In 2007, Countrywide was the largest provider of home mortgage loans in the world. Countrywide specialized in so-called subprime mortgage loans that allowed homebuyers with relatively low credit scores the opportunity to qualify for a mortgage by paying a higher interest rate along with a monthly premium to insure the loan in case of a default. One of Countrywide’s mortgages featured

“teaser rates” that made initial payments artificially low. Nearly 50 percent of Countrywide’s customers ended up defaulting within one year of when the teaser rate adjusted upward. Several customers filed complaints with regulatory authorities contending that Countrywide never disclosed that the payments would increase so dramatically and applicants relied on Countrywide’s judgment that they could afford the loan.

CASE QUESTIONS

1. Does Countrywide have an ethical obligation to not make risky loans?

2. Does Countrywide have an ethical obligation to verify the income of its loan applicants?

3. What ethical duties do applicants have when applying for a loan?