The real estate industry is a standout amongst the most productive investment industries in the world. The venture has kept growing as a result of increased demand for residential apartments or houses as well as higher values conjecture in the same. This is because when prices of houses rise, it will increase mortgages making consumers spend more on their credit cards. Moreover, the spontaneous growth of this industry has been contributed by the low-interest rates on mortgages as well as the willingness of the banks to loan people to own houses. However, the prices of real estate have kept reducing meaningfully over the years, and this has made individuals who borrowed loans incapable of paying entirely for their mortgages.
Numerous load specialist deceives borrowers in a bid to increase mortgages with not at all accurate forecasts on many industries like real estates. Individuals who borrow on the other hand end up signing this mortgage agreement because they want to achieve their dream of having a house (Yale, 2018). Unfortunately, as a result of hard economic times, for instance, the economic recession of 2008, interest rates keep fluctuating together with other factors collude making this borrower unable to profit for their investment and at the end, they have to pay for this mortgages (Li and White, 2009) .
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This has given rise to an ethical dilemma in this industry. Should this individual who borrow default on their mortgages or are the individuals indebted to pay for their mortgages even though they get less from what they have invested? Are the individuals who borrow bound morally by the contract not to pay as well as default or should the agencies that lend admit defaulting since they convinced the individuals who acquired into signing the contracts initially? For example, take the case of Derek Figg, he purchased a house in Phoenix worth $340,000 whose price has reduced two years later to $230,000 yet he still owes $318,000 the bank in payments.
Stakeholder Analysis
In the ethical dilemma above, the chief stakeholders are the borrowers and the lenders. The lenders are mostly the banks. If mortgages default, it causes foreclosure (Li and White, 2009). This can affect the various stakeholders both positively and negatively. Defaulting is never financially wise especially on the side of the borrower. The negative costs to the individual who borrows if the person defaults on their mortgage are stated below;
The consumer’s credit is ruined meaning that the individual won’t be able to receive as well as access credit from other lending agencies.
If the default is not rectified, the individual may lose future rise on the value of the apartment or house.
The lender may seize the assets as well as the deposits of the borrower to cover for their mortgages. But this is limited to some states.
The individual may be disabled for using the house as a warranty to acquire credit.
Defaulting on making payments can also result to default payments on credit cards (Loose, 2016).
Foreclosure is a negative impact mostly on borrowers. However, it can be operative at the same time as the borrowers get ample time to make enough equity to carry on payments making without going broke. On the other hand, the lenders or lending agencies will earn more as the interest rates will keep accumulating as the borrower takes more time to make the payments. But, lenders can also incur losses especially when the defaults are widespread.
Ethical Analysis
The following ethical theories will be used in analyzing the ethical case and dilemma;
Cultural Relativism
This theory states that morality is relative to an individual’s culture. In the example provided, the culture of America says that you should pay for the money borrowed. Thus, borrowers are morally obliged to pay their lenders.
Teleology
This theory refers to responsibility as well as duties founded on the aims planned to be attained. Paying the loan is the primary goal of taking a mortgage. If I were in the situation of Derek Frigg, I would have personally defaulted. However, individual ought not to serve their interest and should, therefore, pay for the money borrowed. It is morally allowable for home title holders whose apartments do not fetch profitable earnings on the asset to default. This is because they may become bankrupt if they continue making payments which will be counterproductive. Manner matters when it comes to paying money borrowed. The debts can be re-negotiated with the lender. However, this only applies when money is borrowed from an individual and not banks. This is because banks are guided by Banking Acts as well as other monetary statues which generally have high legal consequences.
Conclusion and Recommendations
Borrowers have a legal as well as moral obligation to pay their money owned by their lenders. Therefore, I recommend Derek Figg to carry on paying for his mortgages. I also recommend Koelimann not default.
References
Li, W. and White, M. (2009). Mortgage Default, Foreclosure, and Bankruptcy. [Online]. Available at: https://www.researchgate.net/publication/228181503_Mortgage_Default_Foreclosure_and_Bankruptcy . Accessed 30 th Aug 2018.
Loose, T. (2016). Here’s what Happens when you Default on a Mortgage Loan. [Online]. Available at: https://www.gobankingrates.com/loans/mortgage/what-mean-default-mortgage-loan/ . Accessed 30 th Aug 2018.
Yale, A. (2018). Why High Home Prices and Rising Mortgage Rates Aren’t Stopping Sales. [Online]. Available at: https://www.forbes.com/sites/alyyale/2018/06/05/high-home-prices-rising-mortgage-rates-arent-stopping-sales-heres-why/#75e1e9444cf0 . Accessed 30 th Aug 2018.
