Loans R Us was the largest provider of home mortgage loans in the US. Loans R Us specialized in subprime loans that allowed potential homebuyers with low credit scores the opportunity to qualify for a mortgage by paying a higher interest rate and insurance on the loan in case of default.
Loans R Us featured loans with “teaser-rates” which made initial payments artificially low for the first year. Once the teaser rate was adjusted upward to the normal rate, about half of the Loans R Us borrowers defaulted.
Several borrowers filed lawsuits against Loans R Us for:
-Failing to disclose that the payments would rise when the rates rose and
-That the borrowers relied on Loans R Us’s judgment that they could afford the loan.
1. Does Loans R Us have an ethical obligation to refuse to make risky loans to consumers? Why or why not?
2. What ethical duty does an applicant have when applying for a loan?
3. Could Loans R Us’s program offering mortgages to people who could not otherwise buy a home be construed as being socially responsible? Why or why not?