Dear Editor,
I refer to the Sunday Stabroek news item ‘Down and out in New York City: Guyanese immigrants facing hard times’ 2008/10/19 at 12:19 PM. One of the things to consider is that these people that were subjected to predatory lending practices actually got the better end of the bargain. They were able to move out from their basement rentals and ‘buy’ a house with no money down. The closing costs were added to the purchase price so they initially put no money into the deal for a house costing US$400k-800k. The initial repayment plan was set at interest only (principal payments deferred until 3 years later when the loan resets) also, the interest rate was at the adjustable rate which was again lower than a conventional fixed mortgage rate.
All this meant was that renters who were paying US$850 -$1,000 per month were able to (buy) move into a house for monthly mortgage payments, albeit, interest only for between US$1,500 to $1,800 per month. Now these renters became landlords and rented their basements for US$900 to $1,000 and therefore, with that income were able to pay meet their mortgage payments of US$1,800 and still realizing a net cash flow benefit of US$200 per month.
However, since the loans reset, principal payments and adjusted interest are now payable monthly in the new mortgage payments of US$3,000 to $3,500. This now leaves the “homeowner” with a negative cash flow of US$1,200 to $1,700 per month. That’s why they are defaulting.
So these people actually gained by living in luxury for two to three years for the same rate they were paying for their basement rentals. The banks are the ones that lost out big time here.
I was employed as a Vice President at Lehman Brothers. You can draw your conclusions as to my losses.
These people will now return to rentals or take their chances, pay something so they don’t get evicted and wait for the McCain bailout of individual homeowners whereby, their principal will be negotiated downwards by hundreds of thousands or tens of thousands of dollars and they can stay in their homes. To do so, they’d have to vote McCain as Obama’s plan does not give them this windfall
Yours faithfully,
Dan Sudarsan
(Comment taken from SN website)
