The long term American policy of promoting home ownership has led to make the financing

of home purchases as easy as possible. Over time a number of financing institutions were set
up to make the financing of home loan easy. In 1938, Fannie Mae was set up for providing a
secondary market for home mortgages. It meant if a bank granted a mortgage to someone and
later needed funds, it could sell the mortgage readily to Freddie Mae. Fannie Mae also put the
other lending agencies it was dealing with in the position of granting subprime mortgages.
Fannie Mae had to accept the lower standards in the mortgages it had purchased from them.
In this way, the leaders that were behind this were thinking in terms of quick profits, putting
both the lenders and the borrowers at huge risks. In any organization whether in the public or
the private sector really a lot depends on the leaders decisions. Fannie Mae had eased the
credit requirements on the bank loans. Steven A Holmes wrote in 1999, Fannie Mae, the
nation's biggest underwriter of home mortgages, has been under increasing pressure from the
Clinton Administration to expand mortgage loans among low and moderate income people
and felt pressure from stock holders to maintain its phenomenal growth in profits (Holmes,
1999). While the leaders continued to expand Fannie Maes subprime loans to millions of
families during the 1990s, the outcome put their role under sever doubt. According to Thiel et
al, organizations are defined by less structure and are generally more fluid and transitional.
(Thiel et al, 2012) this adds complication to the decisions being made at a daily basis.
This made people realize that the leadership could chase profits blindly while paying no
consideration to the borrowers ability to repay the loans. The risk in the mortgage market
kept growing and owing to the flawed decision making by the leaders.

The origins of the

subprime mortgage crisis lay in the program initiated by the directors of Fannie Mae during
the 1990s. An analysis of the rights and duties approach to ethics shows that some of these
individuals failed in their moral duties and that their failure is partly to blame for the resulting
harmful consequences (Gilbert, 2011).

The flawed decision making on their part had a shocking outcome for the lenders as well as
the borrowers. At last when Fannie Mae went bankrupt, the lenders having written such
subprime mortgages found themselves stuck since there was no, longer a market for them.
Mr Watkins is right when he says, excessive profits provokes excessive behaviours. (Watkins,
2011)

References:
Holmes, S. A. (1999). Fannie Mae Eases Credit To Aid Mortgage Lending. In The
NewyorkTimes.

Retrieved

March

25,

2015,

from

http://www.nytimes.com/1999/09/30/business/fannie-mae-eases-credit-to-aid-mortgagelending.html
Gilbert, J. (2011). Moral duties in business and their societal impacts: The case of the
subprime lending mess.
Thiel, C., Bagdasarov, Z., Harkrider, L., Johnson, J., & Mumford, M. (2012). Leader ethical
decision-making in organizations: Strategies for sensemaking.
Watkins, J. P. (2011). Banking ethics and the Goldman Rule.