Take a Loan From the Bank of Granddad

For retirees living off their investments, the falling stock market isn't the only bad news. The already low payouts offered by bonds and CDs may also fall as the economy slows. Meanwhile, many of those retirees' kids are struggling to qualify for a mortgage due to the credit crunch. But to Virgin Money, those two trend lines are creating opportunity.

The company, launched in 2001 and acquired last year by Richard Branson's Virgin empire, arranges and administers loans between family members and friends. In a typical deal, a 20-something first-time home buyer might borrow $250,000 from his parents, but borrowers can also take out loans to launch businesses, finance college or pay down credit-card debt. Borrowers generally pay less interest than they would to a bank (say, 4.5 percent for a fixed-rate mortgage); lenders get better rates than they'd earn on short-term bonds; and Virgin Money collects fees for arranging the loan and collecting payments. Virgin Money CEO Asheesh Advani says default rates on intra-family loans have remained low (typically under 1 percent for mortgages), mostly because borrowers pay fixed rates. As you'd expect, the current crisis has many more people exploring the concept. "There's an enormous interest [right now] in looking at alternatives, both for lenders and borrowers," says Advani. Call it a win-win-win.

© 2008