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Wednesday, July 29, 2009

California Election Reforms: Almost Enough

California's election laws are being challenged at the polls in November 2010 with one major initiative having qualified for petition signatures and another measure being reworded and re-submitted to the Attorney General after the first draft was grossly misconstrued by the Attorney General Jerry Brown's office. The two measures would follow voters recent passing of a measure that will change how boundaries are drawn for State Assembly and Senate Districts, essentially an attempt to eliminate or minimize gerrymandering of districts by the political parties.

California has many problems that are the result of the political structure and laws governing elections and offices. Paramount among them is the gerrymandered districts following the 2000 census which resulted in the vast majority of districts in California being "safe" for one party or the other--most generally safe for any Democrat running for office--as the districts are drawn with significant majorities of one party or the other. The result is no competition at the polls, no compelling reason for any candidate to listen to or acknowledge any moderate ideas or citizens. All a candidate must do is prevail in the party primary and they will be elected to office. To win the primary the candidate needs more money than their opponent, to get that money they must pander to the "base" which tends to be entrenched on the either the left wing of the Democratic Party or the right wing of the Republican Party.

While the initiative to take the drawing of political districts away from the Legislature and putting the process into the hands of an "independent panel" appointed by both parties, it is just a start to the reform needed to cure California of the structural problems in its election and governance processes. So are "Vote Safe Now" and "Citizen Legislature Act" both are worthy initiatives but do not complete the necessary reform to overhaul our state government to bring sensibility, accountability and good governance to Sacramento.

"Vote Safe Now" is an initiative proposal from State Senator George Runner that is very simple in its proposals. The main aspect of the initiative is the requirement that all voters must show identification to cast their ballots. You show your identification to purchase a pack of underwear with a credit card at Sears, but you can exercise the most important right you have just by signing a name with no verification the signature is your own. We must show our identification to board an airplane but not to decide the President of the United States. If you purchase tickets to a Dodger game and go to Will Call to pick them up you must show your identification but to vote on whether same sex couples can marry you just walk into a polling place give a name and a signature and receive a ballot. Voter fraud is so easy to accomplish in California. Every campaign has available lists of registered voters and whether they have voted in the past several elections. Seeing a voting pattern of someone who does not vote it is quite simple for the campaign to send fake voters to the polls posing as the actual voters, no ID required, get the ballot and cast the votes. Easier than buying underwear.

Runner's initiative has two other provisions as well, one protects the ballots of California citizens serving in the military and the other requires absentee ballots be verified by election officials matching signatures and identification. With almost 50% of California ballots now being absentee the opportunity for fraud increases dramatically. Runner's initiative is meant to protect the votes of California citizens by eliminating illegal ballots that would cancel out those cast legally. The initiative was submitted to Attorney General Jerry Brown for title and summary for the ballot, the Brown's summary was blatant in its negative language to attract "no" votes so Runner pulled the initiative and will resubmit at a later date to qualify for the November 2010 ballot. He is also taking the Attorney General to court over the title and summary language issued.

"Citizen Legislature Act" is in the process of collecting signatures to make the November 2010 ballot and is being put forth by Citizens for California Reform, a group organized and run by Gabriella Holt. The initiative is quite simple, it will reduce the amount of time the Legislature meets and create a part-time governing body. Holt's premise is that with less time to meet the Legislature has less time to create and pass so many bills, over 2,000 per year at this point, that cater to special interests and intrude more and more into our lives. As was recently seen during the budget crisis in Sacramento, while the State was operating on IOUs members of the Assembly and Senate were writing and putting up for votes bills that had nothing to do with the budget. Instead of working to solve the fiscal crisis they had created they were spending time and resources on bills that were so insignificant to the situation as to be laughable.

A very big benefit to the CLA would be the cutting back on the staffing and benefits for the members of the Legislature, saving the tax payers millions and millions of dollars. With less time to meet the meetings must be more efficient to accomplish the major requirements of the state. On the Citizens for California Reform website has a great chart comparing California's full time legislature with the legislatures of the other forty-nine states, a very interesting chart I recommend everyone read. Also on the website is the petition for the Act which can be downloaded for signatures.

The Vote Safe Now and Citizens Legislature Act are measures worthy of the ballot, and in my opinion worthy of being enacted, combined with the redistricting power being taken away from the Legislature to reduce the prospects of gerrymandered "safe" districts the measures take big strides in voters regaining control of their government. However the three initiatives do not go far enough, we need one more initiative on the ballot: eliminate term-limits for the Assembly and the Senate.

The explosion in spending by our state government can be tied in a time-line to the introduction of term limits for our Legislators. With only two or three terms in office our politicians must be on the prowl for their next elected office, a new set of voters and a new campaign needing cash. Even though they are in safe districts a new primary for a new office means they no longer have "incumbent" under their name making the primary the difficult election. To win the primary they need to have support from their party base and its donors. To get this support they need to curry favor while in their current position. All the term limit laws have done is recycle our elected officials between Assembly and Senate and moved them further away from the average voter.

Term limits were enacted in large part to eliminate the power that had been accrued and wielded by then Speaker Willie Brown. Brown ran Sacramento his way and had so much power there was no way an election would oust him from office. Brown also controlled a Legislature that for the most part had balanced budgets, surplus budgets and was able to have some sort of vision for the future. But at least he was up for election every couple of years and there was the opportunity to mount campaigns against him. Slim yes, but a chance nonetheless. Further, the members of the Assembly, and the Senate, were also able to focus on their jobs, be somewhat responsible to the voters in their districts and temper the wild swing to the left our state has taken since the first class of term limit officials were elected.

If we are to have a part-time legislature then we need to eliminate the term limits as well. We must have elected officials who are vested in the future of the state and its citizens and not using the office to pad their campaign coffers for the next open seat primary they will be entering. Yes incumbents are elected disproportionally, but maybe many of them deserve to be re-elected. Not all of the politicians in Sacramento are thieves, carpetbaggers or egomaniacs. Many are honest Californians who try to help our citizens and state, but their ability to do so is limited by the term limits.

To entice the removal of term limits, should there be such an initiative I suggest including that no one may run for office with their elected title or the word "incumbent". While knowledgeable voters, and aren't those the ones we really want voting, would know who the incumbent is, other voters would be more apt to look at the person and their ideas.

Require voter identification at the polls, reduce our Legislature to part-time and eliminate term limits. Those are three ideas that would improve our state governance. Two are on their way to the ballot, one is an idea that has not yet generated any support--I hope it does.


Monday, July 27, 2009

Teachers, Pols Block Funding For Schools

In the most recent iteration of our state budget crisis the California Teacher's Association took out ads on television lambasting the Governor, and lightly so their friends in the Legislature, for balancing the budget by pulling funds from education. With the typical tear-jerking tone, the CTA leveraged children's education to try to prevent any budget hits to the education community.

In an article in the Los Angeles Times on Friday, writers Jason Song and Jason Felch, describe how President Obama and his Secretary of Education, Arne Duncan, have both recently criticized California specifically for a state law that prohibits using student test scores to evaluate teacher effectiveness. It seems that the Department of Education has $4.3 billion set aside for the "Race To The Top" program. As part of the American Recovery and Reinvestment Act (the "stimulus package"), the funds will be doled out to school districts that meet certain criteria. Among them: "Building data systems that measure student success and inform teachers and principals how they can improve their practices"

This is government speak for using student test scores to show the ability and effectiveness of teachers and principals. Sounds simple right? If a teacher routinely has the lowest scores of his peers he is probably not very effective, conversely if a teacher routinely has higher test scores than her peers she probably is very effective. In California's school culture today these teachers are equal, unless the ineffective teacher has more years under his belt then he has higher pay under his seniority. Protected by his union and either the state wide association with either the California Teachers Association or the California Federation of Teachers, the ineffective teacher is untouchable. As previously outlined in a LA Times article I wrote about in May (here), Song wrote about how it is impossible to fire teachers for a multitude of behavioral issues, including inappropriate contact or sexual molestation. Now with this article Song and Felch show that teachers in California are also protected against dismissal because there it is against state law to use testing data to measure their ability to teach.

A spat is developing between California lawmakers, and union leaders, and the Obama Administration over the language of a "2006 law that prohibits the use of student test scores to evaluate teachers on a state level..." The Governor, several Democrats and the heads of the CTA and CFT argue that the law does not disallow individual school districts to use test scores in teacher evaluations; the Obama Administration is saying the state needs to change the law period. At stake, California's share of $4.35 billion in "Race to the Top" funding, plus additional funding down the road as Duncan implements Obama's education mission of raising teacher effectiveness and accountability.

"This competition will not be based on politics, ideology, or the preferences of a particular interest group," Obama said. "Instead, it will be based on the simple principle: whether a state is ready to do what works." The President is making it pretty clear his Administration is not particularly interested in splitting hairs over California's law. You want the funds, repeal the ban on correlating test scores to teacher effectiveness.

In a state that ranks 41st in collecting and using data to evaluate teachers, that ranks at or near the bottom in student achievement in reading, writing and math skills, that has a Department of Education, a State Board of Education, a Secretary of Education and a Superintendent of Public Instruction, it seems the education establishment has spent more time growing bureaucracy and less time educating. The education budget in California has exploded in the past decade, and the results have not been seen in our classrooms. While more and more money has been put into the education system, less and less has been put into the classroom and where it would be most effective. The CTA and CFT cry and complain and threaten every year during the budget cycle, and every year their efforts produce more protection for bad teachers, more waste as teachers are removed from the classrooms but still paid while under investigation or going through the series of procedures necessary to remove them, all costing districts across the state millions and millions of dollars that could be used to pay good teachers, effective teachers.

The Democrats are in a pickle of the Obama Administration's concerted effort to bring teacher accountability to the fore in education. Crafting policies that would reward teachers who are shown to be doing their jobs of teaching reading, writing and math skills, Obama is at odds with the teachers' unions across the country. This also puts him at odds with the Democrats in Sacramento, virtually everyone of which has received significant financial support in winning their primaries and general elections. What to do? Reform the education system in our state that is broken and not educating our children? Or continue to do the bidding of the CTA and CFT so they can maintain their grip and control over the education system in the state and in the districts.

In Long Beach we have seen the effect of a teacher's union that was out of control in its quest for power. Currently we have what amounts to a vacant seat on the school board because the hand picked and elected puppet of the teacher's union has been absent from his duties ever since the Executive Director of the union with whom he has a relationship for over a decade, was fired from his position. Fired for mismanagement and fiscally crashing the union. Unfortunately what has happened in Long Beach is still happening in Sacramento affecting the entire state, and in other districts up and down the state.

While I am no fan of Barack Obama's and his policies nor his spending, if he is able to wrest control of our children's education away from the unions and put it back into the control of the local school boards I support and applaud this policy. Our local districts have seen their power slowly erode and move to the state capitol. With little control over funding, little control over which programs are needed in our community, little control over the policies for hiring and firing teachers, out district is held hostage by the State Department of Education, therefore hostage to the Legislature, therefore due to the Democratic majority hostage to the CTA and CFT.

Opponents argue that test scores are skewed because some schools have more children from immigrant families that do not speak English, skewed because some schools have more children from single parent families, skewed because some schools have more children in poverty stricken areas. That is true and the comparative use of test scores within a school, within a district and within a geographic area flatten out many of those factors. But skewing scores are teachers who are more interested in developing social skills than math skills, principals who put the emphasis on instilling getting along and values than instilling proper verb tenses and pronunciation skills. Educated kids get along a lot better than uneducated kids, tests show just how much education a child has received and retained.

Two plus two is four. Always. A sentence requires a noun and a verb. Always (It is always required for those ready to lambaste me). The basic rules of math and language, in our case English, are color blind, socio-economically ignorant and universal from San Diego to Shasta. If a teacher consistently shows that his students do not know that two plus two is four then he is not an effective teacher, and he needs to be removed from his classroom. Unfortunately under state law in California and because of the control of his local and state union, he will continue to have 20-35 kids in his classroom next year that cannot add, and the year after that, and the year after that....

If you care about our children's education you must become active in opposing the lack of control you have in your local district. You must tell your elected representatives in Sacramento, especially if they receive donations from teachers' unions, to break the cycle of allowing the unions to dictate our local and state education policies. You must insist that California amend it laws and work with the U.S. Department of Education to secure funding for rewarding effective teachers under "Race to the Top."

Facing perpetual budget crisises because of increasingly constrating policies and procedures, the Obama Administration is offering a multi-billion dollar incentive for California lawmakers to break their dependence and servitude to the teachers' unions and reform our schools. Put accountability back in the classroom, and responsibility back to local districts. Once they get those reforms in place we can all attack the number one problem: lousy parents that cost other children quality education time and millions of dollars.


Saturday, July 25, 2009

Just Some Questions

Below are questions I have asked myself throughout the past week. Instead of writing what my answers to them would be I am interested in any answers you may have, or additional questions you have asked yourself.

For the week starting Monday July 20, 2009:

Why is the Obama Administration not releasing June financials?

It couldn’t be they are waiting until after Congress goes on recess to release figures that show the budget and operations aren’t doing so great, could it?

Have you Binged? (that is Bing –ed note binge- ed! As in Microsoft Bing search platform)

What percentage of health care costs are do to litigation or defensive procedures done in fear of litigation?

Are you acting stupidly if you state someone else acted stupidly without knowing the facts surrounding the actions?

How much is spell check, texting and Tweeting with the character limitations of Twitter hurting the language skills of our younger generations?

Fair food: corn dog or turkey leg?

In his press conference President Obama said doctors make medical decisions based on fee schedules, would pull out tonsils for a sore throat because it pays more, does your doctor make decisions about your health depending on how much s/he will get paid?

Are you in favor of a part-time legislature in California?

Have you watched gas prices as closely this summer as last?

What percentage of healthcare costs are because of procedures done defensively to avoid possible malpractice suits?

What is the worst movie you have seen, in the theater, in 2009?

So the California Democrats would rather cut education spending than drill off the shore of California and bring in $100 million plus?

Can you name the time and place of the last negative event from off shore oil production in California? Let’s make that the last five so we don’t have a one-time apparition, shall we?

Doesn't it make sense to clean up the waste and fraud in our existing Federal healthcare programs, i.e. Medicare and Medicaid, and solve inefficiencies there before increasing spending more than 15 times for similar programs?

Why is the United States building two nuclear power plants in India but not in the United States? Are we too good for nuclear power or is it too good for us?

What is your favorite Disney movie?

Is the happiest group in America right now Obama’s classmates at Harvard Law who will make fortunes guiding clients through loopholes and finding shelters to avoid the taxes Obama wants to impose on them?

Have you ever not shaken someone’s hand when offered theirs?

What is your favorite summer memory from when you were in elementary school? Junior High? High School?

Does your family have a summer vacation tradition?

Can you name a better sound than two young siblings playing by themselves and giggling uproariously?

Have you seen our $18 million dollars?

Cookies or Pie?


Wednesday, July 22, 2009

"Above All, Do No Harm"

Most Americans are familiar with the concept of the Hippocratic Oath, the Oath which our doctors take to commit themselves to the well being and health of those they treat, "Above all, do no harm." This is not the oath taken by members of the United States Congress nor the President of the United States. Their oaths are to preserve, protect and defend the Constitution of the United States. To preserve, protect and defend the Constitution, sometimes you must do harm. This must be the guiding force for President Obama and some Democrats in Congress as they are pushing for passage of a Health Care Bill that will dramatically alter the United States health care systems, economy and culture. And it must be done by August because members of Congress go on vacation for the month.

So far the 111th Congress has passed, and President Obama has signed, some pretty significant legislation that was bulky, expensive beyond historical proportions, and unread. As we saw with the "Stimulus" bill passed early in this session of Congress, billions of dollars were spent on projects that almost no members of Congress knew about--except those shoving in their pet projects. The resulting bill did not resemble in spirit or in actuality the intentions given to the American people: to provide Federal funding for infrastructure projects that are "shovel ready" that will provide jobs for Americans. Since passed little of the money has been spent, projects across the country that were "shovel ready" are now on holding pending several additional layers of red-tape, and unemployment is approaching 10%. Last month the House passed the Cap and Trade Bill which is very harmful to American businesses and is very expensive, and went unread by almost every member of the House before they pushed it through with a bare majority vote--needing eight Republicans to cross the aisle for passage.

In 1993 then First Lady Hillary Clinton presented a health care reform package to Congress that was over 1000 pages and very complicated. Members of Congress read the bill, found many flaws and eventually decided it was not something their constituents wanted. In 2009 Democrats presented a health care reform package to Congress that is over 1000 pages and very complicated. Members of Congress are barely reading the bill and are expected by Congressional leadership and the President to pass it in the next week. One can hope that the 111th Congress will follow the lead of the 103rd Congress and actually read and deliberate the bill before them. Given the rushing to vote on major bills thus far my hope is scant.

Health care in America is very complicated with many layers, there is private insurance, Medicare, Medicaid, Medical, COBRA, medical groups, HMOs, PPOs, and all you want is to have your child vaccinated or treated for bronchitis. Most Americans are in good health, have minimal interaction with the medical profession, have good insurance obtained through their place of employment and seeing rising premiums despite their good health because of government regulations that say premiums cannot be higher for one employee than another. So at work you pay higher premiums for the poor health choices of co-workers who may have issues due to their over-eating, smoking, drinking, etc. As well you pay additional taxes to pay into Medicare and Medicaid/Cal to pay for the health care of those who do not have insurance, they are covered at very little or no cost whenever they visit the doctor or a hospital. Most Americans are not thrilled by their higher taxes and premiums due to the poor decisions of their co-workers and the uninsured they are covering, but they pay and move on.

From an employer standpoint health care is very complicated as well. Regulations state that how one is covered all are covered. Many companies have one or more people dedicated just to managing the health insurance and other benefits provided to their employees. In America if you own a company you are also responsible for your employees health care, why is another topic, but personal responsibility for one's health care has been taken from you the individual and given to your employer. Thus your employer selects which insurance company will provide your insurance and which plans will be available to you. As mentioned because it is a group plan your premiums are predicated on the overall health of the group, lowest common denominator dictating premiums for the most healthy. The employer must keep track of the premiums, ensure the insurance company is helping employees, keep track of when new employees are eligible and keep track of the COBRA rules for employees whose employment is terminated either voluntarily or involuntarily. Most employers take on this burden as a cost of doing business and understand to be competitive in the marketplace for quality employees must have a good insurance plan. Some employers pay all the premium for a worker and his/her family, others cover just the employee's portion, but whatever is covered for one must be covered for all.

Under the bill currently being rushed to vote in Congress for health care reform are provisions that many employers will welcome from a profit standpoint, while probably dislike from a personal standpoint. In the bill companies will be able to drop their company insurance plans and save money on their health care costs. Depending on the total payroll of the company, any company not providing insurance for their employees will have to pay from two to eight percent of the payroll to the government who will provide their insurance. So no more COBRA, no more keeping track of premiums, no more having personnel specifically on the payroll just to deal with insurance. Further for many companies paying even an 8% additional payroll tax is cheaper than the premiums they are paying now for their employees. Further, in the plan is a provision to tax the health care premiums that are paid by the employer and the employee--no more pre-tax benefit for health insurance. By getting rid of the insurance plan the employer saves money in premiums, labor resources and costs to track insurance and payroll taxes. Simple math and a look at the bottom line dictates getting rid of the company plan. Suddenly you are federally insured and subject to the guidelines, policies and procedures for your healthcare as dictated by the federal government.

President Obama has said that if you are in a private insurance plan and have a family doctor you will not see any changes or additional cost because of the bill in Congress. This is simply not true. There is no way this plan with costs in the trillions, which will alter the relationships, compensations, premiums and requirements for employers, doctors, hospitals, pharmacies, drug companies and patients will not impact the status quo. Further at a cost of several trillion dollars who is going to pay for this? The "rich"? Guess who becomes "rich" once the government needs to pay a bill that has now grown to over $12 trillion before this health care bill?

If you own a company you must contact your Congressional representatives and tell him/her you will support their re-election if they rush to vote on this bill before it can be dissected and debated. If you are insured by your company you must contract your Congressional representatives and tell him/her you will not support their re-election if they rush to vote on this bill. No one wins by Congress taking the most complicated issue before our country, its health and health care delivery, and "solves" the issue in less than two or three weeks.

Obama repeatedly said on the campaign trail that he wanted bi-partisan support for major issues, that he would change politics in Washington and reach across the aisle for input and ideas in crafting solutions to such major issues as health care. Well we have seen that for him bi-partisanship is Republicans agreeing with him, bi-partisanship is presenting one solution across the aisle and criticizing and debate, bi-partisanship is shutting the opposition out of meetings where legislation is being crafted. This issue is too big to shove through Congress. It impacts every single American, except those in Congress with their own health care system. It impacts every person reading this post. Contact your Congressional representatives and tell them to slow down. Read the provisions, speak to your constituents and do what they want.

When dealing with health care one should remember, "Above all, do no harm."

UPDATE 7-22-09 1:00 pm: Thanks to sister Sharon for providing this link which contains a list of "tweets" from blogger at Economic Policy Journal who has read the 1000 page bill and posts his findings. A sample: "PG 203 Line 14-15 HC - "The tax imposed under this section shall not be treated as tax"" and "PG 50 Section 152 in HC bill - HC will be provided 2 ALL non US citizens, illegal or otherwise" and "Pg 425 Lines 17-19 Govt will instruct & consult regarding living wills, durable powers of atty. Mandatory!" Read the entire list put together so far at EconomicPolicyJournal, real policy lifted right out of the bill Obama is pushing to have passed by August 1st.


Monday, July 20, 2009

Take These Jobs And....

We all remember the popular lyric from the appropriately named Johnny Paycheck, "take this job and shove it, I ain't working here no more." A similar refrain has been heard throughout the Golden State for the past decade or more as companies and corporations have opted to open new businesses in Arizona, Oregon, Nevada, Texas, and many other states rather than do so in California. While many in Sacramento point to statistics that they say show no jobs were lost by companies leaving California for the past decade, what they cannot show is that during a period from 2002 through most of 2007 when our national economy grew every single quarter--that is twenty straight quarters of economic growth--California did not gain new jobs. Following the state on this path is the City of Long Beach. During a period of historic economic growth Long Beach lagged behind cities in neighboring states in adding new companies and corporations to employ its residents. Throughout the city and state there has been a loss of manufacturing jobs, assembly jobs, production jobs, and a small increase in service industry jobs. In the past decade California has lost in the neighborhood of half a million manufacturing jobs, in the same time frame however the number of government employees has increased by over 125,000.

Not ones to learn about economics or cause and effect while in office, the Long Beach City Council on July 14th continued on the path of hostility to business and job creation in the city with a vote to postpone approving an ordinance to allow more jobs. While all the attention at the Council was on the proposed Equal Benefits Ordinance that would require contractors doing business with the city to offer equal benefits to registered domestic partners as it does to married couples, by a vote of 7-1 the council was able to postpone the development of a new hotel for at least one more week. With the vote the council once again took out a full page ad in the "Don't Bring Jobs Here" journal that is widely read by executives and CEOs looking to grow their companies.

Several years ago the downtown area of Long Beach changed with the development of The Pike. The new development, designed as an outdoor mall, was to have shops and restaurants and encourage visitors and residents to stroll and shop and dine. About the only strolling however is from the parking garage to California Pizza Kitchen or Islands and most of the shops in between have turned over or are vacant. The development has been a disappointment despite a full convention center across the street, thousands of new residential units that are now occupied within walking distance and restaurants north and south that have thrived since the development of The Pike.

When a national upscale hotelier came to the city and indicated a willingness to build a 125 room hotel on the edge of The Pike it seemed like a great idea. Close to the convention center, downtown offices and the vacant store fronts at The Pike, visitors to the hotel could easily walk and shop and dine--surely such a hotel in this location would help revitalize the site.

Not so fast says seven members of the Long Beach City Council. Anyone who is semi-conscious knows that financing for anything is difficult to obtain in the current economy, but the City Council of Long Beach wants the developer of the hotel to wait a bit longer before securing final financing of the project--a potential deal killer. The hotel will generate much needed revenue for the city directly from bed taxes and secondarily from sales tax revenue of visitors shopping and dining in the city--but those revenues can wait. The construction and furnishing of the development will bring jobs to the city and region, but those jobs can wait. All the positive aspects of this project are on hold. Why?

The Long Beach Coalition for Good Jobs & A Healthy Community (site here) is a front group of organized labor groups that have been pressuring Long Beach hotels to unionize their workers for some time. The group consists mainly of union representatives and representatives of non-profit groups in the community that support immigrant laborers. Their purpose is to get the hotel industry to "invest in its workforce" because it feels uneducated workers with limited to no language skills, English language skills, should be paid on equal terms to educated workers with skills to communicate and use things like computers. Their only purpose of course is to unionize the workers, which will generate more dues for the unions and of course more political contributions for political campaigns. If this group really cared about the workers they would be using their funds to educate them to get high school diplomas, learn to speak and read English fluently and greatly increase chances for above minimum wage employment. Instead the group trots out "representative" workers to say how bad their plight is because they have jobs in a city with an unemployment rate of 12%.

Of the seven council members who voted for the postponement in completing the Hotel Sierra we have the following: 1st District Robert Garcia who is facing re-election in 2010, received backing from public employee unions for his recent election and will need labor support to get any Democratic Party primary funding for his future, 2nd District Suja Lowenthal (whose district includes the hotel) recipient of public employee endorsements and funds, 5th District Gerrie Schipske, former attorney for the teacher's union, 7th District Tonya Uranga who has a staff member on the board for the Long Beach Coalition and whose husband is running for her seat, 8th District Rae Gabelich who received backing and funding from public employee unions, 9th District Val Lerch who received backing and funding from public employee unions and who is running a write-in campaign for re-election. Six of the seven members who voted to delay the construction of the hotel have union support to get into office.

Our City Council is becoming increasingly comfortable in meddling in how businesses operate. No longer is their purpose to provide for the safety of residents and businesses, maintain infrastructure, and encourage a healthy business environment that encourages employers to bring jobs and raise the quality of life in our city. Instead the council and city have veered sharply towards the anti-business crowd, vocal on websites across the city and country that decry anyone who shows a profit, who pays minimum wage, who dare to provide jobs, services and goods to local communities. Why is Long Beach facing unemployment higher than the state of California? Why is California facing unemployment higher than the national average? Why are states like Texas still attracting employers and jobs, companies expanding and growing even in our current environment?

As always with politics follow the money. In Long Beach the only money that matters is money that has been taken from workers through dues paid to organized labor and taken from their paychecks as political donations. Every state district in Long Beach, and with the exception of the Shore every federal district, is overwhelming Democrat in registration. To win an election an individual needs to be a registered Democrat an win the Democratic Primary for that seat. To win the primary they must, absolutely must, have the considerable financial support of the public employee and private industry unions. Ask Laura Richardson. Ask Alan Lowenthal. Ask Bonnie Lowenthal. Ask Wayne Furutani. Despite the role of organized labor in our state and city financial messes with salaries and benefits that have rocketed, they continue to control our elections and officials. Despite the record showing the long term impact of such influence on the auto industry, the airline industry and public budgets across the nation, our officials still chase those funds for their next election.

As long as Long Beach voters keep electing the same people to the same offices being supported by the same funds from the same organized labor groups our elected city officials will continue to behave as they did last Tuesday. Voting to delay or kill projects and developments that would bring jobs and revenue to our city. And the more they follow this path the higher our unemployment numbers climb, in the city and in the state.

UPDATE: Councilman Val Lerch sent me this email this morning after reading this post:
Dennis, a correction to the Sierra Hotel story. I am not in support of any type of forced labor deals. I do not support living wages, (they just become the new minimum wage and drive up costs). I supported a one week delay as a courtesy to my colleague.

Do I need to remind you that I was and still am an opponent to PLAs and the ban on K-Mart. I had hundreds of HERE and LA Feds come after me in the last election and will this election. They put hundreds of their members on the streets in NLB to get me out of office. They backed my opponent spending over 100k against me and denoted 50k more.

Thank you for listening.

Val Lerch
Write-in Val Lerch for City Council 2010
Committee ID #1319487

Thank you Val for the information, and also your positions on these issues.


Just Some Questions

Below are questions I have asked myself throughout the past week. Instead of writing what my answers to them would be I am interested in any answers you may have, or additional questions you have asked yourself.

For the week starting Monday July 13, 2009:

For those who take an early morning walk, have you noticed a big spike in spider webs this past week?

Are the governments of San Francisco, Los Angeles, Berkeley, Oakland, Seattle, Portland and Minneapolis role models you wish your city government emulates?

Is there a better smell than a fresh pie baking in your oven?

Which advertisement on the television are you most tired of? On radio?

Why do we sometimes feel guilt when we do the right thing?

Have you watched any of the Sotomayor hearings?

What would you have to hear to change your mind about a nominee to a Federal judgeship?

Do you feel the confirmation process for Federal judges is fair? Do you feel it provides the United States with the best possible judges at the Federal level?

If your answer to either of the above is “no” what process would you suggest?
Scotch or bourbon?

How do I become a Czar? Can I be the husky, middle-aged, small business owner father Czar? Do I have to live in Washington? Do I get Federal benefits?

God is great, beer is good, and people are crazy” by Billy Cunningham is my current favorite song lyric, what is your favorite lyric(s)?

With unlimited resources would you live where you live today?

If you could play one sport professionally what would it be?

With a million or so Californians on other public payrolls, and the furloughs across the state, how long before lenders start tightening lending to public employees in California?

What percentage of viewers and golfers that are not members of Stewart Cink’s family were pulling for Tom Watson’s putt to drop on 18?

What is your opinion of the “official speaking anonymously because they are not authorized to speak” or “anonymous official speaking without authority” as sources?
With the way Congress leaks through unauthorized anonymous officials why should the CIA or any agency divulge anything to them?
Did you see "Harry Potter" this weekend? Will you see it?

What act of charity or community will you do this week that is purely selfless?

Cookies or Pie?

Wednesday, July 15, 2009

How Fannie Mae and Freddie Mac Crashed An Economy

Much has been written and spoken about the housing crisis that led our economy into the current recession. Finger pointing abounds and victims and villains are presented to be cuddled or hounded. Early on the media attacks went after the easy targets, swarmy mortgage brokers, greedy Wall Street brokers, etc. I touched on this in my post last week "Curing The Foreclosure Crisis". One major factor in the housing market collapse that has not been mentioned in any reports or stories that I have read is the use of Automated Underwriting Systems (AUS) by Fannie Mae and Freddie Mac and their contribution to an industry writing weaker and weaker loans.

Automated Underwriting Systems came into the mortgage industry in the late 1990's. Fannie and Freddie in an effort to streamline their processes, facilitate the transfer of mortgages from originators to lenders to the GSEs (Government Sponsored Entities: Fannie and Freddie are both private companies with government charters, they can make a profit but are regulated by Congress), and to have their mortgages more uniform in their approval processes, conditions and evidence required for purchase and sale as Mortgage Backed Securities.

To perhaps further your understanding a very quick overview of the path of a mortgage: a mortgage application is taken by an originator, the application package is approved by a lender and if all the conditions are met it is funded, the loan package including the note and grant deed or mortgage depending on state is forwarded to the lender, the lender puts the loan package into a bundle with tens of millions of other mortgages and the bundle is sold to one either Fannie or Freddie depending on how it was underwritten, Fannie or Freddie then bundle this bundle with other bundles and has an offering for investors of bonds or securities, an investor can purchase an investment in Mortgage Backed Securities and receive interest payments and repayment of principal as the mortgagees pay their monthly payments and pay off their mortgages. Someone in Iowa can and does invest in a bundle of mortgages from Wyoming, Hawaii, Vermont, etc.

In the old days....before the advent of the Automated Underwriting Systems in the late 1990s those of us in the mortgage industry used age old methods of obtaining loan approvals for clients. We would meet with the client and fill in an application package by hand, collect W2s, tax returns, paystubs, bank statements, letters of explanation for any blemishes on the credit report and what ever else we felt the clients financial profile needed. We would package these items with an appraisal, title report, credit report and send them to an underwriter. The underwriter would open the file, review all the paperwork we had submitted, and if we did our job correctly would approve the loan for funding using the credit policies and guidelines of Fannie, Freddie, FHA or VA. Every file had proof of income, assets and explanations from the borrowers for any credit dings.

Seeing that perhaps this process could be streamlined and made more efficient using emerging technology, the GSEs developed their AUS, Fannie Mae rolled out Desktop Originator/Underwriter and Freddie Mac brought Loan Prospector to market. Now instead of sending a complete loan package for approval, an originator could input the loan application information into the software program and the program would analyze the data against the guidelines and issue an approval or decline. If the application received approval it would detail what items would needed to be submitted with the loan for final approval and in order for the GSE to purchase the mortgage from the lender (see steps above in the path of a mortgage). We might input the information for a borrower and receive an approval that requires a paystub, most recent year W2, one month of statements to verify funds for closing and reserves and a credit report. Having experience in the industry we knew that borrowers need to have income to debt ratios no higher than 40-42% (percentage of gross income for current debt obligations like credit cards and auto payments plus the new housing obligation).

As with all technology the more it was used the more efficient it became. By 2002 every lender was requiring an AUS approval on loans before they would fund conventional mortgages for sale to GSEs, this happened because the GSEs were requiring an AUS certificate in order to purchase the loans. No more traditional underwriting. So if the AUS approval required one W2 then the underwriter would call for one W2, if the AUS approval called for no W2 and only a paystub then the underwriter would call for only a paystub and no W2. The more transactions and mortgages funded throughout the country with the AUS approvals the more tracking history the system had for credit defaults and foreclosures under certain credit profiles and the more the system was able to adjust documentation requirements for loan approvals. Problem is during this period when the AUS were becoming more and more prevalent in the loan underwriting process, early 2000s on, the economy was starting to grow and home prices started rising--fewer foreclosure risks as troubled borrowers found they had equity and could sell their homes.

Around 2004-2005 we saw a dramatic change in the AUS approvals, coinciding with lenders offering 2nd trust deeds to 100% of the total value of the property. The industry had been using second mortgages to bridge ten percent down payments to reduce the amount of the first or primary mortgage below the magic 80% value level to avoid mortgage insurance, now the lenders with approval from Fannie and Freddie were offering second mortgages covering the entire down payment. As these mortgage products became more prevalent in the industry we saw a loosening, a significant loosening, of the credit guidelines from the GSEs. Because of the purchase agreements between the lenders and the GSEs, if the Automated Underwriting System approved a loan and the lender supplied the documentation required by the AUS then the loan would be purchased.

By this time the technology had advanced to the point that the industry software developers integrated origination processing software, credit reporting companies and the GSEs software so that within fifteen minutes I can complete the necessary information on a loan application, pull a credit report with all three major agencies, submit the information to Fannie Mae and receive an approval listing what items I would need to fund the loan. And the list of those items became less and less. As the credit guidelines from the GSEs became easier and easier more people could qualify to purchase a home. Many originators and lenders were not analyzing whether it made sense for a family to purchase the home they were buying based on their actual financial ability, but rather were inputting information into the AUS to get an approval and close the loan. And houses flew off the market. Borrowers would shop originators to find one that would approve them. Real estate agents knew which originators were "loose" and which were more strict and analyzing and refer accordingly. Borrowers, originators, agents, all over the industry with prices exploding people were chasing homes and commissions, and they were aided and abetted by Fannie and Freddie.

At the height, or depth, of the loose guidelines it was astounding the mortgages being approved through Fannie and Freddie. Borrowers with no money down, a seller paying closing costs and little to no reserves would be approved and the approval would require no income verification, merely a phone call to the employer to verify the applicant was still employed, no verification of assets and NO appraisal! Yes, the AUS technology evolved to the extent that they also included sales data and for most areas the system would pull comparable closed sales and if the price on the application was within the market range no appraisal, or perhaps a drive-by to make sure the house was there, would be required.

Further with no income verification borrowers with income to debt ratios in excess of 60% (sixty percent) would be approved; this means for a family they would have 40% of their gross income after paying their mortgage payment, car payment(s), student loans and credit cards to pay for shoes, groceries, electricity, income taxes...Applicants with below median FICO scores and no downpayment would be approved with verbal verification of income and no assets--individuals who have shown a history of difficulty managing their credit obligations would be given loans for a home in which they had no equity stake. Oh, and one more thing most of these loans were interest only mortgages with the interest only payment used for the qualifying guidelines--no equity at closing and no equity in the mortgage payments.

As the technology and the efficiency it allowed became more ingrained in the system lenders on "jumbo" mortgage products--those with loan amounts above the Fannie and Freddie guidelines--also used the AUS approval findings for their mortgage products, expanding the loose standards through more of the mortgage products being funded. Lenders on second trust deeds and home equity lines of credit also jumped on the AUS bandwagon--the entire industry was basing their approvals and fundings on the ever loosening guidelines established by Fannie Mae and Freddie Mac. Guidelines we know were loosened at the behest of Congress and in particular the two most vocal and ardent supporters of Fannie and Freddie Rep. Barney Frank from New York and Senator Christopher Dodd from Connecticut. Their desire to expand homeownership down the income and economic scale so more Americans could participate required looser and looser credit standards to fit those with below median incomes into a housing market where the median prices were soaring.

All of these mortgages were approved by the Automated Underwriting Systems, guaranteed for purchase by Fannie Mae and Freddie Mac and sold to investors as Mortgage Backed Securities. Well to no surprise when the credit markets tightened with the first domino being a sub-prime lender failing to obtain credit on Wall Street, investors began to look at their mortgage portfolios and those who held securities backed by Fannie Mae and Freddie Mac approved mortgages began to see that what they were invested in were actually sub-prime mortgages packaged as conventional, traditional mortgages. Uh-oh. What investors and investigators found was what those of us in the industry knew--a tremendous percentage of the "conventional" mortgages funded were actually sub-prime mortgages packaged by Fannie and Freddie as "A+" paper approved by either Desktop Originator or Loan Prospector.

Fannie Mae and Freddie Mac, and their leaders through the time period, have not received near enough credit for their role in the housing and credit crisis that began in 2007. An overwhelming number of foreclosures on the market are loans that were funded under Fannie and Freddie guidelines with AUS approvals. An overwhelming number of foreclosures had no down payment when purchased, or were refinanced up to or over 95% of the then value of the home using AUS approvals. If every mortgage for every home that has been foreclosed upon or is currently going through foreclosure is analyzed one would see that every one that was a Fannie or Freddie mortgage has an AUS approval in the file and the documentation matches what the approval called for when it funded: verbal verification of employment, drive-by appraisal, nothing more.

Congress is big on investigating, or threatening to investigate, their political enemies or those who they feel will make for good television (think of the baseball steroid hearings). If Congress truly wanted to investigate what led to our current economic cycle that was started by a collapse of the credit and housing markets they should start with a detailed investigation of Fannie Mae and Freddie Mac and who was responsible for loosening credit guidelines to the extent they were loosened. Until they do this, any measures or policies they impose, any statements they make laying blame on others, any investigations they do of any part of the industry that is not Fannie or Freddie is grandstanding. But we know that is what those in Washington do best.


Monday, July 13, 2009

Constituent Communication

A little over a year ago I signed up for a Facebook account after receiving an invitation from now 1st District Councilman Robert Garcia. At the time Robert was one of the publisher's of the Long Beach Post and I was a contributor to the site; I wrote about the Facebook invitation and the technological gap between my generation (47) and Robert's (31) in a post titled "Tech Savy, Culturally Naive." Since that post in June 2008 we have seen a Presidential candidate leverage the available technology to promote his campaign to deliver messages and collect cash, and we have seen Garcia photocopy Barack Obama's campaign playbook and win a crowded contest for his seat on the Long Beach City Council. Using the exponential math of degrees of separation social media sites like Facebook and MySpace, and to some degree the more business oriented site LinkedIn, connect friends of friends of friends to new friends.

As an experiment and an excuse to gather friends together, in March I used my Facebook page to create and launch a barbecue at our home. "Stuftivus" was a great time with fourteen people who did not know each other but knew me or Leslie or both--but had communicated through comments made on my Facebook page. As the party got started and people showed up it was if they were walking into a high school reunion, I vaguely remember you, let's catch up. And it was a great time, friends of my mine became friends with friends of a friend. Degrees of separation were lifted. Now many of these people now communicate directly and their circles have gotten a bit bigger and the world a bit smaller.

Last week the Facebook home pages of thousands of people across the country and across the globe had several postings from friends, or friends of friends, announcing Councilman Garcia's placing on the Long Beach City Council's agenda an Equal Benefits Ordinance. The Equal Benefits Ordinance, or EBO, would require contractors bidding on city contracts who offer benefits to their employees and their spouses to also offer those same benefits to employees who are in domestic partnerships (more information available on Garcia's website). While I am opposed to our cash strapped and broke city adding any more costs to doing business in a city that is already notoriously unfriendly to businesses, I am not using this space to debate the merits of the proposal and the merits of opposition. My positions on gay rights are on public display so any who take my position on the issue as anti-gay is ignorant of my stance, my position is from that of a business owner, a citizen of a city that has been mismanaged for years and the over-extension of government.

That all said, the issue I want to address is how Garcia is changing government in our city with his presentation of this issue to the public, using his Facebook, MySpace and Twitter accounts, and those of his staffers, to announce the EBO at tomorrow's city council meeting. With a drip of announcements on all their pages, and encouraging their friends and contacts to show up at the city council meeting, to write letters to the offices of other council members and the mayor, the message and the news spreads quickly through the on-line communities.

Garcia's use of the social media to distribute his policies and news from his office is very cost effective and efficient. Facebook and other similar sites have no charge to users, revenue is generated from advertising. With a few moments of staff time and a few clicks Garcia's staff is able to saturate multiple websites and communicate with several thousand people--directing all of them to Garcia's website, not paid for or controlled by the city. Using the technology that his generation is dependent upon to communicate with friends, get news, express themselves and their opinions, allows Garcia to target his supporters and their circles of friends and acquaintances. By by-passing the traditional media, or putting it in second or third position for getting news, Garcia is going directly to voters and supporters without the filters of reporters and editors.

Garcia is the youngest person on the Long Beach City Council and he is showing his elder peers on the council how to communicate with their younger constituents. Constituents who do not have home telephones, do not typically subscribe to the local daily papers and who spend more time surfing their social media sites to see what their friends and acquaintances are posting and reading than seeking out news stories on their own. Garcia's messages and notices are an active part of the social media exchanges within the Long Beach area, and the results were seen first in his election in April and will most likely be seen tomorrow night at the city council meeting where the seats will be filled because of his agenda item for an Equal Benefits Ordinance.

Since my self-deprecating post last June I have become much more in tune with using Facebook and Twitter (my Twitter here), though I have struggled with separation of my personal and business uses--Twitter is almost solely business postings of rates and economic news through the day, while Facebook is much more of a personal and social site for me. Using the social media I have seen how effective it can be in engaging others in discussion or for supporting an event or cause. The communication to multitudes through a quick sentence and posting a link is very effective and at times empowering.

Garcia is considered on the cutting edge with many in the "old guard" of politics and government, but rather than cutting edge he is very much mainstream for his generation and the way they interact and communicate with each other. Using their available technology, provided for free, they are able to share themselves, their ideas and their causes quickly and pervasively through friends of friends of friends of friends of.....

If you, like many of my acquaintances, have been pooh-poohing Facebook and Twitter as for younger generations and not a serious means of communication, I suggest you look at the occupant of the White House and the 1st District Council seat in Long Beach as evidence of the effectiveness of properly harnessing the sites and the power they bring to your message.


Sunday, July 12, 2009

Just Some Questions

Below are questions I have asked myself throughout the past week. Instead of writing what my answers to them would be I am interested in any answers you may have, or additional questions you have asked yourself.

For the week starting Monday July 6, 2009:

Would you stay in a job where your rival(s) has initiated over a dozen investigations into your behavior, you being cleared each time, at a cost to your employer of several millions dollars?

Is it selfish to stay and be subject to more fallacious activity at more cost and distractions to you and your employers?

What is the website you visit the most?

Is it the site where you spend the most time?

Did you watch or listen to any of the MJ memorial service on Tuesday?

After the Cap and Trade passed in the House and the G8 discussions in Italy, why would a corporation spending tens, hundreds of millions of dollars to open a new manufacturing plant do so in the United States?

When will the elected and appointed leaders in California understand that losing over 400,000 manufacturing jobs over the past ten years while seeing the number of government jobs increase over 130,000 is bad?

Coke or Pepsi?

Why do so many people drive so damn fast on residential streets? Aren’t they concerned that some idiot driving like they do may hit their kids or their pet?

Have you ever worn an oversize football jersey and a baseball hat sideways when on a date at a nice restaurant with your spouse or significant other?

How much are you willing to be taxed to pay for someone else’s health care? Put another way, how much less of the income you earn are you willing to have confiscated to pay for the bad decisions of others who are in poor health?

Is it the duty of the city, county, state or federal government to legislate social policies and values? Or the duty of none of them?

What is the worst legal transgression you have made? Did you “get away” with it?

If someone you knew was married with kids and cheating on his wife with probably more than one person, could you consider him a “hero?”

Are you comfortable being alone? How about being with someone but in total silence for a very prolonged period of time? What do you most often think about during these times?

Why do birds suddenly appear every time you are near?

Can you name two or three vocalists with better voices than Karen Carpenter?

My birthday was last Sunday, Leslie asked me “What was the biggest accomplishment for you in the past year?” Your answer would be what?

How much can you assert yourself in a true and equal partnership?

Knowing all the hazards of compact fluorescent light bulbs, why is there still support for banning incandescent bulbs and mandating these biohazards in every home?

When did “global warming” become “climate change?” When the fraud of the global warming movement became more exposed in the mainstream consciousness?

When will politicians quit reacting off the fringe PC of everything “green” and “sustainable” and focus on good jobs?

Do you find it easier to eat healthy and be environmentally conscious when you have more money?

When is it too early to endorse a political candidate? When is it too late?

Is Obama our President and our Secretary of State now?

Cookies or Pie?


Wednesday, July 8, 2009

Curing The Foreclosure Market

We have seen the ads and we have become inured to them, a sporty car speeding through winding curves in the hills, a shiny truck bouncy across a creek, a mature man holding open the door for his equally stately spouse (we presume) in front of the club. Then the deep baritone voice of the announcer "Payments as low as x-hundred dollars with zero down."

Ah, zero down. Sometime ago the auto makers sat down with their finance and marketing wizards to answer the perpetual question, "how can we sell more cars?" And the answer to moving more cars out of the dealerships was not to sell them, but rather to lease them. Create financing that allowed Americans to drive off in a brand new car with no money down and an attractive payment. Nothing more than a long term rental contract on a depreciating asset, lease transactions create a sense of ownership and also because of the way they are structured are more often than not converted into another lease on another new car at the end of three or five years. Leases create a constant market for the auto makers.

When it comes to cars Americans are happy to continue making payments on an asset that is worth less in value than the balance of the obligation--most of the newer cars you see on the street are what is termed "upside down". To many Americans their vehicle is tied to their identity and the marketing departments feed on this. You spend a lot of time in your car, your neighbors see your car, your co-workers, your friends--your car says if you are rugged or sporty, if you are successful, it conveys your image. This is the marketing that too many buy into and as a result they auto leasing industry has done a great job of keeping these individuals in new cars every few years.

Evidently when it comes to our homes, where we raise our children, hold family holidays, establish roots in our community, we are much more concerned about when the asset depreciates. While as a nation we are more than happy to pay, or lease, for a $30,000 vehicle at the dealer only to have it worth $24,000 by the time we pull it into the garage, we seem to be extremely adverse to keeping a home purchased for $350,000 if it is now worth $280,000--even if the 20% loss is not out of our own pocket. After all only a fool would pay for an asset that has dropped in value---unless it says I have an urban-mountain chicness about me.

Most Americans aversion to paying for a house losing value is evidenced in the foreclosures happening across the country. While the early press and political statements where pointing fingers at my industry, to some extent justified, and to Wall Street greed, to some extent justified, no fingers were being pointed at others in the transaction: Fannie Mae and Freddie Mac, Congress which regulates Fannie and Freddie, and the borrowers who flooded the real estate markets from 2002 through 2007. Finding scapegoats is the primary focus of the media and politicians. Swarmy mortgage brokers had to be the cause of the housing crisis, forcing innocent Americans into "liar" loans, and loans that had adjustable rate bombs that were hidden in the documents they signed. Slick, greedy Wall Street financiers found exotic derivative investments to look like the risk would be spread thin across the globe to investors all the while piling billions of dollars from innocent American homeowners into their mansions and jets.

Very compelling stories, stories with legs and enough truth to find individual examples that could be splashed on the front page or before the first commercial break. But hardly truthful in telling the major cause for the pending and continuing decline in real estate prices that would affect the global economy.

In "New Evidence On The Foreclosure Crisis" (Wall Street Journal, 7/3/09, subscription may be required), Stan Liebowitz breaks down the numbers on over 800,000 foreclosures across 30 million loans for the second half of 2008. He categorized the foreclosure causation into five categories: negative equity, down payment of less than 3%, mortgage rate reset higher, subprime FICO score (less than 620) and unemployment increase in 2008. Far and away the largest foreclosure group, at 35% is the group with negative equity, combined with borrowers who put less than 3% down and the low to no equity group rises to over 51% of the total foreclosures in the second half of 2008. FICO score, stated income (or "liar") loans, adjustable rates and even unemployment as the cause of the foreclosure combined do not equal the number of foreclosures of those with no equity.

A huge factor in Liebowitz' data is what is not included: home equity lines of credit. His study was just on the foreclosures through the first trust deeds for primary mortgages. As I mentioned on Monday in "Congress Caps and Trades Homeownership" Fannie Mae and Freddie Mac lending guidelines allowed for, I would say encouraged, second trust deeds and mortgages covering 20% of the purchase price to allow for 100% financing--none of these transactions are accounted for in Liebowitz' analysis, so his numbers are very conservative as to the extent that no down payment at time of purchase is a primary cause of the foreclosures on the market. Because of the foreclosure process almost none of the foreclosures in the market were foreclosures made by the holder of the 2nd or equity line--they are at a total loss to the process.

Also not accounted for in Liebowitz' data is the loss to lenders and the markets due to short-sales where lenders take steep discounts in their loan payoffs to facilitate a sale, from my rather limited analysis of transactions at our company the vast majority of these transactions were low to no down and/or had 2nd trust deeds as part of the financing.

Why is this data important? Because as Liebowitz discusses, to this point the focus of policy from the White House, HUD, and Congress has been to prevent foreclosures by throwing various loan programs and modification policies into the market that do not address the fact that most foreclosures are the result of negative equity. Not interest adjustments. Not that income was inflated on loan applications. Not that the borrowers had subprime credit. No, most foreclosures to this point are happening because of the fall in real estate prices combined with the zero equity the borrowers had in their homes when they purchased them.

In California we have seen moratoriums on foreclosures for 90 day periods, all these moratoriums have done is hold off when the homes will be foreclosed on and then put back on the market. I have yet to hear of one home that was saved because of the moratorium--sure a few may have had time to go through a short sale process, but in the end is that not pretty much the same thing? The borrower is left without a home and the lender is left with a less than full balance pay off of their mortgage.

Left to its own devices with the financing currently available, as I addressed on Monday, first time buyers are flocking to market due to low prices and low interest rates. The mortgages our industry has been funding the past eighteen to twenty-four months are the strongest borrowers our industry has seen in decades. Tighter lending policies, down payment requirements and the absence of profit seekers purchasing homes for profit instead of for homeownership, have created a solid foundation for a recovering housing market. And as this continues we will see the credit driven foreclosures in America decline.

Instead of fiddling around with forcing cram downs for meeting arbitrary income to debt guidelines, increasing loan to value limits for refinancing mortgages to 125% of property values, forcing lenders to take losses on rates of return, Congress and President Obama would serve the nation's real estate markets best by letting the markets take care of the foreclosures through natural supply and demand. With the low prices and affordable rates Americans are buying homes, and they will continue to do so as long as they can afford to buy them.

What will impact future foreclosures and housing prices are two major factors: interest rates and unemployment. As job losses pile up many Americans will be forced to choose between paying their mortgages and feeding their kids. As Washington continues it spending of trillions of dollars at a time and the accompanying borrowing inflation in our economy is just a matter of time, and that will mean significantly higher interest rates that will reduce home affordability.

If Congress is truly concerned about homeownership and the foreclosure markets across America my advice is to a) leave it alone, let the markets cure the problem b) cut taxes for employers and investors to stimulate investment and capitalization of new endeavors, or if cuts are unpalatable then don't raise any taxes on any group c) quit spending money, no more stimulus bills, no health care reform, no new programs until the current economy rights itself and a solid foundation for future growth is established. Basically I am asking Congress to not pass any legislation that is supposed to "fix" the housing or mortgage markets, nor to redistribute any more tax payer dollars by taking it from those who create businesses to fund new programs that just add to government's size.

Too bad the housing industry has not done as good of a job promoting the chicness, the sportiness, the rugged manliness of homeownership as well as the auto industry, if it had perhaps more Americans would be willing to stay in their homes and make their payments as they raise their families in their own homes. Had more done so our foreclosure crisis would be significantly smaller than it has been.

Oh, and as always when the finger pointing starts take a look at the role of the one pointing the fingers--usually there is a good reason he is trying to show someone else to be at fault.


Tuesday, July 7, 2009

What A Difference A Dog Makes

Not too long after we brought Harrison, who was five months old at the time, home in mid-February Leslie said, "Having a puppy is like having a toddler in the house....except you can't put him in a bouncy chair or spinner toy to keep him occupied and out of your stuff." In the ensuing five months we have gone through one remote control, several writing instruments, a couple of plants, some malibu light cords, a few hairbands, and at least one school project (thankfully after it had been turned in so he ate the homework after it was back home). Having spent the previous thirteen and a half years with Cooper, we became used to not having to watch what he ate; well in terms of toys, rugs, electronic devices, books, etc.

With Cooper we most definitely had to watch what he ate when it came to food--he would eat whatever he could when he could. A bag of cookies, a container of sushi from Trader Joes, several hot dogs, half a pizza, a yogurt container. If it had people food it was targeted by Cooper. The older he got the more bold he became, sort of challenging us with a "what are you going to do put me down over a half a chicken?" attitude. Cooper could hear the sound of a potato chip bag from the other side of the house with the gardner's leafblower on full and a C-17 taking off over the house. If it sounded like, smelled like, looked like food Cooper was there and waiting for a piece of the pie--literally. For a long time after he died right after Thanksgiving we could feel him trotting into the kitchen when we went for a couple of cookies to munch on while watching "Survivor" or filling some bowls with Pirate Booty for the kids' snack.

With Harrison we vowed it would be different. No going upstairs, lasted until April. No sleeping on our bed, lasted until June--now working on reverse training him back to his blanket next to the bed. No people food, doing great on this one as we have not fed him scraps or tastes for treats of any of our food. We can open a bag of Fritos and spill have of them on the floor while he is laying two feet away and he won't move. We can have a rasher of bacon sizzling on the stovetop for a big Saturday brunch and he will sit in the corner chewing on his rope toy. A kid as tall as he is can walk by with a chocolate chip cookie within inches of his nose and he will be looking for his Buster stuffed animal to play with. Somewhere Cooper is mortified.

This Sunday we had a little barbecue, well little for me (two tri-tips and two whole chickens with all the sides for a half dozen adults and kids). While the kids ate inside the adults were feasting at our patio table. We have a large outdoor bar with a built in barbecue, sink etc that is of standard bar height. The bar is laden with platters of meat, beans, tortillas, homemade salsas, oh and someone snuck a salad on there, and plenty of it waiting for people to grab seconds and possibly thirds.

While were eating one of our guests said, "Harrison just jumped up and grabbed a piece of chicken." Being younger and more spry than I, Leslie jumped out of her chair and went to stop Harrison from devouring the juicy breast laying on the ground. With calls of "Leave It!" and "Drop!" Harrison just looked at her as she approached.

Now had Cooper ever been able to reach a big juicy piece of chicken the last thing he would have done would be to stay in that one spot, the second to last thing he would do would be to "Drop!" or "Leave It!". He would have had his food to go, eating as he found a place to try to hide so he could devour the meal.

Harrison is no Cooper when it comes to food.

When Leslie turned around after picking up the piece of chicken we could see it was in one piece. Leslie was laughing as she said, "He was licking it! He was just standing there licking the skin like he didn't know what to do!"

Somewhere Cooper is mortified.


Monday, July 6, 2009

Congress Cap and Trades Homeownership

A major component of the American Dream is homeownership. Having worked for more than two decades helping families purchase their homes I know first hand how important homeownership is to many Americans. There is a strong emotional commitment to owning our own piece of dirt, our own walls and the roof that protects our children from the elements. Two amendments in our Bill of Rights protect our homes from the government. The third amendment protects us from troops quartering in our homes without our consent. The fourth amendment protects us from unreasonable searches of our homes.

The current Congress has aided President Obama in passing bills and legislation to protect homeownership, or encourage more Americans to purchase homes. Of all the legislation passed the greatest impact, by far, has been the raising of the loan limits for Fannie Mae, Freddie Mac and FHA mortgages; in particular the lifting of the FHA limits. While hindering the closing of purchase transactions with the Home Value Code of Conduct--which hopefully will be repealed or suspended soon--Congress perhaps unwittingly by passing the loan limit increases opened up real estate markets across the country to first time buyers who were waiting to enter and become homeowners.

Most first time buyers are working with a limited amount of funds for down payment and closing costs, this has been true historically which is why when President Franklin Roosevelt created the Federal Housing Administration to assist with mortgages to Americans, the program was created with long term mortgages and low down payments. FHA mortgages could be obtained wtih borrowers putting down 3% of the purchase price until about a year ago, now FHA borrowers must put at least 3.5% of the purchase price into the transaction as down payment. Every FHA borrower pays into a mortgage insurance pool to protect lenders' losses should there be foreclosure--a insurance pool that has worked well through the current crisis.

Until Fannie Mae and Freddie Mac loosened their lending guidelines and began allowing 100% financing, with very high debt to income ratios (and minimal income verification), FHA was the primary loan for most first time buyers. The guidelines allowed family members to co-sign for the borrowers, allowed parents to assist with funds to close and was a bit more lenient on credit analysis. The purpose of the program was and is to promote responsible homeownership, and it has worked. FHA loans became very scarce in California and many other parts of the country once the 21st Century began for two main reasons: 1) As mentioned the increase in loan products available through Fannie and Freddie that allowed 100% financing, combined with 2nd trust deeds borrowers could purchase a home with no down payment and no mortgage insurance 2) FHA loan limits were well below the market medians and could not keep pace with the booming home prices.

In 2007 Congress passed a temporary increase in loan limits for FHA, Fannie Mae and Freddie Mac. FHA limits were raised to match the conforming limits and a new "high-balance" limit was created for facilitating higher transaction prices. As mortgage insurance companies pull out of California and other states, and/or severely restrict their criteria for issuing insurance on mortgages with less than 20% down payment, the FHA mortgage product has become critical to keeping our housing markets on life support, and in many areas begin a reversal of the downturn.

Since last fall the housing industry has seen a huge influx of first time buyers. With low prices and low rates, many families are finding they are able to obtain homeownership--the old fashioned way using FHA financing. Fully qualifying applicants' income, credit, and assets, FHA underwriters are approving thousands of mortgages for new homeowners. Across the state and across the country we see data where these homebuyers are stabilizing prices, or at least slowing the decline. In the past year our industry has seen the highest number of FHA mortgages funded in perhaps decades. Congress, by lifting the loan limits, contributed to this positive economic trend; if Congress went home after passing the loan limit increases they would have done all they needed to do to let the markets begin to revive.

But Congress being Congress and Obama being Obama there was more on their agenda. At the end of June by a slim margin, the bill passed due to the support of eight Republicans, the House of Representatives passed H.R. 2454, the Waxman-Markey bill, also known as Cap and Trade. I will not go into the details of the entire bill and how damaging it is to the United States economy, increases our dependence on foreign oil and the many other fallacies of the bill. What I want to highlight is one aspect of the bill that is discriminatory to many first time buyers, those who need to use FHA financing to purchase a home.

Included in the bill is an amendment that will require all home transfers that are using an FHA mortgage to have a federal "energy audit" performed on the home. An inspector will go through the property and check insulation, water flow, heaters, air conditioners, all appliances, to see if they meet new federal standards for lowering the energy efficiency of American homes. The seller will have to pay for the audit and pay for any necessary corrections before the mortgage can be approved and the transaction closed.

Imagine an elderly couple who purchased their home in 1973, have upgraded their appliances in the early 1990s and now are selling their home to move into Leisure World or somewhere else. Several local real estate professionals have told them their home value is approximately $425,000 and they should expect offers between that number and $400,000. Imagine two families wish to purchase the property: one is offering $405,000 and will be putting 20% down and getting conventional financing; the other is offering $425,000 but will be using FHA financing. Sounds easy, take the offer with $20,000 more to the seller. But wait! We must first spend several hundred dollars for an energy audit, then we must comply with the findings: install insulation, redo the windows, replumb the home, replace the appliances, and trade out the toilets.

Twenty plus years experience in the housing industry tells me that if the energy audit for home transfers is left in the Cap and Trade bill as it goes through the Senate it will put an end to most FHA financed transactions, will lead to lower home prices due to less demand and severely slow down the real estate revival that is slowly occuring around the country. "But just sell the house for more money to compensate the seller for the repairs," some will say. Sure raise the price just for FHA buyers, then tell me how it will get an appraisal at that value--especially with the Congress imposed HVCC appraisal process that has been killing sales across the country.

Cap and Trade is a bad bill, the energy audit clause makes a bad bill horrible. Sunday "Anonymous" in providing answers to several of my "Just Questions" indicated a no comment on my question as to whether members of the House knew they were voting to discriminate against first time homebuyers with the Cap and Trade vote. I hope this provides the information s/he, and you, need to see how poorly this legislation was put together and yet another example of our Congressional Representantives not reading legislation but just casting votes.

UPDATE: I believe this is my first past-posted update. The Washington Times has an excellent editorial on Congress passing unread legislation. The 300 page amendment mentioned in the editorial contained the "energy audit" language I address in this post. The Times is calling on all members of Congress to sign a pledge not to vote on a bill, particularly any health care bill, until the have personally read the bill and it has been posted for at least 72 hours to give the public time to read it. Sounds too reasonable for Congress, I wonder who will sign? As I write this at 10:00 a.m. Pacific only two Senators and two Representatives have signed. Follow it here: