The beauty of a blog…

Real Estate Broker/Owner with Benchmark Realty LLC

The true beauty of a blog is not just in the sharing of information, but also in the creation of a platform for dialog.  Sometimes I get some feedback on my posts, and sometimes it just spins off into cyber-land without ever knowing if anyone hears it.  Kind of like the age old question of "if a tree falls in the woods and no one is there to hear it, does it make a sound?"  I never have heard a satisfactory answer to that one, except for the fact that the sound waves are indeed created, regardless of the recipient.  In a nutshell, that is blogging.  And in some respects that is politics too.

 To be honest, something has been torturing me for months and I must to get it off my chest.  I am completely mystified and perplexed by the blatant lack of understanding of the real issues in this country on the part of our leadership...on both sides of the political isle.  It seems that not one single person in Washington understands that "IT'S THE ECONOMY, STUPID!"  Absolutely nothing else matters until the economy - the engine of this locomotive - is healthy again.  Nothing else matters!

 Here is an undeniable fact:  51% of all private sector jobs in America are created by small business, aka The Entrepreneur.  These are the people who despite the strongest headwinds of governmental interference (read: deterrence) in the history of this country, are out there every day taking huge personal risks in the perpetual quest to serve their clients and make a living.  They are the ones who have stuck their heads above the sand and are straining against almost overwhelming odds to build something that will hopefully change their family tree, all the while creating jobs and generating wealth for those all around them.  Sometimes, those around the entrepreneur are the only ones who see the wealth, since everyone else always get paid first.  Yet there is something fundamental to the DNA of the entrepreneur that drives him forward, day after day, against all possible obstacles.  The mindset of the entrepreneur can no more be understood by the non-entrepreneur than the human brain can comprehend the infinity of outer space.

 Yet despite all the obstacles to the effort, the entrepreneur still persists in getting up every morning, leaving the cave, killing something and dragging it home.  This is THE engine that drives our economy.  So why has the entrepreneur and small business been so TOTALLY ignored in everything our government has done over the past 18 months??? 

 Not only ignored mind you, but punished!  Here's a true example:  one small business owner that I know very well lives in a home comprised of 5000 square feet, in a nice neighborhood and was appraised last year for just over $1mm.  This guy (let's call him Bill) has worked hard, living on beans and rice for years, in order to accumulate sufficient resources to build such a nice home.  He didn't cheat or rip anybody off to do it; he simply WORKED LIKE A DOG, lived beneath his means and SAVED his money - very unusual concepts in our society today.  This house was the result of 15 long years of effort.  In other words, he chose to delay gratification so he could build a house like this someday.

 Having just come through this depression (yes, I used the "D" word) Bill realized that under current management this country will probably experience another of equally serious magnitude within the next 7-9 years.  Since Bill is now 50, that means the timing on the next big dip will be pretty close to his targeted retirement age.  Not wanting to go into the next recession with the overhead of a larger home (high HOA fees, high utility bills, etc) Bill decided recently that it would be logical and wise to sell the big house and downsize to one of less than half the value of his current house thereby lowering his overhead.  Even though this is the worst time in 15 years to sell a big home, Bill is ok selling at today's reduced prices because he made good decisions, managed the construction of his big home wisely, and unlike many others, didn't use his home equity like an ATM machine.  After the smoke clears he should be able to put about 40% down on the new home.

 Here's a summary of the scenario:  Bill has a 780 credit score, earns well into the 6 figures in income each year, in addition to having the 40% down payment on the new home.  Keep in mind now, Bill is downsizing and reducing his monthly expenses.  This type of buyer should have the mortgage guys drooling down their shirt fronts to do a mortgage for him, right?  I mean everybody knows from TV that in today's secondary mortgage market a person who works at Wal-Mart or some other major company, has a 580 credit score and debt to income ratio of 45% can get an FHA (government guaranteed mortgage) with as little as 3% down at a rate of LESS than 5% for 30 years. 

 Bill's deal should be a slam dunk, right?  Well guess what?  BILL HAS BEEN TURNED DOWN BY SIX BANKS!

 You see the problem is that Bill is an entrepreneur so his personal finances, like his life, are inextricably intertwined with the company he owns (two of them actually).  He lives and breathes his company that provides over 120 jobs and has about $40mm in annual sales.  The success and survival of that company is his raison d'être - his reason for being on this earth.  Yet, because his company is set up as a Limited Liability Company he pays thousands of dollars each year in taxes to the Federal, State and Local governments, but reports his personal income on a K-1 schedule and a 1096 form.  His taxes are paid through the company, not on his personal income tax return. In fact, he strives every year to reduce his personal income tax liability because to fail to do so means paying double taxes.  Remember, he paid taxes on the income through the company, but the income also flows through to him personally so if structured wrong, he will pay taxes a second time on the same income.

 Unfortunately, the documents that Bill can provide are no longer acceptable as income verification within today's underwriting guidelines.  Meaning, Bill cannot PROVE his ability to afford this new home to the satisfaction of a clerk in a cubicle 800 miles away who operates on the new guidelines established by Fannie Mae and Freddie Mac.  The two institutions that were nationalized this year by our government and now control who gets a mortgage and who is denied a mortgage in this country.  All of this occurred under the oversight of your congressional leaders and sanctioned by the last two presidents.

 Let me paint this comparison clearly:  a man who has worked all his life to build a company, lived within his means, saved his money, created untold wealth and employment for others, is DENIED the opportunity to do the responsible thing and REDUCE his overhead.  While somebody else possessing a very low level of personal responsibility, spending almost half of every dollar they earn on debt payments, can get a cheap mortgage at the drop of a hat! 

 An absolutely astounding side note to this story is that one banker actually recommended to Bill that he NOT maximize his deductions so that his documents would be more appealing to the underwriters.  Imagine the audacity!  Send more money to the IRS so Bill can qualify for the same deal as everyone else, but even then the interest rates would be at least two full points higher, just because he is self employed.

 Is it just me or is something bad wrong with this picture?  I wish I could say this is a made up story, but sadly, it's all factual.  This actually happened to Bill and its happening to others just like him every day.

 The net effect of the current mortgage environment is to not only stifle the entrepreneurial spirit in this country, but to actually PUNISH those who step out and become small business people.  Like I said earlier, small business provides more than half of all jobs in this country.  Guess what happens when it gets too tough to do business here?  The entrepreneur folds the tent and goes where he can feed his family.  (Of course the government only wants him to fold the tent, and go to work for the latest company they just bailed out.)  You want to see a devastating Depression in the country?  Keep on the path we currently travel, it won't take long.

 While we publicly argue about healthcare reform, are involved two (soon to be three) wars, and continue to throw good money after bad by bailing out grossly mismanaged corporate entities, ROME IS BURNING!  Precious little more than lip service is being done to address the plight of the small business person in this country.  He and she are perpetually dumped on but like the little energizer bunny, they just keep on ticking.  Fighting hard to keep the nose above water and live through the blizzard of garbage that heads their way.  Pretty amazing!

 Issue #2 that keeps getting ignored by our leaders is housing.  Did you know that the single largest segment of the Gross Domestic Product (13.2% or so) is housing and housing related industries?  It seems simple then that any moron can figure out that how the housing industry goes, so goes the economy.  Yet this continues to be the elephant in the room that everyone in DC wants to ignore, EXCEPT where they can manipulate it for power or votes.  But that's a whole different dialogue for another time.

 All I can say is that it's your tax dollars at work.  Hope you saved some of what little you have left for what is yet to come.

Comments (1)

Larry Brewer - Benchmark Realty llc
Benchmark Realty LLc - Nashville, TN

I think we need term limits, and a minimum level of business successful experience or training before anyone can hold a public office. It's no accident that Obama is oblivious to the problems facing businesses, he doesn't have any business experience and neither does his staff.

Nov 11, 2011 03:44 AM