Dan Gilbert, Chairman of Quicken Loans gets more then just in the discussion, he lays out his own plan.
Last Friday, Dan Gilbert spoke with Maria Bartiromo of CNBC last Friday and touched on the basics of his plan and briefly explained the real problems facing homeowners. Gilbert hits it on the head by stating that the problem has only just begun and the $700 billion rescue plan only rescues Wall Street. Personally I agree a banking bailout is necessary, however it does not address any of the problems waiting for us around the corner. Home values are dropping and as many of you who work in the real estate industry know there is a huge amount of ARMs that are scheduled to adjust at the end of this year and into the next two years. Its my belief that this $700b bailout is only the beginning. There will be hundreds of more billions dished out to rescue homeowners and the banks that hold their loans.
Gilbert lays out his plan here on his site, ASolutionThatWorks.com. His plan calls for banks to fix all ARMs at a rate in the low 6% range and for the government to subsidize about 1.5% of the rate for ensuing 6 years. Gilbert also calls for all prepayment penalties to be eliminated and lenders to be able to right off the negative equity from its borrowers.
There is much more to Gilbert’s plan and you can read it at the link I posted above. This certainly is an attractive proposition, however I don’t think, and I don’t think Gilbert thinks either, that this could have been a replacement to the $700b plan. Although, I do think this is a viable step two in the greater credit crisis bailout. Something will have to be done that will directly assist homeowners in trouble.
What do you think about Gilbert’s plan?
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It is interesting Critic but what about more firms taking responsibility on their own and modding loans like B of A on behalf of Countrwide CA? Writing off negative equity still demands the actual lenders proactively reach out to their client base, Indymac tried the approach but it was too little too late. Get PROACTIVE, NOW
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I think the plan has some definite pros but i personally like what the government is doing with the fha secure loans, taking the balance and reducing it down to 90% of the new value or even 80%. In theory this would keep homeowners in their houses and would allow the lender and the government to share in the equity as the home appreciates. There is no one fix and actually there should be multiple options since there are so many different ways the market is hurting people.
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The government is not reducing fha loans via the fha secure. The program to refinance home owners through the hope for homeowners campaign is a voluntary lender based program and filled with lots of legal maneuvering and almost every major national lender has not adopted this. They are not too excited to refinance homeowners at 90% of the value of their home and simply write off the equity.
I think that there is clearly a disconnect with main st vs wall st and the foreclosure issue will only continue to get worse. In a lot of areas the only homes that are selling are foreclosures and values have dropped 40% or more, thus locking homeonwers into homes even if they wanted to move. This becomes a larger issue as those homeonwers whose values have dropped, now feel entitle to renegotiate with there lender a better deal or are threatening to walk away.
Fixing in the rates is a good idea, but it has been documented before there are too many parties involved here from the lender, to servicer, to actual security holder. The gov dropped the ball here last year and should have done much more to try and stem the mess that was brewing. It could take up to 10+ years in a number of markets for home prices to return to 2005 or 2006 levels.
Dan is a great entrepeneur and make some valid points, but this needs to be enhanced and any options that involve lender modifications should not be optional, but required, especially when tax dollars are involved!
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The government is being foolish about all this (obviously). What’s required is providing liquidity for the instruments that the loans get packaged into. The lack of liquidity is what’s killing lending across the board, from bank to business or even bank to bank. The fact that the FED has to step into the commercial paper market is proof of how far gone this is. Why the FED didn’t instead create a market for mortgages is beyond me. I’m talking about an “un-sausaging” machine – banks and financial institutions put in CMOs and CDOs in one end, and the FED auctions off whole loans out the other. What’s needed here is not injections of cash, but a market maker who can envision how to make a market from very rigid, opaque securities.
I have some very specific ideas about how this can be achieved, but I quite frankly am interested in creating a business that could facilitate some of these scenarios (so I won’t be spelling it all out here). The obvious bungling of this situation (even with the “bail out” package) by the Fed and even more so by the Treasury (who is supposed to be protecting the taxpayer from the banking industry !) is creating a huge opportunity.
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