Subprime Restrictions that Helped You

Indicate the measures that have been taken since that time to assure this will not happen again.

The last two blogs talked about what subprime loans where and how they affected borrowers and a leader’s social responsibility.  In this blog, I will discuss how lenders were regulated to prevent issues like this from happening in the future.  The first thing that happened is that the public was made aware of this problem.  This gave the borrower a chance to make smarter decisions on what they were intending to purchase. Banks where now restricted from proprietary trading and other forms of investments through The Volcker Rule which was called section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Schaefer, 2012).  This was a very important action that took place Banks were notified through law that they could be regulated if they continued to my poor business and ethical decisions in the pursuit of financial gain.  This law that was passed helped borrowers in the long run because it forced leaders to do the socially responsible thing and protect the borrowers from reckless loan purchases that they could not pay back with high interest rates.  The next update to subprime loans will discuss an interesting notion that was explained in a paper written by Ernst, Bocian, and Li, 2008 who suggest ways that borrowers can protect themselves from loans with high interest rates, and what lenders could do to protect themselves from another crisis. According to Ernst et al., both parties should adjust their agreements to three things:  1. Eliminate yield spread premiums and prepayment penalties on subprime loans; 2. Strengthen accountability of lenders and investors; and 3. Establish fiduciary responsibilities for brokers.  In my opinion, these things mentioned will help lower interest rates so that borrowers could maintain their monthly payments. These methods can help strengthen a lender’s brand by making them socially responsible through accountability of their actions.  Most importantly, it is my opinion, that these methods could potentially bridge the gap between an ethical leader and his ethical decisions making that must be done in business.

Subprime CSRBad Loans…Baaad Loans

Ernst, K., Bocian, D., & Li, W. (2008). Steered wrong: Brokers, borrowers, and subprime loans. Center for Responsible Lending, 8.

Schaefer, S. (2012, April 19). Regulators: Banks have until July 2014 to comply with Volcker Rule we haven’t written yet. Forbes. Retrieved from http://www.forbes.com/sites/steveschaefer/2012/04/19/regulators-banks-have-until-2014-to-conform-to-unwritten-volcker-rule/

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