Monday, July 28, 2008

Mortgage Crisis - and How to Fix It

Less taxes. It's that simple. However, this will never come to pass. The government is far too greedy, and in effect, they do require funding (as the dollar decreases in value, just like you and I, the government also needs increased cash flow to remain afloat, so they turn around and charge you and I more).
But let me get back on topic. Property tax is creating this mortgage crisis. Forget for a moment about the rogue brokers that practiced in the "subprime" lending, and turn to the concept of how that truly is affecting homeowners. If you bought one of these so called "subprime" loans, and your interest rate does, in fact, go up (assuming you bought into an ARM - an Adjustable Rate Mortgage), that hurts, and I understand that, as does the government, however, what I feel truly hurts the homeowner is the taxes applicable to the home on an annual basis.
The problem arises when you first consider buying a property that actually publishes the "current taxes." It could show the annual tax bill on the property as low as $500, and most people will think, "I can afford that," not realizing that tax is only for the CURRENT homeowner. The problems arise AFTER closing when the new assessed value of the home is used to calculate the taxes - which can double or triple the former tax bill (or worse). This is an expense that can become a third or more of the monthly mortgage payment (assuming the new purchaser set up an escrow account).
And then not only that, but now as home values are FALLING, what are tax bills doing? Rising . . . and my question to that is how and why? If our tax bills for our homes are assessed on an annual basis and if we have to pay this tax annually (I am still missing the logic as to why I need to pay taxes annually on something I bought YEARS ago) then why when home prices decrease, does the tax associated with that home not also decrease? Add in rising interest rates on ARMs and other subprime loans (interest only loans as another example) and the rising tax bills, and you create a crisis that is spinning out of control.
If the government truly wants to sell the "American Dream" I feel the government needs to step up to the plate and suspend the taxes on homes until this crisis has been averted. Otherwise, people are going to continue to fall into foreclosure and the dollar is going to continue to fall and the economy is going to continue to suffer.
If you want to fix a problem, I find the easiest way to fix that problem is to start with what you can control, and for the government, the one thing they can control is homeowners tax. Simply put, suspend the taxes for a year or two - or perhaps a better win-win solution for the government would be to suspend the reassessing of home values as a way to increase the tax on a continuous basis. This reassessment is certainly not fair to homeowners. I realize homeowners tax is used to fund such things as our public school system, but how about instead, include a new percentage increase in sales tax - if I don't buy it, I don't pay the tax, however, I have to BUY a product to be TAXED - not simply taxed annually for something that was actually purchased YEARS ago.
My point is simple, if property tax was not ballooning, I believe more families would be in a better position to pay the mortgage they agreed to - even if that mortgage term was one of a "subprime" lending practice, but to essentially be "triple dipped" on the increases - by the taxes, insurance, and interest rates - it is too great of a price for those with less to show for their money - as the dollar weakens, it buys less, and families suffer while the government laughs all the way to the bank - bailing out the lenders that began this mess to begin with.
It hardly seems fair, but such is life in the richest country in the world.

Note: I realize property tax is a localized tax - but if the federal government would step in, they can have the localized municipalities suspend this tax while the federal government steps in and subsidized the local governments.

No comments: