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:
- 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:
- Keeps homeowners in their homes with fixed affordable amortizing monthly payments
- Costs the tax payers a fraction of the cost
- Stabilizes prices and stops free fall in home values
- Gives investors higher odds of recovering their investment in these loans/securities vs. expensive foreclosure and resale in declining spiral of housing market
- 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.
Let us know what you think!