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What Role Did The Accounting Profession Play In The Recent Subprime Mortgage Crisis?

642 words - 3 pages

What role did the accounting profession play in the recent subprime mortgage crisis? What could they have done differently?
In all businesses, accounting is the backbone that holds them together. In stating this, the demise of the subprime mortgage industry lies within the bad practices of mortgage companies, banks and financial institutions. Allowing the lending of billions of dollars to non-credit worthy individuals was a disaster waiting to happen.
During the 1980’s the subprime market comprised of approximately 5% loans and by 2005 they were at a record-breaking 20%. The decisions that allowed the increase of so many subprime loans have put this country in financial turmoil. The Subprime loan market allowed lenders to make loans to non-credit worthy borrowers, which included no-credit or bad credit individuals and those with stated income. These loans were attractive to a vast number of people because it was an offer borrowers couldn’t refuse. The ...view middle of the document...

Low interest rates as well as personal tax rebates are offered to increase the buying of homes. These offers are not included to investment or commercial properties.
Hoping that recovery is soon on the way, the vast number of foreclosures and short sales are still on the horizon. Stricter accounting and credit policies are needed in an ever so populated industry of mortgages....
In companies, accounting is the support system that keeps everything organized. The demise of the subprime mortgage industry lies within the unsafe practices of mortgage companies, banks, and financial institutions. The permitting of lending billions of dollars to non-credit worthy people was a tragedy in the making. In the 1980’s the subprime market consisted of almost 5% loans and by 2005 they were at a record breaking 20%. The decisions that allowed the increase of so many subprime loans have put this country in financial turmoil. The Subprime loan market allowed lenders to make loans to non-credit worthy borrowers, which included no-credit or bad credit individuals and those with stated income. These loans were attractive to a vast number of people because it was an offer borrowers couldn’t refuse. The little to no credit requirements and Interest-only and Adjustable-rate loans made borrowers believe they could live the American dream. The failure of risk management in these cases compromised the securitization of loans and debt obligations. The inability and/or lack of accounting principles have contributed to this country’s financial crisis, not to mention the global impact from defaulting on subprime loans. These issues still play an important role of the finance industry today. Now that the government has had to step in, today, the qualifications for new loans or refinances are strict but not impossible to credit-worthy borrowers. Low interest rates as well as personal tax rebates are offered to increase the buying of homes. These offers are not included to investment or commercial properties. Hoping that recovery is soon on the way, the vast number of foreclosures and short sales are still on the horizon. Stricter accounting and credit policies are needed in an ever so populated industry of mortgages companies, bank and financial intuitions.

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