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Blonde Bomber
10-09-2008, 05:55 AM
I just thought I would post this since I did not see it here. It is quite lengthy, and it would not post, so here is the link, and the beginning.

http://www.asolutionthatworks.com/13/a-solution-that-works-how-to-stop-the-housing-crisis-today/#more-13

President Bush signed into law the hotly-debated financial bailout plan on October 3, 2008. In doing so, the real problem was not solved. We need to keep homeowners in their homes with affordable monthly mortgage payments and stabilize the “death spiral” in the housing market. Period.
That being said, I have a plan. If you like, share it. Email it. Blog about it. Send it to your Congressman. The only way this will happen is if you spread the word. So spread it.

The Problem

America is faced with the biggest housing crisis, and due to the ripple effect, potentially the biggest overall “financial crisis” in the nation’s history. Although there are still some details to resolve, this paper will set forth an analysis of the problem and propose a solution that is clear, sensible and attacks the problem where it needs to be;:

At the ground level.

There are three categories of homeowners who are defaulting on their mortgages:

1) Involuntarily: Homeowners who simply cannot afford the payments;

OR

2) Begrudgingly: Homeowners on the borderline of making their payments, but too many disincentives exist, in addition to the “stretch” of the payment itself, which pushes this group of homeowners to the default side of the ledger;

OR

3) Willingly: Homeowners who can afford the monthly payments but choose to “hand in their keys” rather than continue to lose money each and every month.

If we do not stop the tidal wave of defaults and foreclosures, the housing market will continue to erode as more and more inventory floods the marketplace.

Combining all of this with increasingly difficult underwriting standards and guidelines causes us to be left with a buyer pool that is shrinking and an inventory that is rising.

Growing supply. Shrinking demand.

The resulting “death spiral” creates a vortex that attracts more and more homeowners to default on their loans as they realize they owe more on their home than what it is worth. Struggling to make the payment of a loan on a home that is also declining in value is a DOUBLE WHAMMY few are willing to fight.

And if your loan is in the “negative amortizing” category (principal growing each month versus declining) then you have a TRIPLE WHAMMY:

1) high and uncertain monthly payments

2) declining home values

3) a growing mortgage balance.

No rational person would not walk away from a housing nightmare such as this one.

More foreclosures cause increasing inventories (supply)… which cause prices to continue to decline… which attracts more homes into foreclosure… which cause prices to decline further… and so on and so on and so on.

A classic: “Death Spiral”

A declining home value by itself would normally not be enough to draw such a strong wave of homeowners into foreclosure.

The vast majority of homeowners in owner-occupied homes have purchased their homes first as a place to live and raise their families, and second as a potential solid investment.

But when you combine falling values with the certain prospect that the homeowner’s mortgage payments will increase substantially (adjustable rates) and either create no equity (interest only) or worse, actually increase a homeowner’s mortgage balance with each monthly payment, then the conditions create the “perfect storm” to sweep the housing and credit markets in America, which is exactly where we find ourselves.