Assignment #4

-Case-

A DIFFERENT PERSPECTIVE

A DIFFERENT PERSPECTIVE

You work for a mortgage servicing companymaking sure that mortgage payments get processed accurately and the funds forwarded to the mortgage holder. Lately your company has been dealing with as many foreclosure notices as payments, and the market is starting to turn in an interesting direction. Customers whose houses are worth 30 or 40 percent less than they paid for them just a couple of years ago are starting to question whether it makes sense to continue to pay for an asset (their home) that may remain upside down for many years to come. They can still afford the mortgage payment they are currently making, but since the house is worth so much less than what they paid for it, they are starting to feel that they are throwing good money after bad.

The companys growing concern over this new phenomenon was the topic of an all-staff meeting earlier this week. Senior leaders reminded everyone that mortgages are a legal contract and that homeowners have a legal obligation to make the payments to which they agreed. After the meeting, however, several of your colleagues shared some of the case histories they are currently working on.

Several common issues are starting to come up with these cases:

Because of multibillion-dollar bailouts for banks, many people see themselves as victims of predatory lending practices with no apparent willingness on the part of the banks that received those bailout funds to help the individual homeowners.

Media coverage of mortgage modification programs is reporting that banks are unwilling or unable to help, so whats the point in even trying?

Because pools of mortgages have been sliced and diced into complicated financial derivatives, no one is even sure who the mortgage holder is anymore.

The foreclosure process is so backed up in many cities that it can take as long as two yearsthats a lot of time to live rent-free while you are saving up funds to move somewhere elseand with so many homes in foreclosure, rental property is attractively cheap these days.

You recall from your business ethics course in college that the elements of trust and consumer confidence in business are built on the belief that each party to a financial transaction has an ethical as well as a legal obligation to fulfill its part of the transaction, but its clear that people are starting to feel that predatory lending practices now give them an excuse to ignore that ethical obligation.

QUESTIONS

1- Which ethics theories are being applied here?

2- If homeowners made poor financial decisionstaking too much equity out of their houses or buying at the wrong timedo the predatory lending practices of the banks and mortgage companies justify walking away from those mortgages?

3- Are homeowners really throwing good money after bad in making payments on mortgages for homes that are worth much less than the mortgage?

4-Would you walk away from your mortgage in this situation? How would you justify that decision?