NNO: If with Feds you don’t succeed
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In the continuing tri-level (Federal, state, local) leadership vacuum surrounding New New Orleans, the horse race nobody wants to win, there is a tiny movement to the front. As the Times-Picayune reports:
BATON ROUGE — Gov. Kathleen Blanco’s proposal to create a housing trust within her office to provide buyouts or gap financing to the owners of flood-soaked houses squeaked by in a Senate committee Thursday, with some lawmakers questioning giving a new state entity significant power to dispense money.
That’s a red herring. If significant money is to be spent, your choices are new agency, existing agency, private contractors, or no agency.
“They’re both nasty.”
The case for extending or enhancing credit. Without a major deep-pocket capital source, New New Orleans will never properly arise. Hurricane Katrina destroyed physical property and economic value — damage estimates run to $45 billion, two and a half times the $18 billion (click to page 21) annual Louisiana state budget (of which a full third comes from the Feds!), and obviously dwarfing Old New Orleans’ budget (which I can’t find, despite repeated Googling).
The hurricane also destroyed the creditworthiness of borrowers, since their collateral (the damaged homes) may be economically unfinanceable or uninsurable. As such, absent a credit source, normal market forces will not regenerate: the urbanism will die. Enter, quite appropriately, the state:
[State Senator Ann] Duplessis’ Louisiana Housing and Land Trust would not only have the ability:
· To offer financial assistance to homeowners
· To work with mortgage holders to help people refinance their debt.
· To buy large swaths of land that could be packaged together to sell for redevelopment.
We’re gonna buy “Huge tracts o’ land.”
This is eminent domain writ large, and for the classic purpose of revitalizing blighted areas.
Proponents said passage of the legislation during the special session to deal with the storms’ aftermath would ensure expeditious help for homeowners.
“I just don’t want us to miss this opportunity to help real people over (questions of) how many employees we are going to have and where it would be located,” Duplessis said.
The trust would not be able to distribute aid until the money is appropriated by the Legislature.
The progress is less than it might seem, since the proposal merely authorizes, it does not appropriate. Where will the money come from?
The proposal is modeled after federal legislation sponsored by U.S. Richard Baker, R-Baton Rouge, which failed last month to win White House support. While Blanco and her staff have said that they are still pushing for approval of the Baker bill, the state proposal would serve as a backup that could channel federal money to victims of Hurricanes Katrina and Rita.
If the Baker bill fails, Blanco wants lawmakers to allocate $4.6 billion in federal Community Development Block Grants to assist individual homeowners, along with $1 billion to assist with the development of affordable housing.
I’m all for affordable housing — it’s good for you! — although Old New Orleans was among the nation’s most affordable cities. For New New Orleans, supply and habitability must be the primary concerns, with affordability likely to follow if the supply grows.
Legislators, including some allies of Blanco, also complained that there had not been enough communication about the complicated package filed the previous evening.
“All too often,” Senator Daniel Patrick Moynihan once said, “the sole objection to an otherwise worthwhile proposal is, ‘Why was I not consulted?’”
Are we treating New New Orleans with benign neglect?
After the debate, however, members of the Senate Committee on Local and Municipal Affairs voted 3-2 to send Senate Bill 49 by Sen. Ann Duplessis, D-New Orleans, to the Senate floor.
Reporting out of committee is the smallest of victories, but it’s a start.
Someone’s got to start it up.
How to link state and Federal efforts. Lending, and its distilled essential credit enhancement, need not be the exclusive province of one level of government; in fact state and Federal efforts can and should logically combine.
Origination terminology
· Origination. Making a new loan to a borrower.
· Placement. Selling the originated loan to a capital source (the ‘investing lender’).
· Securitization. An alternative to placement, it’s the accumulation of multiple originated loans/ mortgages and the issuance of a new bond (the ’security’) that is backed by the bundle of loans/ mortgages. (Hence, often call collateralized mortgage-backed securities, or CMBS.)
· Servicing. Collecting the borrower’s payments and remitting them to the investing lender.
Whenever capital at large scale (such as mortgage pools, credit enhancement, and securitization) has to interact with real estate at small scale (individual properties, loans, borrowers), a tension arises. Capital demands standardization, yet the individual situation is inherently non-standard. From this has emerged the fundamental principle of origination:
Fundamental principle of origination
The originator takes first loss.
The deep pocket takes last loss.
If the originator must take first loss, in this context that is the State of
Rebuilding
1. City of
2. City sells these loans to the Louisiana Housing and Land Trust (LHLT).
3. LHLT issues CMBS bonds (let’s call them “Rebuilding New Orleans Bonds”) secured by new loans from the city. Bonds are issued in two groups: Class A for the bottom 90%, Class B for the top 10%.
4. Baker-bill Federal agency insures the Class A Rebuild New Orleans bonds.
5. City of
In the above financing structure, the City and State are at risk for the top 10% of the loss. If the bonds perform, the City and State make money. If they don’t, it will be the state and city — the issuers — that bear the economic brunt.
Leadership is the art and skill of making hard but correct decisions, and then persuading others to rally round. In New New Orleans’ current anti-leadership sweepstakes, the state of
Put in money and watch the politicians spin in circles.
