Mortgage burning

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Mortgage burning was a twentieth-century custom in the United States of America (U.S.A.) that was the ritual incineration of the promissory note (mortgage) upon satisfaction of the payment schedule by the purchaser (debtor, or mortgagor). This ritual was performed to celebrate the release of the debtor from further payment obligations, and was sometimes accompanied by a party in which extended family and friends were invited.

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History

Home mortgage burnings, and particularly home mortgage burning parties, are nearly unheard of in the present-day United States for a few reasons. In the early twenty-first century, due to increased mobility and other factors, few U.S. mortgagees continue to make payments until the end of the mortgage term. Typically, mortgagees sell or refinance a property before the end of the mortgage term, using proceeds of the sale or new loan to extinguish the debt used to acquire the property.

Also, starting in the late twentieth century and until the housing bubble (circa 2007 or 2008) burst, it was fairly common for a borrower to acquire property using an excessively leveraged mortgage, and possibly even an “interest-only” mortgage, wherein a borrower pays only interest but does not repay principal. These mortgages were acquired with the implicit, though not always explicit, understanding that the property was likely to be re-sold or re-financed well before the end of the mortgage term. Refinancing, or restructuring of mortgage terms, was often undertaken to obtain a lower interest rate, or to borrow more money by increasing the principal (amount borrowed) of the mortgage. Refinancing a mortgage loan entails “resetting the clock” on the loan period, typically extending the time that the borrower promises to make payments beyond the end of the original loan term. [1] [2]

Even when a mortgage is satisfied (“paid off”) at the conclusion of payments, throwing a party to celebrate is considered to be in poor taste as it seen as bragging about one’s secure financial condition as opposed to a standard rite of passage. Modern advice columnists and etiquette experts generally advise against having mortgage burning parties attended by anyone other than immediate family. [3]

Mortgage burning parties are still held by non-profit entities such as churches. In those cases, the attendees are generally those who helped to pay off the mortgage. [4] [5]

The burning of a mortgage was depicted in the 1949 MGM Tracy-Hepburn comedy Adam's Rib — the mortgage document providing the flame for a celebratory hotdog roast. [6] A burning of the mortgage served as the opening scene of the 1969 Mayberry R.F.D. episode "Emmett's Retirement". The concept of a mortgage burning party was at least briefly referenced in a 1975 episode of All In The Family , “Mike Makes His Move”. [7] Mortgage burnings were also the premise of a 1977 episode of Eight Is Enough , "Mortgage Burnin' Blues", and a 1982 episode of M*A*S*H , "Settling Debts". [8] [9]

See also

Related Research Articles

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The Home Owners' Loan Corporation (HOLC) was a government-sponsored corporation created as part of the New Deal. The corporation was established in 1933 by the Home Owners' Loan Corporation Act under the leadership of President Franklin D. Roosevelt. Its purpose was to refinance home mortgages currently in default to prevent foreclosure, as well as to expand home buying opportunities.

In finance, default is failure to meet the legal obligations of a loan, for example when a home buyer fails to make a mortgage payment, or when a corporation or government fails to pay a bond which has reached maturity. A national or sovereign default is the failure or refusal of a government to repay its national debt.

<span class="mw-page-title-main">Debt</span> Obligation to pay borrowed money

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A mortgage is a legal instrument of the common law which is used to create a security interest in real property held by a lender as a security for a debt, usually a mortgage loan. Hypothec is the corresponding term in civil law jurisdictions, albeit with a wider sense, as it also covers non-possessory lien.

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In finance, a security interest is a legal right granted by a debtor to a creditor over the debtor's property which enables the creditor to have recourse to the property if the debtor defaults in making payment or otherwise performing the secured obligations. One of the most common examples of a security interest is a mortgage: a person borrows money from the bank to buy a house, and they grant a mortgage over the house so that if they default in repaying the loan, the bank can sell the house and apply the proceeds to the outstanding loan.

Cash out refinancing occurs when a loan is taken out on property already owned in an amount above the cost of transaction, payoff of existing liens, and related expenses. Strictly speaking, all refinancing of debt is "cash-out," when funds retrieved are utilized for anything other than repaying an existing loan.

<span class="mw-page-title-main">Mortgage</span> Loan secured using real estate

A mortgage loan or simply mortgage, in civil law jurisdictions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any purpose while putting a lien on the property being mortgaged. The loan is "secured" on the borrower's property through a process known as mortgage origination. This means that a legal mechanism is put into place which allows the lender to take possession and sell the secured property to pay off the loan in the event the borrower defaults on the loan or otherwise fails to abide by its terms. The word mortgage is derived from a Law French term used in Britain in the Middle Ages meaning "death pledge" and refers to the pledge ending (dying) when either the obligation is fulfilled or the property is taken through foreclosure. A mortgage can also be described as "a borrower giving consideration in the form of a collateral for a benefit (loan)".

Tacking is a legal concept arising under the common law relating to competing priorities between two or more security interests arising over the same asset. The concept is best illustrated by way of example.

  1. Bank A lends a first advance to the borrower, which is secured by a mortgage over the borrower's property. The mortgage is expressed to secure this advance and any future advances.
  2. Bank B subsequently lends more money to the borrower and takes a second ranking mortgage over the same property.
  3. Bank A then subsequently lends a second advance to the borrower, relying on its original mortgage.

Loss mitigation is used to describe a third party helping a homeowner, a division within a bank that mitigates the loss of the bank, or a firm that handles the process of negotiation between a homeowner and the homeowner's lender. Loss mitigation works to negotiate mortgage terms for the homeowner that will prevent foreclosure. These new terms are typically obtained through loan modification, short sale negotiation, short refinance negotiation, deed in lieu of foreclosure, cash-for-keys negotiation, a partial claim loan, repayment plan, forbearance, or other loan work-out. All of these options aim to reduce financial risks for the lender.

Loan modification is the systematic alteration of mortgage loan agreements that help those having problems making the payments by reducing interest rates, monthly payments or principal balances. Lending institutions could make one or more of these changes to relieve financial pressure on borrowers to prevent the condition of foreclosure. Loan modifications have been practiced in the United States since the 1930s. During the Great Depression, loan modification programs took place at the state level in an effort to reduce levels of loan foreclosures.

A strategic default is the decision by a borrower to stop making payments on a debt, despite having the financial ability to make the payments.

References

  1. ↑ "Mortgage-Burning Parties Almost Extinct". NPR. 2009-07-03. Retrieved 2013-04-05.
  2. ↑ "Mortgage-Burning Parties Still Happen". Lancaster Online. 2012-07-25. Retrieved 2013-04-05.
  3. ↑ "Miss Manners: Modesty is the best party policy". Washington Post. 2010-09-11. Retrieved 2015-10-16.
  4. ↑ "COR Church Mortgage Burning Party". 2013-01-28. Archived from the original on 2013-06-30. Retrieved 2013-04-07.
  5. ↑ "Mount Pisgah Baptist holds mortgage burning". 2013-04-01. Retrieved 2013-04-07.
  6. ↑ "Adam's Rib (1949)". Filmsite. Retrieved 8 February 2024. After dinner, the Bonners entertain their guests in the living room by projecting sixteen mm. home movies shot at their country farm in Connecticut. The four minute movie is titled: "Bonner Epics present 'The Mortgage the Merrier' - A Too Real Epic." More friction between the Bonners is encouraged by the insipid, mordant commentary provided by Kip during the movie's playing - he calls many things "an old Connecticut custom." After Emerald makes a sarcastic response to one of his wisecrack jokes, Kip replies: "I know a lady collapsed a lung once laughing like that." In the movie-within-a-movie, Amanda plays tennis, performs amateur stunts in front of the camera, and both of the Bonners celebrate the day that they paid off the mortgage with a check. The mortgage document is burned to provide the flame for roasting hotdogs on a grill. In scenes that mock silent melodramas, there are instances of "tree-kissing," "barn-kissing," and "wife-kissing," with a finale of Adam paddling Amanda in a canoe.
  7. ↑ "All In The Family: Mike Makes His Move". 1975-03-08. Retrieved 2013-04-05.
  8. ↑ "Eight Is Enough Episodes on ABC" . Retrieved 2013-04-14.
  9. ↑ "M*A*S*H Episode Guide" . Retrieved 2013-04-14.
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