Problem: Baseball Bats Encourage Subprime Loan Approvals
Maggie Hardiman cringed as she heard the salesmen knocking the sides of desks with a baseball bat as they walked through her office. Bang! Bang "‘You cut my [expletive] deal!'" she recalls one man yelling at her. "‘You can't do that.'" Bang! The bat whacked the top of her desk.1
Hardiman was an appraiser for New Century Financial in 2004 and 2005. Her job was to weed out bad mortgage applications. She says most of the applications she reviewed had problems, but if she turned them down, "all hell would break loose" and "her bosses often overruled her and found another appraiser to sign off on it." She says the pressure to approve loans was immense: "The stress in the place was ungodly. It was like selling your soul." Hardiman says she was fired for refusing to approve weak loans.2
New Century was the nation's leading specialized subprime mortgage lender in 2006 with $51.6 billion in loans. To achieve that volume, New Century and others often sold subprime mortgages with "teaser" adjustable rates to Americans with poor credit. Then when housing values began to fall and adjustable rates went up, many new homeowners were unable to make their payments. New Century filed for bankruptcy protection in 2007, laid off over 5,000 employees, and admitted it underreported the number of bad loans it had made.3
Question
1. Do you think the pressure to produce-to approve weak loan applications in this instance-that Maggie Hardiman says she faced is routine in American business practice, or was this episode an exception to the norm? Explain.