If there is one thing that we’ve learned from the economic collapse of 2008, it’s that financial instruments can no longer be geared to benefit businesses at the expense of consumers. For the middle class American, financial instruments have to be structured as tool that can help consumers put money into and take money out of their assets.
For many years, financial tools and services were a one-way street. Consumers built their assets, and spent a large amount of time and money paying them off. For large banks, this often meant waiting until the asset had depreciated to an unprofitable level before jacking up interest rates. Today, that doesn’t fly. From home equity loans to reverse mortgages, the financial world is changing to allow consumers two-way access to the assets they’ve spent their entire lives building.
Finances Are Easier to Access During Retirement
When most Americans squirrel money away, a significant portion of those savings go towards retirement. We contribute to the US pension fund, and many take advantage of employer matched 401K programs. But mismanagement in private pensions and challenging regulations that restrict consumer access to these funds have consumers up in arms. The courts have responded by challenging pension cuts, and allowing consumers to access their funds as per the original agreement. Many are still facing losses from poorly performing markets, and so financial institutes are opening up new avenues to access assets such as reverse mortgages.
Interest Rates Protect Banks and Consumers
At one point, lending money for mortgages was considered a bulletproof investment. Even if consumers defaulted on loans, the banks would still be able to make money through repossession. Today, interest rates are lower than ever thanks to the government, so consumers are able to borrow money at a reasonable interest rate that won’t leave them struggling. Additionally, financing is now required to meet a new liability standard defined by the CFPB as a “qualified mortgage,” ensuring that investment money is only being provided to consumers who have the resources to pay it back.
Predatory Lending is Under Attack
The United States government is taking action to regulate the so-called “predatory” loans industry. A predatory loan is defined as one where fraudulent, deceptive, or unfair tactics used to lure consumers into a cycle of never-ending debt. The goal is not to remove high interest loans, but simply to regulate them in a manner that will make the process more transparent. If consumers are able to better understand the agreements they are getting themselves into, they will be better equipped to make intelligent financial decisions.
An Ongoing Process
Although the finance industry has come a long way, there is still more to be done. What was once an industry where the professionals were trusted, is now seeing quick growth in non-standard financial products offered by firms who built their business on a strictly consumer-focused business plan. With luck, the growth of these programs will re-establish faith in our financial system and once again allow our economy to flourish.