Finance

Browse Issues

Browse the BusinessWeek Archive

Story Tools

• post a comment
• e-mail this story
• print this story
• order a reprint
• suggest a story
• digg this
• save to del.icio.us

Just Charge That Mortgage

Borrowers treated their homes like ATMs during the real estate boom, using the equity to pay off their plastic. Now more consumers can run up their credit cards to cover their mortgages. With a new online payment service, ChargeSmart, homeowners can use credit cards to make monthly payments at 48 lenders, including Washington Mutual (WM) and Wells Fargo (WFC). The cost: $4.95 plus 2.29% of the transaction, or $62.20 on a $2,500 payment. "With the reward points, cash back, and payment flexibility [on] cards, educated consumers are looking to charge everything they can," says ChargeSmarts Philip Mikal.

There may be unanticipated costs. With credit-card balances and delinquencies mounting, the worry is that struggling borrowers will fall deeper into debt. And the interest rate on a 30-year mortgage runs around 6.4%, vs. 13.4% for a credit card. "Once you add a debt like this to a credit card, it could easily spiral out of control," says Gail Cunningham of advocacy group National Foundation for Credit Counseling.

—Jessica Silver-Greenberg

A Hedge Against Hedge Fund Losses

Worried about buying into another Bayou Funds or Wood River Capital Manageplus or minusplus or minusplus or minusplus or minusplus or minusment, the defunct hedge funds whose managers were convicted of fraud? Investors can purchase protection for 0.2% of assets, or $100,000 on $50 million. A new insurance policy called Hedge Shield from Integro Insurance Brokers and Amber Partners covers losses from malfeasance—whether real or just alleged by regulators. And investors get their money back in 90 days, rather than waiting years for a judge to dole out what's left of the cash. Protean Investment Risks launched a similar product in January. Says Integro's Michael Klaschka: "Given the risk of financial loss and reputational damage, investors are looking for as much protection as possible."

—Carl Winfield

Triage for a Bond Insurer

Bond insurer ACA Capital will remain on life support indefinitely, following a deal inked by regulators and creditors on Aug. 8. The tiny firm, one of the early casualties of the credit crunch, has been on the brink of collapse ever since its credit rating was downgraded to junk back in December. That, in turn, triggered huge payouts on the insurance policies it sold to a slew of Wall Street banks. When the insurer couldn't come up with the cash, Merrill Lynch (MER), CIBC, and others had to take hefty writedowns on the subprime securities guaranteed by ACA. But ACA's fate had remained in limbo as regulators figured out how to unwind the remaining policies backing $60 billion worth of Wall Street's troubled bonds. Under the terms of the recent settlement, the firms will forgo the insurance payouts on the deteriorating debt in exchange for a share of the profits generated by other policies that ACA wrote for relatively strong municipal bonds.

—Matthew Goldstein