TOLEDO, JERRY D.

MSFIN230

CRISTINA RODRIGUEZ CASE

1. Why would a bank consider making a mortgage loan or home equity

loan to a homeowner who could not make the scheduled loan
payments--wouldnt this end up hurting the bank?

Because banks are confident that they can transfer the credit risk from those
homeowners or borrowers that could not make the scheduled loan payments
to other party. During that time, banks can sell the loans, regardless of the
creditworthiness of the borrowers, to investment bankers or government
sponsored enterprise transferring the credit risk and the same time earning
commissions and fees for every loan approved. Hence, the more loans
approved the more commissions and fees collected by the banks.

2. After considering Cristinas likely motives, incentives and behavior,

do you believe she had conflicts of interest that were so serious she
would knowingly recommend loans that were harmful to her clients
interests? Explain your answer.

Cristinas compensation structure which is commission-based created

conflicts of interest. Her income went up for every additional loan referred by
her and approved by the bank. She is more concerned on the number of
approved loans rather than the credit-worthiness of borrowers creating
conflicts of interest on the impression that she acts as advisor. Cristina was
also the top employee in terms of loan approved, hence, the pressure to be
on top. Cristinas ethical and professional also deteriorated. Over time, she
came late to her talking engagements with BU and answered her phone for a
potential client while the program is ongoing. These acts of Cristina implied
lack of respect to her audience.

3. Cristina likely understands the risks and benefits of home equity

loans much better than most of her clients. Do you think that
finance professionals such as Cristina have an ethical obligation to
only recommend financial products that they believe will benefit
their clients? Explain your answer.

Yes at all times. Cristina, being an Advisor, is expected to act with

professionalism and ethics at all time. Being professional and ethical means
disclosing the benefits and corresponding risk of a certain financial product or
services being a holder of more information. An act of dishonesty by Cristina
can ruin her reputation as an advisor and in general create distrust to the
whole financial industry. This is the very reason why controls against self-
serving practices and conflicts of interest should be created.

4. Whatever are Cristinas motives, do you think she is guilty of

breaking predatory lending laws? Explain your answer.
 Predatory lending is any lending practice that imposes unfair or abusive loan
terms on a borrower. It is also any practice that convinces a borrower to
accept unfair terms through deceptive, coercive, exploitative or unscrupulous
actions for a loan that a borrower doesnt need, doesnt want or cant afford 1.
Some of predatory practices include Emphasizing the Inadequate Disclosure,
Payment, Balloon Loans, Packing, Excessive points and Fees and others 2.
Based on the above definition example, I believe that Cristina is guilty of
predatory lending practices. Christinas failure to fully disclose the true costs
and risks of loan transactions constitutes to Inadequate Disclosure. However,
with limited facts in the case, these may not constitutes to predatory lending.
Ultimately, the question as to Cristina is guilty of predatory lending is base on
specific laws and regulations.

5. Suppose you were in Cristinas situation, with a family to support

and a high pressure loan advisor job. Considering all available
options, and the likely consequences of those options, would you
recommend home equity loans that were harmful to your clients, if it
increased your current annual income? Explain your answer.

It is easy for me to say no being not in the shoes of Cristina, but I would
admit I can possibly do it. Sometimes the pressure to make more money to
help ones family is forceful that one is willing to evade rules and regulations.
However, if this situation becomes more persistent that it will force me to do
it in a regular basis, then I would rather quit the job. Money cant bring back
tainted reputations and buy sleepless nights. At the end of the day, money
should not be a motivation but rather an accessory to bring joy and
contentment to ones life.

6. Suppose you were in Dr. Moores situation, with all of his incentives
and options. Would you consent to the students demand and
prohibit Money Center Bank representatives from recruiting at
future Finance Club meetings? Explain your answer.

Prohibiting MCB representatives from recruiting at future Finance Club

Meetings will have negative impact to MCB in the point of view of the
students. Students will demand explanation on the ban and may trigger
widespread financial run. Moreover, believing to the allegations of the some
students without concrete evidence will put the school and school officials at
jeopardy. As an alternative, I will require the students to make a formal
presentation about predatory lending and use MCBs lending practices as an
example. I will invite academician and other respected professionals with
expertise on ethics for comments and discussion. With the benefit of a
thorough discussion of the issues, students could then make their own
informed decisions regarding where to work and how to treat their future
clients.

1 https://www.debt.org/credit/predatory-lending/

2 http://www.mortgage101.com/article/5-examples-predatory-lending