Monday, October 6, 2008

Congress Change Confusion

What does the outcome of the 2nd Congressional district race mean? It's very confusing. Does the fact that an unknown candidate made the run off with the incumbent mean that we want change, something different. Wow, how did she do it? That is great, a new face emerges among a pack of old school New Orleans politicians. Have we finally voted for a non-connected and entrenched representative? Looks like it.

But wait, she didn't win. In fact, the incumbent, the epitome of the old guard of Louisiana politics, came out on top. And without money, TV ads or debating.

So did we get change? How did this happen, or more importantly, what the heck happened?

I first thought that the new comer would not stand a chance in a crowded field of experienced and qualified candidates. But looking back, they were all the same person. So she really was running against just 1 entrenched New Orleans politician. There was nothing to set them apart from each other.

Now we will see if the citizens of the all encompassing 2nd congressional district want change. We are in an era of instant judgements based on news clips and sound bites. Will that hurt the incumbent? It hasn't so far.

The sad fact is that New Orleans and surrounding areas, do not base their vote on change. The reasoning behind our voting decisions are not based on facts, experience, qualification or ability. Look at the mayors race. The outcome shocked the world. If we ever needed change, that was the time, however, what were our options? The option was a step backwards to an entrenched Louisiana politician. We passed on change. We could have had anyone else besides the incumbent and political family royalty. But we didn't. We could have had a choice of very smart people to lead us, but we didn't. We could have shown the world that we want change, but we didn't. We could have chosen not to be embarrassed, but we didn't. We could have proved to the country that we are not a joke, but we didn't.

Here is another chance at change. What will we do?

Sunday, September 21, 2008

The Drug Dealer and the Drug User

Who is to blame? The drug dealer who peddles the potion of addiction or the user who keeps buying it?

Its the same with the mortgage industry. Who is at fault here? The mortgage brokers and lenders who perpetrated no money down loans or adjustable rate loans that will keep your payments low at the beginning and when they go up "you can always refi". That of course is the addiction, you have to go back to the dealer. OR is it the user, home owners and buyers who bite the apple and take on more than they can handle, intentionally or not.

You've seen the ads....No Money Down! Rates starting at 5.5%! We can finance anyone! When lenders compete...and so on. My favorite is the home equity loan ads. "Use your home's equity to take that vacation or, the best one yet, buy a BOAT!!! Now, I give more credit to the consumer than to expect people to jump at these enticements and go to Paris on a HELOC loan. But, home equity loans can be used for needed finances that are important. So while the ads may be misdirected, they plant the seed that "Hey, i can refi, lower my note, take some cash out, make improvements, pay down debt, and another favorite of mine, "put in a pool", OK Griswold.

But why bash the mortgage brokers and lenders? All they are doing is following their own dealer, the secondary mortgage market(who had it rough last week). They are Mr. Big or the cartel that provides the dealers with the drug and gives them the green light to sell it near the school yards and in the nightclubs. "Get me a few thousand addicts and I will buy out your accounts or corner. You just set 'em up and we will take it from there". Why would they do that? Some of these loans had rather high rates, or were discounted such that if the arms kicked in, the secondary buyer would reap a nice yield. What Mr. Big did or didn't know is that the dealer on the street may have stretched the home value or credit worthiness of the home buyer. Maybe they said they made more money than they did, or the alimony wasn't as much or last as long as stated. The fraud on all sides of the transaction is another topic for another day. IT was wide spread and the stories are as just unbelievable.

So then it must have been the greedy or uninformed home buyer. When prices are appreciating at unprecedented rates, why not leverage at 120% Loan To Value. In a year, you will be at 90% LTV. Its the American Dream to own a home. The dream, however, doesn't necessarily define how much home you need or what the LTV should be.

The bottom line is all of the above and more is to blame for this debacle. But, the symbiotic relationship between the borrower and the lender is the crux of the problem and there is no other reason than that. At the application, when questions were asked and promises made, that is where it all began. At any point in that process, either side could have said, NO, this is too much, don't do it, borrow less, leverage less, or the more appropriate question at the time, when will the bubble burst? Gee, didn't we hear that question asked for about the past 5-7 years?

What do you think? Dealer or User? I wonder who had the nicer car? The sad fact is that neither may have a nice car come next year.

Friday, September 19, 2008

What is Flip This City?

FLIP THIS CITY is just what the name implies. The key to FLIP THIS CITY is the belief that the only people who can FLIP THIS CITY are the very people who live here. I think it is very clear to all citizens of the New Orleans Metro area that if we don't do it, it ain't gonna happen.

And that is what this site is dedicated to. The goal is to highlight people who are trying to FLIP THIS CITY. From kids cleaning parks to volunteers coming down to New Orleans by the bus load to help gut and renovate houses. It is really amazing how people just drive in to town with a van of kids on spring break, and just get to work on someone's house.

We want to highlight these stories. And your story. Tell us what you see happening in your community, church, work, school, etc. And what we need to do to FLIP THIS CITY. Push people to vote, get vocal about corruption and mismanagement, push for accountability from elected officials, police and law makers. Don't hope it gets better, make it get better.

Tell the world we are still here and not going anywhere. Get out there and FLIP THIS CITY!

Will Wall Street help Canal Street?

You have to go back 20 yrs, 1988, and look closely at the S&L crisis and how that affected the economy, both good and bad. There are many differences between now and then, but the net result is the same,....Prices have to hit bottom and foreclosures re-enter the market before it rebounds. And the sad reality is that someone has to lose.

In the current state of the secondary markets, the problem actually flows up hill. The buyer somehow gets qualified by an underwriter, the mortgage broker then resells to a secondary lender, who then packages thousands of these loans, securitizes them and sells to a larger investor. Its a hot potato, but no one knows it until the foreclosures start to happen. Now these packaged securities are tainted and no one knows if 10%, 40% 90% are bad loans. So who does the last person holding the bag turn to? Their rich uncle, Uncle Sam.

Keep in mind, someone has to lose. The home owner has already lost, the loan has already gone into default or already foreclosed on. So here we are again. Rich uncle now owns these houses and needs to get rid of them. Is this good or bad? Bad if you lost your house, job, equity if any. Good if you believe that housing sales create economic "churn".

Lets get the moral issue out on the table now. Yes, it sucks that people lost their houses. You would be surprised how many people are very close to losing their homes right now. Add a couple of hurricanes to the mix and its like, why even try to keep it? But as the saying goes, this too shall pass. People are resilient. Many people in good and bad economies lose houses, jobs, and experience other tragedies that causes life to be put on hold. You hear success stories everyday how someone lost it all and came back stronger. Gee, there may be a few of those stories right here in good ole' Louisiana.

So, for the upside, these foreclosed houses will be put back on the market at steep discounts. Investors are not capitalizing on someones loss, they are actually doing something good. They are "investing" and injecting money in the economy. The spin off of a home purchase is very extensive and is a stimulus that is desperately needed here in New Orleans. And if someone is placing cash in a home on your street, I'm sure you will see the benefit from it. This is the stimulus we needed. And we need a lot of it. One advantage we have is that if a flooded and gutted home was given back to the lender, it becomes such a cheap investment that the pool of investors or buyers is much larger and will create more interest in renovating these homes. If the amount of the investment is smaller, more people will invest. And we are talking in the 10-30k price range.

We are still waiting for the commercial real estate market to experience some of these effects, but it will come. Maybe not as dramatic as the last bottom or the residential side, but, this too will stimulate more economic development giving small businesses a more affordable option for space and sites.

All we need now is a great deal on Canal Street, or some other high profile property. Hopefully we can see a major building get a new face, preferably City Hall. Which major building would you like to see change hands or transform?