As most people know by now, the mortgage crisis revealed late in 2008 was actually a mortgage-derivatives crisis. During the real-estate bubble when house prices were zooming upward, mortgages from purchase and refinance seldom stayed with the bank or other original lender. Instead they routinely got immediately “bundled,” sometimes the very day you signed the mortgage or refinanced your house, into financial products with thousands of other mortgages, and were re-sold not as individual mortgages but as small parts of immense packages.
Predictably, the GOP in Congress and Republican officeholders in general have been eager to treat the mortgage-derivatives crisis as a mortgage crisis, a simple matter of individual people buying houses they could not afford. Individual poor people, individual problems; nothing to see here, folks; move along. Neither GOP officeholders nor their media allies tend to point out that our economic losses from individual mortgage defaults, while grave, are thousands of times smaller than our losses from the multi-trillion-dollar derivatives debacle. Aside from lip service during campaigns, few GOP officeholders or candidates have placed the blame squarely where it deserved, and fewer still have supported measures to limit remote speculation on people’s houses, or to monitor Wall Street more effectively.
When a large bank or other investing firm buys or sells thousands of mortgages, however, it does not pay the recording fee on each. According to a polite legal fiction, the financial firm — in banking or insurance or venture capital, etc. — is not really holding your house. It is holding a piece of paper. Thus, even though you still owe the company your mortgage payment each month, and even though the company owes you the quitclaim when you pay off your house, and even though if you default the company can get your house, your mortgage is still not treated like a mortgage — at least where taxing the company is concerned.
The loss to the public is incalculable. Take the number and value of all homes sold in the US in a given year, take the number and value of all mortgages bundled in US in the year. Most houses sold/transferred by individuals yielded recordation taxes. Houses transferred by bundlers did not. Loss to the public coffers?
There might be a possible revenue stream here, for cash-strapped states and counties across the nation. The thesis is simple: When large financial companies bundle our mortgages, they should not get out of paying the recordation taxes the rest of us have to pay.
Bear in mind that most individual homeowners had very little or no choice when our mortgages were re-sold, very little role in the process. Like me, most people whose mortgages were bundled and re-sold ended up with a different mortgage lender than the lender with whom we made our initial deal, writing a monthly check to a company entirely different from the one we started with.
The role of “bundling” in the financial crisis, on the other hand, is conversely huge. Estimates on losses from the mortgage-derivatives crisis range from $50 trillion upward.
It cannot be argued that paying the tiny tax on each mortgage would bankrupt the financial sector, now sitting on record profits in spite of the economic downturn caused largely by that selfsame sector. The recording fees collected in Maryland are typically modest. Generally three taxes are charged when transferring real estate in Maryland — a state recordation tax, a state transfer tax and sometimes a county transfer tax. Maryland state law dictates that, unless otherwise provided in the contract, transfer and recordation taxes are to be split equally between the buyer and the seller. If the buyer is a first-time homebuyer, however, Maryland law exempts the buyer from paying any state transfer tax and requires the seller to pay a transfer tax of 0.25% of the purchase price, one-fourth of one percent. In refinancing, state recordation taxes apply only to the difference between the principal of the existing loan being paid off and the principal of the new loan.
Regardless of whether applying a small recording fee on each mortgage should be done at the state, county or federal level, or some combination, it should be done. In an atmosphere where corporations represent themselves with a straight face before the law as “persons,” they should pay the same house-buying-and-selling recording tax on mortgages that individual persons pay.
Margie Burns is a Texas native who now writes from Washington, D.C. Email margie.burns@verizon.net. See her blog at www.margieburns.com.
From The Progressive Populist, February 1, 2011
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