Monday, June 02, 2008
Well, credit and debt is the lifeblood of our consumer economy and you just knew that somehow, someway, after the housing bubble met its pin, lenders would find a way to keep lending money to consumers.
Financial innovation has evolved.
Out with the subprime and Alt-A loans and in with the reverse mortgages and life settlement agreements.
This front page story($) in today's Wall Street Journal tells just how difficult it is for some people these days to get by without borrowing some money from somewhere and, sadly, it's probably not going to get any better any time soon.
As consumers max out their credit lines and banks clamp down on lending, many older and middle-class Americans are resorting to pricey, often-risky alternatives to stay afloat. Some are depleting their retirement accounts, tapping 401(k)s for both loans and hardship withdrawals. Some new fast-cash options allow homeowners to squeeze equity from their houses -- without the burden of monthly payments. One new product offers a one-time payment. In exchange, the company shares in as much as 50% of any future gain or loss in the property's value, typically collecting proceeds when the house is sold.Those debit cards hooked up to 401ks sound a lot like those credit cards that accessed home equity lines of credit a few years back.
Reserve Solutions Inc. of New York offers debit cards to help workers access funds from preapproved 401(k) loans.
Despite the risks, business in the fast-cash lane has been accelerating. In 2007, 18% of workers had taken a retirement-plan loan within the past year, up from 11% in 2006, says a recent survey by Transamerica Center for Retirement Studies.
Of course, many of those cards don't work anymore.