Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

As a loan officer for FIFO, Alan's job is to sell loans that generate revenues for the company. Alan has been charged with increasing the

As a loan officer for FIFO, Alan's job is to sell loans that generate revenues for the company. Alan has been charged with increasing the total amount of mortgages sold by FIFO. One of the loans FIFO wants to emphasize is a new mortgage called an option ARM. The primary benefit to the borrower is that the monthly amount paid in the early years of the mortgage can be set so he or she can afford to purchase a house. However, this benefit leads to the primary disadvantage associated with an option ARM. The difference between the principal and interest that would be paid on an equivalent conventional mortgage and the amount paid on the option ARM is added to the amount owed by the borrower. As a result, the borrower generally owes more than the original principal amount when the option ARM converts to a conventional mortgage. When the option ARM becomes a conventional mortgage in three to five years, the monthly payments can increase more than fivefold, which becomes a significant burden to the borrower. If the borrower cannot afford the new, substantially higher payments, then he or she will default on the mortgage and lose the house.  


Discussion questions:  


Is there an ethical problem? 


If so, what is it? Is FIFO's policy about disclosing information to borrowers appropriate?


What would you do if you were Alan?

Step by Step Solution

3.39 Rating (155 Votes )

There are 3 Steps involved in it

Step: 1

1 Is there an ethical problem Yes there is an ethical problem in this scenario The option ARM mortga... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Advanced Financial Accounting

Authors: Thomas Beechy, Umashanker Trivedi, Kenneth MacAulay

6th edition

013703038X, 978-0137030385

More Books

Students also viewed these Finance questions

Question

x3-6x2-

Answered: 1 week ago