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The Perfect Injustice: A look at the American mortgage system

By: Ricardeau Lucceus

Special to The Pillar

       

From the onset, we all have been taught to consider owning a house as the major module of the American dream.  As a result of this reasonable indoctrination, the majority of Americans devote their full capabilities toward acquiring a home. It should be stressed that owning a house is important because it helps create stability for stability for the economy and society as a whole. Knowing how crucial the possession of a residence is to the individual and society, those in charge of making this noble acquisition possible made great use of power to shape everyone into accepting a perfect injustice under the legal instrument called “Mortgage”.   

Now, you are probably starting to wondering what perfect injustice I am trying to bring to light.  Before we even get that far, let us look at the definition of a mortgage.  Per the MortgageCalculator.org, “a loan that is secured by property or real estate is called a mortgage. In exchange for funds received by the homebuyer to buy property or a home, a lender gets the promise of that buyer to pay back the funds within a certain time frame for a certain cost. The mortgage is legally binding and secures the note in giving the lender the right to have legal claim against the borrower’s home if the borrower defaults on the terms of the note. Basically, the borrower has possession of the property or the home, but the lender is the one who owns it until it is completely paid off.”  In light of the foregoing definition, it is clear that homeowners do not own their properties until the mortgages are paid in full and satisfied.  

The issue is whether or not a home buyer should be exclusively responsible for the all property taxes, dwelling insurance and homeowner association dues. Based on past and current regulations, homeowners are responsible for paying all real estate taxes, hazard insurance and homeowner association dues.  As represented in the above definition of a mortgage, the homeowner does not own the property until the mortgage is paid off.  Consequently, the lender owns the particular property until it is paid off.  

We are aware of the devastating trouble that homeowners went through during the past few years.  Many lost their homes due to bad mortgages such as Option adjustable-rate mortgages, 125% financing and many other types of subprime mortgages. No one ever talks about why homeowners are solely responsible for taxes and insurance given the fact they do not own the property or homes.  

I am not an economist, but I think lenders should share the burden of these fees on a prorated basis if this economy is to survive.  



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Let’s take a look at a typical 30 year fixed mortgage with a 5.5% interest rate and an average loan amount of $200,000.

Using a mortgage calculator, the principal and interest is $1,135.58 monthly and the total benefit to the lender for 30 years will be $208,808.80. Thus, you bought a house for $200,000 and ended up paying $408,808.80 for it; this figure is without taxes and insurance.  Impressive!  There is nothing wrong with lenders making a profit. The problem arises when homeowners are evicted out of their homes and counties well as homeowner associations have to deal with the aftermath of vacant properties.  Further, other residents see the value of their homes decrease due to these vacant properties. The lender themselves also suffered as a result of these properties.  

To keep the story short, the following is my proposal:

(1) Since the lender owns the respective dwelling, the lender should pay a portion of the real estate taxes that are related to the dwelling.  The homeowner should pay for taxes that are related to school taxes, sewage and so forth.  The reason for that is based on the notion that the borrower would be able to make timely payments not only to the bank, but also to the respective county, thereby, creating stability for everyone.  The bank would not need to increase the mortgage rate since it is foreseeable that the borrower is more likely to make payment, and it probably would cost the lender one or two month of mortgage payments to cover the dwelling portion of the real estate taxes.  With the extra cash in the hands of borrowers, they would be able to invest in the local economy or may purchase another property.  This approach would help every county’s school district and the economy as a whole.

(2) Under the certain arrangements between homeowners and lenders with escrow accounts, the hazard insurance companies would routinely send the check to the lender instead of the borrower in the instance in which a legit claim exists.  Homeowners currently pay for hazard insurance policies but the lenders have the right to decide to faith of any proceed derived from any claim.  That is creepy at best!  I know exactly what you have just said: Seriously! Yes, the checks are sent to the lenders.  As a result, lenders should pay for the dwelling portion of the hazard insurance and borrowers should pay for personal property medical and general liability since they occupy the subject.  For instance,

(3) As far as community development district (CDD) and and homeowner association (HOA) dues are concerned, lenders should pay  CDD dues on their own since the prestige that CDDs bring to neighborhoods helps maintain the values of these properties.  HOA dues should be divided between borrowers and the lenders.  Lenders should pay the dwelling portion, and borrowers should pay the rest.  These three arrangements should remain in place until the borrower pays off the mortgage.  Once the mortgage is paid and satisfied, then borrowers should pay all fees on their own.

In looking at this big picture, I know there are lots of questions   These three approaches would significantly reduce foreclosure and erase this indoctrinated injustice that has been the cause of much sufferings in this great country of ours.  I know some would say the lender has the right to charge whatever they see fit.  They may be right,  but  if we continue on this path, we can expect every a disaster every  10 to 15 years in the real estate market.

It is worth noting that righteousness and justice are the foundation of any evenhanded society; without these two, we become self-destructed as a society.

Who set the bar?

As a homeowner has the time come for homeowners to start challenging the social contract?




Ricardeau is a 2L at the Tampa Bay campus. He is the founder and Secretary General of

United Nations Student Association at Cooley, Tampa Bay

  




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