“Hard-money” lending growing rapidly

July 21, 2011 02:03PM

Investors are increasingly pulling money out of their retirement and safe, but low-yielding, savings accounts in order to take on the risk of becoming “hard-money” mortgage lenders, which charge high interest rates to borrowers who have been rejected by traditional banks. According to the Wall Street Journal, hard-money mortgage lending still represents just a tiny slice of the mortgage market, but the activity is growing rapidly. Some critics compare hard-money lenders to predatory subprime lenders — the lightly-regulated operations which cater to people desperate for money and which were blamed for the housing market’s initial collapse. But others say these private lenders fill an important void. One New Jersey couple, Robert and Yvonne Fassett, used a hard-money loan last year to restructure their finances, receiving a one-year, $120,000 loan with a 12 percent interest rate secured by the equity in a vacation home in Key Largo, Fla. They used the funds to pay off the vacation home and cover mortgage payments on their primary home in Teaneck, N.J., until they could find a buyer. NeighborWorks America, a nonprofit housing organization, urges consumers to ask an unbiased housing or credit counselor to study the rates and terms to make sure they aren’t predatory. [WSJ]