Assignment #4

-Case-
A DIFFERENT PERSPECTIVE
A DIFFERENT PERSPECTIVE

You work for a mortgage servicing company—making 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 company’s 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 what’s 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 years—
that’s a lot of time to live rent-free while you are saving up funds to move somewhere else—
and 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 it’s 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 decisions—taking too much equity out of
their houses or buying at the wrong time—do 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?