Friday, January 6, 2012

]13-Who Actually Funds Mortgage Loans? ... ... Presented 12/10/2010-Printed 12/30/2010

Who actually funds mortgage loans?

It seems that everyone is acutely aware that our country is experiencing very serious financial problems, both in the government and the private sector. We have literally millions of people losing their homes in foreclosure, but how many people actually understand who it is that’s carrying these millions of loans? Who it is that is actually taking the loss?

In the event that you are not aware of it every single dollar, that is Federal Reserve Note, circulating in our country originated in circulation as the principle of some borrowers loan. There is no exception to this.

When a couple goes to a bank to borrow money to purchase a house, that is to take out a mortgage, the money that they receive from the bank did not exist prior to the approval of their loan. The money they receive was created by the bank in order to fund the loan. That is, the bank did not loan any of its own assets to the borrowing couple. The money did not exist prior to the signing of the loan agreement by the borrowers, so then, where does the value come from to back this mortgage money?

To make the point another way, the bank has no actual investment in any of these mortgage loans; so how is it then that when these mortgages go into foreclosure the bank takes ownership possession of the house?

When the mortgages are funded the proceeds are used to pay the builder of the house; the builder of the house uses that money to pay all of the people who helped build the house and all of the suppliers who provided the building materials from which the house was constructed.

All of those who receive their portion of the selling price of the house then use the part they received to pay all of their day to day living expenses. In a fairly short time everyone in the community has some of these mortgage created dollars in their pocket. It is the willingness of the people in the community and their acceptance of this mortgage money that enables this mortgage money to be respected as though it actually had some value, and it does, the values is imbued into this money by the promise of the borrower to make monthly payments on the loan for the duration of the mortgage, usually about 30 years.

So, is it not clear that it is the people of the community that are funding all of these mortgage loans, and shouldn’t it be the community as a whole, that should receive the interest paid by the borrowers on these mortgage loans while these loans are still in effect? How is it that it can be proper that the bank should take the interest as its profit and then when the mortgage goes into default that the bank takes the house and sells the house and keep the proceeds from the sale? How can
this possibly be proper?

Is it not clear that as it is the community that is actually enabling the funding of all of these loans. That it is the community that should be receiving all of the interest paid on these loans, and that if the borrower goes into foreclosure that it should be the community that should become the owner of the defaulted houses?

Another point; when money is created to fund the loan, while the borrower is still making his monthly payments, all of the money that was created to fund the loan is in circulation in the
community and it all has the value imbued into it by the productivity of the borrower; as long as the borrower continues to make his monthly payments all of this money has value, because it is reflecting the value of the house because the house is the security for the loan. When the loan goes into default, the borrower is no longer making payments but the money that was created to fund the loan is still circulating in the community, but now has no value because the borrower is no longer keeping his promise.

Doesn’t this clearly indicate that it is the people in the community who are taking the loss because the money they are now circulating no longer has the value originally imbued into it by the promise of the borrower? But the money that is still circulating out there, as the remaining balance of that defaulted mortgage is, identical to all of the other money in circulation, and there is not any way that it can be identified or taken out of circulation. This now worthless money remaining in circulation is one of  the major causes of the loss of the purchasing value of the money we all use every day.

Doesn’t this make it clear that the only way that the people in the community can recover their loss is by the community becoming the owner of the forclosed on house?

I contend that the interest money that is paid and collected by the bank in these millions of mortgages should be going into the treasuries of the local community. This would enable us to totally eliminate taxation. The entire government could be funded on the interest collected on all of the millions of mortgage loans and the millions of business loans and the millions of credit card loans throughout our country, we could totally eliminate all taxation at every level of government, not just income tax, but property tax, sales tax, excise tax, gasoline tax every kind of tax, they could all be eliminated.

True freedom cannot exist where taxation is used to fund the government.

Eric Williams, Yellville

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