Last night the president placated Republicans by throwing them a tax break they couldn’t resist, cut a few points off the payroll taxes.
The idea is to stimulate the economy by putting more cash in working people’s hands. But, this is just a temporary fix, and it doesn’t do much to change the real financial dystopian pressures on the poor and middle class: paying mortgages on homes that are still worth less than they were before the Wall Street Wizards decided to play monopoly with financial paper, without any apparent risk.
As a small business owner, I don’t get a paycheck every week that looks like what most employed people get. My cash flow isn’t consistent and from talking to accountants and financial planners, many small business people have similar financial profiles. Despite hiring people, and paying payroll taxes (where if you don’t file a form right- they fine you huge amounts- despite having all the other forms in place and paying everything you were supposed to) and contributing to the local economy- banks charged me 7.25% on my home- because of my “income” and probably because I’m in an urban area.
My home loan was originated when the rates were 6.25% or so. Now they hover around 4% and I can’t refinance. Foreclosures on other homes make my house worth less, new rules require more equity, appraisals come in low (a friend bought a double right next to two single family homes that went for over $200K within the last 3 years- he rents each side for $750 a month, and the appraisal comes in at $55K) and despite having a stellar payment record- I can’t take advantage of the 4.25% rates right now.
Neither can most people making under $100K a year.
The only people benefiting from cheap money thanks to the “new rules” are the wealthy. They are now flush with cash, able to buy foreclosures, rent them at unbelievable rates to those who can’t buy but need a place to live. The rich are getting richer.
Had the President really been interested in stimulating the economy, to increase consumption, resetting home loans down for working class Americans, could make a huge impact on the ability of more Americans to be able to buy the things that force companies to hire to grow. It would also begin to normalize the housing market and put value back in our pockets while slapping the bankers who got us in this mess. It would also start to put value back into our real estate that has taken a beating.
The caveat is, only do this on home loans at or under the median value, and better yet, only on homes older than 25 years old, because the last thing we need to do is encourage more sprawl.
The crazy thing is that my loan is still of value to someone, it’s now on the seventh servicer in the last 10 years. It’s been traded and factored so many times- all with someone making money on it, while I sit back and wonder if my house will ever appraise for what it was once worth.
Putting people back to work is the most important thing we can do, but in order to do that, it’s time to give the small guys a break.
Start with forcing a change on appraisals, eliminating foreclosure homes from “comps” – those are the bankers’ faults. Bring back the “10 cap” that a rental property’s value is partially tied to rental income: i.e., a rough estimate of value is that rent equals 10% of the value- making my friend’s house worth almost three times the appraisal, and then cap loans based on 60% of the value if it isn’t your primary residence. Totally eliminate secondary markets so that banks are vested in their portfolios and are more careful with their money. It wouldn’t be a bad idea to force residential mortgages back to local banks and put Main Street off limits to Wall Street.
A payroll tax break is nice- but what we really need is some systemic changes that put value back in the hands of small business people and the working class’s pocket. Then we’ll see jobs come back and maybe even the return of the middle class.