Rae & Wong, Beyond Integrity, 3rd Ed. (Zondervan) 2012, ISBN: 9780310291107 Review Case Study 11.2 (pg. 483 of the tex
Rae & Wong, Beyond Integrity, 3rd Ed. (Zondervan) 2012, ISBN: 9780310291107 Review Case Study 11.2 (pg. 483 of the text) concerning the subprime mortgage meltdown and Washington Mutual's role in the crash. Then access this story: www.huffingtonpost.com/2009/12/21/at-long-beach-mortgage-a_n_399295.html What went wrong at Washington Mutual and Long Beach Mortgage that enabled employees of both companies to engage in such widespread fraud? The well-written answer for the selected Case will involve some discussion of the following points: â€¢While Washington Mutual ("WaMu") was essentially responding to government pressure to enable more widespread home ownership... â—¦The only way to do so was to set aside rigid adherence to usual and customary credit underwriting practices such that more people could qualify. â—¦Then lenders began introducing lending products that looked quite attractive - with teaser rates which adjusted a year or two into the life of the loan â—¾Accompanied by negative amortization by which the loan amount due got bigger over time, despite faithful payment on note terms. â—¦Brokers encouraged refinances to avoid rate adjustment. â—¦Sales prices and appraisals enable frequently refinances, often with cash out to the borrower - thus the characterization of one's home as an ATM machine from which cash could be obtained. â€¢Then WaMu sold off its loans - ordinarily a reputable practice which re-capitalizes lenders. â€¢But with risky loans and pressure on loan officers to create more and more risky loans, the secondary market became overwhelmed with loans in default. â€¢The student should then identify what, if anything, was unethical in these practices.