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Quicken Loans Chairman Dan Gilbert’s plan to stop the housing crisis – A Solution That Works

This could be big, folks. Really big. And most likely, you're hearing about it here first.

We touched on this just a bit a few days ago when Quicken Loans Chairman Dan Gilbert appeared on CNBC with Maria Bartiromo talking about why the $700 billion government bailout isn't enough to solve the death spiral in the housing market. The country needs more and here it is. This is going to make a difference in the lives of millions of Americans. This is, without a doubt, the DIFF and when this plan becomes a reality, our country will never be the same.

Times are bad. CNN.com reported on a 90-year old woman who shot herself because she was facing eviction. This is tragic and something really needs to be done to help common people, not just Wall Street.

This is where Dan Gilbert's plan, A Solution That Works comes in. I'll summarize the main points of the plan here, but I truly hope all of our readers will visit the site (www.asolutionthatworks.com) to read the entire plan and give your input. You can also read and print a PDF version of A Solution That Works

If you agree with A Solution That Works, please share it with your friends and family and your representatives in Congress. This is something that will benefit millions of people.

Here are the main points of A Solution That Works:

THE PROBLEM

  • At the core of the financial crisis is the housing crisis, which needs to be addressed.
  • Stabilizing Wall Street and the banking system is only a start.  The current bill does not forestall the tide of foreclosures that are to come. 
  • Adjusting ARMS, high foreclosures, low property values and an oversupply of housings have combined to form a "death spiral" in the housing market
  • The $700B bailout does not address this. That plan (i) doesn't address how prices will be set for the loans (ii) causes unfair results for borrowers who have dutifully made their payments (iii) is potentially extremely expensive for the taxpayers (iv) will take a long time to have an impact (v)  doesn't address the root cause of the messed up housing market

THERE IS A SOLUTION THAT:

  1. Keeps homeowners in their homes with fixed affordable amortizing monthly payments
  2. Costs the tax payers a fraction of the cost
  3. Stabilizes prices and stops free fall in home values
  4. Gives investors higher odds of recovering their investment in these loans/securities vs. expensive foreclosure and resale in declining spiral of housing market

HOW:

  • Focus on specific types of loans, each of which must be owner occupied: (i) ARMS with no caps (ii) Option Arms (iii) interest only loans.
  • Require servicers of these loans to reset the borrower's rate to 6.375% fixed with a 30 year term/amortization. But the borrower only pays 4.875%; thus, government pays/subsidizes the difference between 6.375% and 4.875%.
  • Over the ensuing 6 years, gradually raise the rate the borrower pays and lower the amount of the government subsidy until year 6, when the borrower pays a rate of 6.375% for the remaining term of the loan.
  • The lender/servicer has a one-time chance to write off any negative equity and receive two times the normal write-off
  • All prepayment penalties on these loans are voided
  • Homeowners get the benefit of lower payment for the first 5 years, and then a low fixed rate for the next 25. They get to keep their homes. Their homes values (and neighborhoods) stabilize.
  • Lenders are in a much better position than if they had to forecloses on these borrowers, and the stability this brings to the housing market helps them with their REO's
  • Taxpayers receive benefit because this costs an estimated $50B spread over 5 years– a fraction (1/14th) of the cost of the $700B plan

Those are the main points of A Solution that Works. Once again, if you think this sounds like something that will help America become financially strong again and put an end to the housing crisis, tell Congress.

For some more media coverage of Dan Gilbert talking about A Solution That Works, check out this article in the Detroit Free Press or this interview Dan Gilbert had with WJR Radio in Detroit.

Let us know what you think!

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Comments

  1. Not bad, but here’s a more comprehensive plan that I will admit is a little bit outside the box. Go To http://www.useconomycrisis.com and read “The Liberty Plan”

    Posted by: Billm | October 6, 2008
  2. Cool! – I like it!

    Posted by: Dave | October 6, 2008
  3. Sounds like homeowners benefit here the most unlike the current proposal – Hopefully the government will wise up

    Posted by: Jim | October 6, 2008
  4. After reading the Facebook group, the website, and this blog, I think this blog explains it best. The wording really helped me to understand what Dan Gilbert wants to do, and I think it is a very plausible solution.
    I think that in order for the crisis to be solved lenders, lendees, and the government have to put their heads together and come up with a plan that works for everyone.
    This is definitely a good start, and I applaud Dan Gilbert for getting the process started.

    Posted by: Mark | October 8, 2008
  5. ABOUT MR. GILBERT OF QUICKEN LOANS PLAN OF WHAT A REAL SOLUTION TO THE MORTGAGE CRISIS SHOULD BE. (Posted 10/09/08).
    Perfect and spot on first step but two laws (2005 and 2007) are fueling this crisis and will continue to do so unless they are addressed:
    1. New Federal Bankruptcy Laws of 2005 (pushed by Credit Card companies) basically eliminated the traditional stop-gap of working out a deal with Credit Card companies rather than having homeowners even think about foreclosing on a home.
    2. Ms. Stabenow’s 2007 “Forgiveness of Debt Law” gives Homeowners an incentive to “Ditch Their Homes” rather than their Credit Cards as she made Forgiveness of Debt apply to Mortgages rather than Credit Cards. This law essentially gives a true Tax Advantage to Default on a Secured Loan (i.e. every Home in America) vs. an Un-secured Loan (credit cards).
    Now I’m sure Ms. Stabenow had good intentions in co-sponsoring this bill but what she didn’t realize is she had it backwards in that she should have made it near impossible to Foreclose on a Home and essentially force homeowners to default on their un-secured loans should they run into financial difficulties (i.e. that’s why they call them un-secured!!!!!)
    The Stabenow “Foregiveness of Debt” Act of 2007 is continuing to fuel this fire!! (Change it now or watch every home in America be worth 50-60% of what it was worth 24 months ago).
    Again, Mr. Gilbert’s answer on the Mortgage side is perfect (it’s probably a tenth the cost if not less) and it limits the taxpayer’s liability. Change the other two laws back and you would immediately create a situation where the market would correct itself:
    A) No more “Ditching” of Homes.
    B) Home inventories dry up as no more “Steals” are available (driving home values back to 2005 levels returning equity back to the hardworking homeowners).
    C) Developers start developing again, Builders start building again…. Electricians, Plumbers, Waiters, Waitresses, the list goes on and on and on…
    Sorry I have to run along. The home that I have been leasing for the last 18 months (and making regular on time monthly payments for) was just foreclosed on. Looks like I have to go find another one to move the wife and (5) kids into as until this thing hits bottom, and I see people with ideas like Dan Gilbert’s running the show, I unfortunately fear more of the same.
    Have a great day all and hope that this hits home before it hits your home.
    Sincerely,
    Jack Ivers
    PS: Remember the “Old” days Ms. Stabenow??..if you ran into deep trouble you filed for personal bankruptcy protection, you and a Judge worked out a deal with your credit card companies for 25-50 cents on the dollar and you were done (you never touched the mortgage)!! You never lost value on a home. You never lost on Real Estate.
    Don’t extend this Law, Get rid of it. You don’t want to get rid of it as it may show guilt? Get over IT! You want to change the Law or make a new one?? Fine make a new but please be careful as I’ve been in two homes since the last time you tried to help me!!

    Posted by: Jack | October 9, 2008
  6. Yes I remember the “Old” days when people could only buy or allowed to buy a house that they could afford. Why should the goverment pay for a persons house they should never had bought in the first place and now my taxes help pay for the house and my paid-off house declines in value.

    Posted by: Bob | October 9, 2008
  7. The booming housing market halted abruptly for many parts of the U.S. in late summer of 2005, and as of summer 2006, several markets faced the issues of ballooning inventories, falling prices, and sharply reduced sales volumes. In August 2006, Barron’s magazine warned, “a housing crisis approaches”, and noted that the median price of new homes dropped almost 3% since January 2006, that new-home inventories hit a record in April and remained near all-time highs, that existing-home inventories were 39% higher than they were just one year earlier, and that sales were down more than 10%, and predicted that “the national median price of housing will probably fall by close to 30% in the next three years. The recent slide in housing prices has been very moderate, but it’s only just begun — at least according to most widely watched data on both new and existing homes. As recently as the second quarter of this year, home prices were still up 3.2 percent from a year ago nationwide, according to Office of Federal Housing Enterprise Oversight. And after years of double-digit gains in many markets, home prices nationwide are down less than 1 percent, according to the National Association of Realtors. For one thing, the wave of foreclosures is forcing banks and other lenders to put hundreds of thousands of homes on the market priced for quick sale — usually at below-market prices. Those sales then become “comparables” — used by appraisers and future buyers to determine how much a similar house is worth. That puts further pressure on sellers to mark down the price. . Mortgage loan modification can also help free up a little more funds to help to repair your credit.

    Posted by: Samuel X | May 4, 2009
  8. Good luck!! I’m sure ur gonna do well!!
    LLC

    Posted by: lucas law | June 8, 2009

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