible Solutions:
- -don’t give subprime loans
- -keep giving subprime loans
- -create a certain discretion to giving subprime loans. So maybe to a certain point so it is balance
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