Can we trust that the U.S. mortgage industry will make the correct ethical decisions and
not repeat the mistakes of the past?
JP Morgan Chase paid a record $2 Billion to settle charges that it knowingly ignored
evidence that convicted fraudster Bernard Madoff’s massive Ponzi scheme was too good
to be true. U.S. authorities’ claim J.P. Morgan bankers were aware that Madoff was
running a scam, one that was ran almost exclusively through the bank. This arrangement
continued even as the bank’s own analysts were worried that Madoff was a fraudster. The
settlement included a deferred prosecution agreement that requires the bank to
acknowledge its failure but also allows it to avoid criminal charges provided reforms are
enacted at the bank within two years. No individual executives were accused of wrong
doing.
JP Morgan Chase has been fined $28.7 billion dollars in the past three years.
“JP Morgan Chase, the second largest mortgage lender last year, still needs to adopt 10 of
the 98 improvements it agreed to previously, the new agreement said that, among other
things, the bank still didn’t have adequate measures in place to ensure that it had accurate
records for all mortgages it serviced, and was not setting appropriate deadlines for
responses to borrower communications. The mortgage servicing arms of the banks manage
the direct relationship with borrowers and deal with homeowners when they fall behind on
their payments. Banks often buy the right to service mortgages issued by other institutions.
Wells Fargo and JP Morgan currently have the largest servicing portfolios in the country”
(Nathaniel Popper).
“To what extent organization’s live up to ethical values will be made evident through the
behaviors of its board members, managers and employees. An ethical culture might also be
manifest in some attitudes within the company. For instance, is there an open enough
environment where ethical issues can be discussed and apparently unethical behavior can
be questioned?
An ethics policy can already be rendered ineffective if the ethics code is inadequately
designed. First, a code might only encompass a narrow set of issues such as conflicts of
interest, gifts and hospitality and use of company assets, without addressing wider
obligations or commitments to all of the organization’s stakeholders.
Finally, the code might address employee behavior but not the behavior of directors, and
thus exclude the most important decision makers in the organization” (Simon Webley and
Andrea Werner).
“JP Morgan Chase, Wells Fargo and four large banks have failed to make long-promised
