Want 18% returns? Become a subprime lender

Average Joes risk nest eggs on loans to home buyers with poor credit

Barry Jekowsky wanted to build “legacy wealth” to pass down to his children. But the 58-year-old orchestral conductor, who waved the baton for 24 years at the California Symphony, didn’t trust the stock market’s choppy returns to achieve his goals. And the tiny interest earned by his savings accounts were of no help. Instead, Jekowsky opted for an unlikely course: He became a subprime lender, providing his own cash to home buyers with poor credit and charging interest rates of 10% to 18%. It may sound risky, but “it helps me sleep better at night,” he says. “Where else can you find [these] returns?”

It has come to this. Unable to save enough for retirement with traditional investments, baby boomers in search of yield are becoming their own private Countrywide Financials. They’re loaning cash from their deposit accounts and retirement plans and hoping for a big pay day: specifically large returns that will boost their income and maybe even allow them to pass an inheritance on to their children. There is no official data, though it’s estimated that at least 100,000 such lenders exist — and the trend is on the rise, says Larry Muck, chairman of the American Association of Private Lenders, which represents a range of lenders including private-equity firms and individuals who are lending their own cash. “We know the number of people who are doing this is increasing dramatically — over the last year it’s grown exponentially,” he says.

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