Question

Alan recently joined Friendly Investment and Financing Options (FIFO) as a loan officer. FIFO is a national company that specializes in mortgage lending. One of Alan’s responsibilities is to increase the amount of mortgages FIFO initiates. In a meeting he had with the CEO yesterday, Alan was told about a new mortgage that FIFO intends to market. The new mortgage is called an option adjustable rate mortgage, or an option ARM for short, and its most attractive feature is that homeowners can choose to make relatively low monthly payments at the beginning of the mortgage period. However, the payments increase significantly later in the life of the mortgage. In fact, depending on the amount the borrower chooses to pay early (hence, the term “option”), the amounts that must be paid later could be substantial—as much as four to five times the initial payments. In many cases, when a homeowner chooses to pay the minimum amount or an amount that he or she can afford, the mortgage turns “upside down,” which means that the amount due on the mortgage grows to an amount that is greater than the value of the house. The primary benefit of option ARMs to borrowers is that such loans allow those who cannot afford the monthly payments associated with conventional mortgages the opportunity to purchase houses. A borrower with income that is lower than is needed to qualify for a conventional mortgage can borrow using option ARMs, choose an affordable (lower than conventional) payment in the early years of the mrotgage, and then make the higher payments in later years, when their incomes presumably will be higher. Thus, option ARMs permit those who can’t afford conventional mortgages to buy houses today that they otherwise couldn’t afford until years into the future. Lenders such as FIFO like selling option ARMs because they can recognize as current revenues the monthly payments that would be required if the loans were conventional mortgages, regardless of the amounts that the borrowers opt to pay. In other words, companies can “book” revenues that will not be collected for a few years. Unlike most people, including many professionals, Alan understands the complexities of option ARMs. He knows that many borrowers who choose such mortgages will lose their houses three to five years after buying them because the payments increase so significantly after the low-payment option period expires that these borrowers cannot afford the new monthly payments. And, although they would like to refinance with conventional mortgages, often these homeowners do not have good enough credit. This scenario is quite disturbing to Alan. He would like to explain to his customers in clear terms the possible pitfalls of option ARMs, but the CEO of FIFO has instructed Alan that he should provide only the information that is required by law and to follow company policy, which states that lending officers should provide basic printed material, give simple advice, and answer questions that might provide negative information only when asked. Alan has a bad feeling about option ARMs. He knows that they are great lending/borrowing tools when used as intended. He is afraid, however, that FIFO is more concerned about booking revenues than about the financial wellbeing of its customers (borrowers). What should Alan do? How would you handle this situation if you were Alan?

Answer 1

In the instant case there are two ethical values exists

1. First towards borrower (Consumers ) who are borrowing loan from FIFO
2. Other for company i.e. FIFO for who professional do work

In this case reality of corporate world comes before the professional which is not as it appears from outside. Every professional is responsible for its own work, which need to be for betterment of its clients, company & society.

Being face of company in front of client, professional represent its company. Professionals has reputation that what they represent they do after their prudence check. In this case also when client understand facts from a professional it rely on such expert. As every client is not expert in related subject matter, it takes help of professionals. If a professional hide fact known to him it is an act which not expected at any level.

At other side of coin, a company recruits professionals to ease out its work. Professional easily understands complexity of work and able to resolves it with ease than others. It is their duty to do work according to company’s policies. It is expected from professionals to do their work with competence, honesty and transparently.

Lastly, every individual professional is bound with law and responsible for law. It is his duty that it apply all his knowledge and expertise to do his acts with due diligence. Hence a professional is needed to be aware with applicable acts and act according to act for well-being of society.

In instant case, professional need to represent his situation with management. If management understand and accordingly resolve the case than professional can continue its assignments else he should not accept current assignments.