Credit Firms: Rules & Policies for Loan Offering & Govt. Dreams - Essay Sample

Introduction

Any establishment that is set up to be a credit firm and gives people loans to make profits need to have rules and policies. There is much consideration that credit firms need to take into accounts before certifying to give loans to their customers. The government dream and the targets in the futuristic speculation are the opportunist’s highlights of the business on credit offering to invest in such areas, the mortgage loans in the alignment to the government dream of better housing.

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The bank decisions to a loan or not to loan need to be critical analyses in the economic hypothesized theories and the statistical true in that numbers do not lie in the projection and telling the truth. The dilemma of offering credit or not need expertise on the financial analysis to outline the policies and by-laws to propel and ascertain investments to the loaning profitable investments (Johnson et al., 2010). The new investor to the mortgage lending banking medium size in the citywide state is a threat to the existing lending company. Strategies need to be put in place to hedge the competition and remain relevant in the leading mortgage industry.

Analysis of The Extent of Adverse Selection of The Subprime Loan Market

The understanding of customers and the potential new customers to lending targets to the local enterprises and the loans of low risk. The premier borrowers are ascertaining customers. The precise outlay in the borrowing and the establishment credit by the Freddie Mac criteria and the Fannie Mae (Johnson et al., 2010). The mortgage loan can be a Cleary package in setups and sold channeling through the government agencies sponsor to build trust and easily give securities to the loan support the government establishment of suitable housing. Lowering the risk of the financial institution loans need to be sold to microfinance institutions and the pension funds and the megabank earning the fee on payment processing. The borrowers are generally necessitating the 640 or higher.

The adverse selection of the prior extension of dealing with loans on the sufficient incentives on the reduction of moral hazards problem (Owyang et al., 2011). The choice in the advancement needs to form information asymmetric. The information lies on the borrowers more than the bank. The unanticipated risk that the ban is exposed in the on failing to property maintenance. The moral hazard can be hedged by the 10 percent of the property down payment. The adverse problem selection can be managed by the applicants' screening of the applicants (Johnson et al., 2010). However, in my position, I recommend the easing of the rule to denier the borrowers' loans because of some unavoidable challenges resulting from delaying in the payments to hedge and being relevant in the competitive market and the new investors to the financing industry.

Extend of Moral Hazard in The Subprime Loan Market

The borrowers and the customer are more informed of the challenges they face in the repaying of the loan and the ignorance on the loan policies concerning the subprime loan market. The financial ignorance of the borrowers on the rates of interest and the repayment period is a moral challenge. One needs to learn and understand the policies and by-laws concerning loan borrowing (Owyang et al., 2011). The flexibility of changing from bank to bank of the borrowers due to a new good deal of the institution financing the mortgage loans with no down payments without completion of the previous loan is the challenging moral hazard. The fluctuation of the government rates is triggering the moral dangers of the society to slug and take advantage of the government fluctuation rates to fail to repay the loan (Lanot & Leece, 2015). The moral hazard of the borrowers to give wrong information to the bank to get lumpsum credits. The changing from bank to bank in the middle of the payments is the indiscipline of the moral hazard. The education of the public on the finance’s information need be to necessitate the hedging of the ethical risks.

Evaluate the Proposed Loan Product and Sale

The subprime sector of the financial institution to have a clear and futuristic plan, and to hedge, the competition, the moral hazards, and the adverse selection need to be analyses to hedge the financial loss and venture to the profitable futuristic firm.

The percentage of the loan sales on the mortgage houses and the selling to the microfinance institution to extend the diversification hence reducing risk. The security of the loans selling is upholding when the loans are sold through government agencies; therefore, guarantee the security of the investments and more sales due to many citizens trusting government agencies (Lanot & Leece, 2015). The acquisition of assets to the financial institution helping to reduce risk and soften the money revolution. Educations of the borrowers on financial discipline and communication regularly on a reminder of the progress of the development of loan payments and the by-law reminder concerning the loan payments (Johnson et al., 2010). The flexibility of down payment to easy the loan restriction and also to protect the financial institution form the intrinsic risk, financial risk and give more returns,

References

Johnson, G., Roberts, W. W., & Trybus, E. (2010). To loan or not to loan: A Subprime Dilemma, 16(1), 107-114. https://www.academia.edu/download/48479909/JIACS_Case_in_Print.pdf#page=117

Lanot, G., & Leece, D. (2015). Mortgage loan characteristics, unobserved heterogeneity, and the performance of the United Kingdom securitized Subprime loans. Real Estate Economics, 44(4), 771-813. https://doi.org/10.1111/1540-6229.12113

Owyang, M. T., Hernández-Murillo, R., & Ghent, A. C. (2011). Differences in Subprime loan pricing across races and neighborhoods. https://doi.org/10.20955/wp.2011.033