Discussion 200 words with 3 Responses reply See the Attachments for details

Please answer the below question 200 words and give responses 50 words for each response

Discussion Question

Read Ethical Dilemma: Which ARM Should You Choose – The Left or the Right?

What should Alan do?

How would you handle this situation if you were Alan?

Should the OptARMs be called HARMs (Hopeless Adjustable Rate Mortgages)?

Please give responses at least 50 words for each post

Post1:

I I believe that Alan is in a tough spot, but I feel that Alan should be upfront with his customers on the downside of these types of mortgages.  If Alan does not educate the customer on these types of loans, most customers would simply pay the minimum payment each month which would result in negative amortization.  Negative amortization would occur when a payment is made but it is not large enough to cover the total amount of interest due each month.  The result would have that leftover balance add to the loan balance.  If I were Alan, I would want to ensure that the customer had all of the details and I would also worry that if I did not disclose all of the information that I could be out of compliance with the Truth in Lending Act or apart of the fairly recent Qualified Mortgage Rule.  The Qualified Mortgage Rule was put into place after the housing crash of 2008 and it requires lender to verify that the borrower has the ability to repay the loan via tax returns, W2s or 1099s (Rotter, 2020).  I don't believe they should be called "Hopeless" because I feel that in the right situation, these types of loans can be very beneficial for the customer.  For example, a household that has income that is seasonal may want to look at this option so they can pay more when cash flow is good but also have the option to pay less when they are out of season.  

Response: ?

Post 2:

I An adjustable-rate mortgage (ARM) is "a loan with an interest rate that changes." ARMs may start with lower monthly payments than fixed-rate mortgages, but it's important to keep in mind your monthly payments could change. They could go up, sometimes by a lot, even if interest rates don’t go up. Your payments may not go down much, or at all, even if interest rates go down. You could end up owing more money than you borrowed— even if you make all your payments on time.

The facts of this case clearly indicate that the company is playing foul with the option ARM

mortgage loan in order to secure future revenue. Apparently the CEO and the FIFO company policy seem to support this scheme. Alan is therefore drawn into an ethical dilemma given the fact that he understands the malice behind the mortgage package. He has to make a decision to stand with the truth and risk possibly losing his job or be part of the foul game. The principles of

ethics do not give room for such malicious acts. It is therefore advisable that Alan should uphold the ethics principle. He should approach management and inform them of the implication of the option ARM for the reputation of the company. Most importantly he should tell the customers all the facts of the ARM loan package so that they can make an informed decision.

If I was in Alan’s shoes, I would have resolved to stand with the truth right from the coining of the loan package. I believe this would position me in the best way so that I do not look rebellious to the company.  I would have equipped myself with facts of the loan, possible devastating effects on our customers, and the likely implication on the reputation of the company. I would have tried to establish the rationale for my opposition of the ARM mortgage loan. Particularly I would have sought to prove to them that the reputation of the company is far much important for future survival of the company as opposed

to the short term benefits that the option ARM might deliver to the company. In the event that

the company would not have taken my advice, I would have chosen to give all the necessary

information to the customers so that they make their informed decision. At worst, I would have

opted to resign rather than be part of a malicious plan that would most likely tarnish my reputation making it hard for me to secure employment elsewhere

Response: ?

Post 3:

Alan has been put in a hard ethical dilemma on whether he should choose to accept his CEOs advice of only sharing the required information by law, or to be transparent with his customers on the potential pitfalls and risks of OptARM policies.  If I were Alan, I would not promote this mortgage option to my potential clients because I would feel responsible for their financial well-being.  If they were to lose their home a couple years into the loan because of default payments once they spiked, I would have guilt from that transaction.  The homeowner's option adjustable rate mortgage (OptARM) misguides borrowers and lures them in with a low-payment option, which is then a bait-and-switch to a higher monthly payment which can be unattainable for certain household incomes. I agree that OptARMs should really be nicknamed HARMs and not be promoted by FIFO.

Alan should discuss his concerns with other senior leadership, potentially his direct supervisor or manager, around his worries for misguiding customers who are disadvantaged.  He should also bring up that he has some suggestions for modifications to the OptARM mortgage policy to include more information that clearly outlines the risks and pitfalls associated with this type of loan.  According to Caplin, Feldman, Gibbs, Lee & McGirt (2003), "these loans work best for borrowers who know their income will rise by the time higher principal payments kick in or those who have the discipline to periodically prepay principal." It would be beneficial that when Alan works with borrowers, that he can share tips like this to compare conventional loans vs. ARMs so borrowers can make the best financial decision for their mortgage.  If no progress is made with leadership and updates to the policy, a last resort option for Alan is to look elsewhere for work (preferably at a more ethically-driven lender) since he is not fully invested in the company.

Response: ?