Written by Christina Schmitz
Edited by Sarah Mejia
When the market for loans is on the downfall, banks are forced to think about the potential profit losses that will transpire. Bank of America, at the first sign of the loan market declining began the “High-Speed Swim Lane,” also known as the “Hustle” loan program. This fraudulent program was a way for Countrywide Financial Corp., who was bought out by Bank of America, to process large amounts of loans in a small amount of time. The quick speed compromised the quality of the loans, but Bank of America, then Countrywide Financial, implemented this program purely to maximize their profits during the collapse of the loan market. Rebecca Mairone, a former Countrywide executive is being held responsible for the fraudulent loan program. Bank of America was said to have been misreporting information about loans to Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac acquired these loans resulting in a significant loss for both companies, but a large profit of $165 million for Bank of America (Raice).
Whistleblower, Ed O’Donnel, has called attention to this fraudulent activity and the compromised quality due to the speed of automatic processing of prime loans. In emails presented in court, Mairone was seen ignoring the concerns of O’Donnel and continuing with “the Hustle.” Mairone’s disinterest in the possible problems with the new loan program is what holds the allegations of fraud so prominently against Countrywide, now Bank of America.
This scandal reinforces the seriousness of the question over good management and ethical decision-making. Mairone, a woman who had high managerial standing in Countrywide Financial Corp., led the corporation to high profits; however, her plan to gain these profits was certainly unethical. Whistleblowing is a clear sign for companies that a decision or program that has been put in place has been raising concerns throughout the company. If employees are picking up on these concerns and are taking the risk to speak their minds, managers should be willing to give these concerns time and consideration. If employees are able to find something wrong with a new policy, auditors will also be likely to find these same issues, putting the entire company at risk. Mairone made the poor decision to activate “the Hustle,” as well as ignore the efforts of employee O’Donnel, resulting in the loss of her reputation and earnings.
Although the Whistleblower Protection Program protects individuals after revealing fraudulent activity, thus increasing the chance for individuals to speak up, other measures should be taken in order to avoid scandals like the one Countrywide is facing. Although ethical policies are in place, these policies often are not prioritized under the intense pressure to increase profits. This pressure becomes the motivating factor for decisions, and this may have been the reason for Mairone’s carelessness. More emphasis should be placed on managers to adhere to all ethical polices and to ensure that such fraudulent scandals do not take place.
Although ethical decision-making is difficult to measure and track, it is something companies need to make a priority, particularly under performance pressure. Companies should engage in yearly training courses to educate and remind managers and employees of the responsibility they have to the company to make well-rounded and appropriate decisions. Employees can team up and act out various scenarios, allowing for all possible outcomes to be considered. Reminding employees of the risks and consequences of unethical decisions may increase their drive toward better decision-making. Implementing a mandatory training program for managers will reinforce that the company’s reputation and ethical responsibility have a higher priority in the long run than the maximization of profits in the short run. To be a sustainable source of value, a company needs to be profitable, reputable and reliable. Implementing a training program of this type may ensure these characteristics in a company.
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Raice, Shayndi. “Emails in Spotlight at Bank of America Trial.” The Wall Street Journal. Web. 7 Nov. 2013.Raice, Shayndi. “U.S. Seeks $864 Million from Bank of America Over ‘Hustle’ Loans.” The Wall Street Journal. Web. 7 Nov. 2013.