13 ms·

Peer Street

66 points by up_and_up 10y ago

r0fls 10y ago
This is reminding me of the Big Short. Hopefully it's a false alarm. Anecdotal hypothesis: I found it very easy to be approved for a house I could hardly afford, so if there is another recession on the job market, I could see a lot of mortgages defaulting again. On the flip side, that's why Mortgage insurance is there. However, will we bail out the insurers next time, instead of the banks?
- slackpad 10y ago
  They've got Dr. Michael Burry as one of their advisors so hopefully they won't go the way of the Big Short - https://www.peerstreet.com/about https://www.peerstreet.com/about. There's a pretty good post from MMM about how it works - http://www.mrmoneymustache.com/2016/05/02/peerstreet/ http://www.mrmoneymustache.com/2016/05/02/peerstreet/.
  - zenkat 10y ago
    "The short story is that I’ll be collecting interest on this loan at a rate of 10%, until 11 months from now when the loan is suddenly repaid in a balloon payment." Sounds a whole lot like subprime. In a rising market, it's not a bad deal. In a flat/down market, expect a lot of these to crater.
    - josephpmay 10y ago
      The difference (I believe) is the people taking out these loans are professional real estate investors with good credit.
- josephpmay 10y ago
  Funny, I literally just finished watching The Big Short. I know absolutely nothing about the market, but I was under the impression that it is much less risky now.
  - nl 10y ago
    I was under the impression that it is much less risky now What gives you that impression? (Genuinely curious)
    - josephpmay 10y ago
      To be honest I almost never comment on a HN post when I'm this uninformed, however here is my reasoning: Since the crisis, people now have a much better idea of what's in mortgage-backed CDO's than they did during the bubble. The ratings agencies are also under much more scrutiny to properly classify the risk of these vehicles. On the consumer side of things, it's much harder to get a mortgage than it was before the crisis. Adjustable rate mortgages are much less common, don't have misleading intro rates, and don't make brokers sky-high commissions. I grew up in Miami in the bubble, and I remember every other radio ad was for no-questions-asked home loans. You just don't have that kind of culture now.
andrewfromx 10y ago
i know the CTO. Great guy. Super happy to see this on front page of HN.
- andrewfromx 10y ago
  this comment keeps getting down voted. Let me explain. The year was 1999. I was working at bizrate.com in Marina del Rey California. A young 17 year old kid accepts a job as a programmer intern and I teach him java. He teaches me about napster. We stay friends over the years. Now he's a big time CTO. And I see this on the front page of hacker news. I wrote the comment and it was authentic and real. Why the downvotes?
  - rm_-rf_slash 10y ago
    Good explanation but without it we don't know the difference between vouching and shilling.
  - thinkmorebetter 10y ago
    How I miss writing "spiders" to crawl the internet for the best prices :)
deleted 10y ago
[deleted]
d--b 10y ago
How can they advertise "High quality loans" that pay 6%-12%? That sounds super shady. Plus they take a 0.25%-1% spread on top of it! This should be marketed as high yield, super risky investments, but they try and make it sound that it is great and safe. It's one thing to have good originators, and another to have bad credit loans that actually get repaid.
- bko 10y ago
  My guess is that they are bridge loans (A “bridge loan” is basically a short term loan taken out by a borrower against their current property to finance the purchase of a new property) which are often much higher rate. That or there is a leverage where there is some structure to the cashflow. So for instance, a loan can pay 4% and can be separated into two pieces, one pays 2% and the other pays 6%. When there is a loss, the 6% would take a bigger loss that the 2% piece. It's probably the former though since it appears to be very short. Edit: It's neither: > As an investor, you’re usually funding loans, which are then used to buy and improve real properties, and you get paid for doing so. But because you’re not competing in the well-developed 30-year residential mortgage market, you can expect to collect annual interest in the 7-10% range, rather than the 3-4% that mortgage securities pay their owners. So essentially its more like a REIT. [0] http://www.mrmoneymustache.com/2016/05/02/peerstreet/ http://www.mrmoneymustache.com/2016/05/02/peerstreet/
  - Domenic_S 10y ago
    I don't get it, why not a HELOC at those LTVs? Any HELOC can beat 10%...
    - brettpeerstreet 10y ago
      These are first position liens on business purpose, non-owner occupied properties. Often these are fix and flip or buy to rent properties.
      - Domenic_S 10y ago
amalag 10y ago
Not quite like Lending Club: >The SEC requires all PeerStreet investors to be accredited investors
- jmuguy 10y ago
  I know that "accredited investors" is a pretty common thing and not something the SEC cooked up but its really disheartening that you'd need 200-300k in income to somehow verify that you know what you're doing with your money. Funny they don't seem to have the same requirements for lotto tickets...
  - auntienomen 10y ago
    Not sure how much consolation this will be, but... even if you are an accredited investor, you probably still won't be able to invest in most high quality Regulation D investments. Having investors costs time and money, and it's just not worth an investment managers time to talk to some marginally wealthy individual when there's a pension fund on line 2.
  - vinceguidry 10y ago
    Things that are perfectly fine when only a few people are doing them often become a real problem when hundreds or thousands or millions of people are doing them. That's why investors need to be accredited. Otherwise legions of hopefuls will throw their nest eggs into overly-leveraged positions sold by the unscrupulous. That's what happened in the early days of stock markets. But take a step back and think about it for a second. You can put 'ways to make money' on the axis of 'conscious involvement'. On the left you'd have 'keeping a job', then on the right you'd have 'hiring a professional money manager'. As you traverse the scale, returns on investment vs. conscious attention devoted tends to decrease. You need no money to get started on a job, but investing in the stock market requires large amounts of cash to generate significant returns. Until you have a quarter of a million dollars net worth, it just doesn't make sense to do more than slow-growth passive investment over time to fund a very specific event, retirement. Even there it's a hard sell for many people. You need to make a lot more than the average for retirement investment to really work for you. In the middle of the scale, between having a job and investing, is running a business. If you want to move up the economic ladder, the move isn't from salaried professional worker straight to investor, it's to hanging out your shingle and carving out an economic niche. In business, it's much easier to earn the kind of money you need to make investing work. Over time, you can learn your niche to the point to where you can direct others to exploit it rather than do it yourself. This is where the line blurs between business and investment, where you have a working system turning inputs to revenue, and all you have to do is watch the numbers to make sure they keep going up. And you don't need to be accredited to do it. You might think, "oh, but I could day trade and earn a ton of money if the SEC would just let me!" If you don't know the principles, the market is going to burn you badly. If you know the principles, then you'll know it's not a fast road to riches. Business will get you there much quicker. The SEC is aware that the accreditation limitations are somewhat onerous, so what they're doing is opening up some Series A rounds to unlimited numbers of unaccredited investors. If you want to bet on an emerging market, this would be the best way to do it: https://www.seedinvest.com/ https://www.seedinvest.com/ I considered investing in Virtuix, but decided I needed the money accessible right now more than I needed a lottery ticket, no matter how much I believe in the potential of VR. What did I need the money for? Tiding me over while I get my startup off the ground. Don't shy away from learning or starting a business. It'll make you a better investor when the time comes.
jgorn 10y ago
How can they advertise 6 to 12% annual returns (12%!!!) for lenders when 1) PeerStreet have to take out their 0.25-1% fee && 2) All of the Big Banks are offering home mortgage rates of <4%? When the numbers are this far apart, I can't help but be suspicious.
- mac01021 10y ago
  Isn't the idea that each loan is high risk (hence high interest) but you can still expect a good return if you issue hundreds of such loans and each loan is tiny?
  - zenkat 10y ago
    Such was the logic behind subprime CDOs. We all know how that one turned out.
  - reverius42 10y ago
    How can these loans be such high risk with low LTV ratio, and backed by a physical asset? If somebody stops paying, can't they simply take possession of their real property to recoup losses?
  - brettpeerstreet 10y ago
    PeerStreet has had zero losses, but these are asset backed loans with first position liens, so if a borrower were to stop paying then generally the property would be foreclosed on and principal and interest would be repaid from the proceeds. That's why conservative LTV is important. Your point about the benefit of diversification is correct, previously the limited investors who had access to these investments would have to make large bets on individual loans. PeerStreet makes it much easier to invest in these loans and diversify across lender, geography and loans.
- brettpeerstreet 10y ago
  These are business purpose, first position loans on non-owner occupied properites. This industry has been around forever, but have been very hard for most people to access. PeerStreet is changing that. And also allowing for diversification across geography, lender and loans, something very hard to get previously.
liveoneggs 10y ago
how did this scam + spam make it here?
baccredited 10y ago
I have invested in 4 Peer Street loans. The appeal to me is the transparency. All of their previous loans have been paid off. Compare to realtyshares.com where it is impossible to judge the past performance of old loans. I'm drawn to these kinds of investments because they (hopefully) aren't tightly correlated to the stock market. And, unlike Lending Club, they are secured loans that are tied to property that can be liquidated if the borrower defaults. Mr. Money Mustache had a writeup on Peer Street this week: http://www.mrmoneymustache.com/2016/05/02/peerstreet/ http://www.mrmoneymustache.com/2016/05/02/peerstreet/
chollida1 10y ago
Here's the thing about this kind of loan. Its like the junk bond market for corporate debt. When things are good, as they have been from 2009 until today, then you can roll debt over and these high risk, high return loans look like a goo investment. When things go bad, people stop having access to capital to roll their loans and it isn't one loan that goes bad, its the entire sector that goes bad. The problem with this lender is that they can't show data for a period like 2008, when there were defaults all over the place. That's not their fault as they weren't around then but its something to keep in mind. if you are getting above average return for loaning money then you are by definition taking above average risk. Ask banks in 2008 how having their loans secured by the property worked. When someone defaults on their loan it isn't always because they can't pay, its often because the property is worth less than the loan value on it.
- brettpeerstreet 10y ago
  Great points, that's why conservative underwriting and low LTV (loan to value) ratios matter so much. Look at PeerStreet deals, they are 75% LTV and under with a site wide average of 63% LTV. Every deal that goes up is stress tested against the last 20yrs of data in the sub market, then projected against the term of the loan and that's posted with each deal that goes up. But you are absolutely right that these things matter. In 2008, the banks were loaning at 100% LTV, that means the borrower has no skin in the game. And then lenders had guaranteed take outs of their loans. Those are some of the of the big reasons so much went wrong.PeerStreet is trying to take as many learnings from the securitization market as possible, both positive and negative and factor them in.
ollybee 10y ago
A UK company with a slightlly different but related business model https://propertymoose.co.uk https://propertymoose.co.uk

66 points by up_and_up 10y ago

r0fls 10y ago

This is reminding me of the Big Short. Hopefully it's a false alarm. Anecdotal hypothesis: I found it very easy to be approved for a house I could hardly afford, so if there is another recession on the job market, I could see a lot of mortgages defaulting again. On the flip side, that's why Mortgage insurance is there. However, will we bail out the insurers next time, instead of the banks?

slackpad 10y ago
They've got Dr. Michael Burry as one of their advisors so hopefully they won't go the way of the Big Short - https://www.peerstreet.com/about https://www.peerstreet.com/about. There's a pretty good post from MMM about how it works - http://www.mrmoneymustache.com/2016/05/02/peerstreet/ http://www.mrmoneymustache.com/2016/05/02/peerstreet/.
- zenkat 10y ago
  "The short story is that I’ll be collecting interest on this loan at a rate of 10%, until 11 months from now when the loan is suddenly repaid in a balloon payment." Sounds a whole lot like subprime. In a rising market, it's not a bad deal. In a flat/down market, expect a lot of these to crater.
  - josephpmay 10y ago
    The difference (I believe) is the people taking out these loans are professional real estate investors with good credit.
josephpmay 10y ago
Funny, I literally just finished watching The Big Short. I know absolutely nothing about the market, but I was under the impression that it is much less risky now.
- nl 10y ago
  I was under the impression that it is much less risky now What gives you that impression? (Genuinely curious)
  - josephpmay 10y ago
    To be honest I almost never comment on a HN post when I'm this uninformed, however here is my reasoning: Since the crisis, people now have a much better idea of what's in mortgage-backed CDO's than they did during the bubble. The ratings agencies are also under much more scrutiny to properly classify the risk of these vehicles. On the consumer side of things, it's much harder to get a mortgage than it was before the crisis. Adjustable rate mortgages are much less common, don't have misleading intro rates, and don't make brokers sky-high commissions. I grew up in Miami in the bubble, and I remember every other radio ad was for no-questions-asked home loans. You just don't have that kind of culture now.

andrewfromx 10y ago

i know the CTO. Great guy. Super happy to see this on front page of HN.

andrewfromx 10y ago
this comment keeps getting down voted. Let me explain. The year was 1999. I was working at bizrate.com in Marina del Rey California. A young 17 year old kid accepts a job as a programmer intern and I teach him java. He teaches me about napster. We stay friends over the years. Now he's a big time CTO. And I see this on the front page of hacker news. I wrote the comment and it was authentic and real. Why the downvotes?
- rm_-rf_slash 10y ago
  Good explanation but without it we don't know the difference between vouching and shilling.
- thinkmorebetter 10y ago
  How I miss writing "spiders" to crawl the internet for the best prices :)

deleted 10y ago

[deleted]

d--b 10y ago

How can they advertise "High quality loans" that pay 6%-12%? That sounds super shady. Plus they take a 0.25%-1% spread on top of it! This should be marketed as high yield, super risky investments, but they try and make it sound that it is great and safe. It's one thing to have good originators, and another to have bad credit loans that actually get repaid.

bko 10y ago
My guess is that they are bridge loans (A “bridge loan” is basically a short term loan taken out by a borrower against their current property to finance the purchase of a new property) which are often much higher rate. That or there is a leverage where there is some structure to the cashflow. So for instance, a loan can pay 4% and can be separated into two pieces, one pays 2% and the other pays 6%. When there is a loss, the 6% would take a bigger loss that the 2% piece. It's probably the former though since it appears to be very short. Edit: It's neither: > As an investor, you’re usually funding loans, which are then used to buy and improve real properties, and you get paid for doing so. But because you’re not competing in the well-developed 30-year residential mortgage market, you can expect to collect annual interest in the 7-10% range, rather than the 3-4% that mortgage securities pay their owners. So essentially its more like a REIT. [0] http://www.mrmoneymustache.com/2016/05/02/peerstreet/ http://www.mrmoneymustache.com/2016/05/02/peerstreet/
- Domenic_S 10y ago
  I don't get it, why not a HELOC at those LTVs? Any HELOC can beat 10%...
  - brettpeerstreet 10y ago
    These are first position liens on business purpose, non-owner occupied properties. Often these are fix and flip or buy to rent properties.
    - Domenic_S 10y ago

amalag 10y ago

Not quite like Lending Club: >The SEC requires all PeerStreet investors to be accredited investors

jmuguy 10y ago
I know that "accredited investors" is a pretty common thing and not something the SEC cooked up but its really disheartening that you'd need 200-300k in income to somehow verify that you know what you're doing with your money. Funny they don't seem to have the same requirements for lotto tickets...
- auntienomen 10y ago
  Not sure how much consolation this will be, but... even if you are an accredited investor, you probably still won't be able to invest in most high quality Regulation D investments. Having investors costs time and money, and it's just not worth an investment managers time to talk to some marginally wealthy individual when there's a pension fund on line 2.
- vinceguidry 10y ago
  Things that are perfectly fine when only a few people are doing them often become a real problem when hundreds or thousands or millions of people are doing them. That's why investors need to be accredited. Otherwise legions of hopefuls will throw their nest eggs into overly-leveraged positions sold by the unscrupulous. That's what happened in the early days of stock markets. But take a step back and think about it for a second. You can put 'ways to make money' on the axis of 'conscious involvement'. On the left you'd have 'keeping a job', then on the right you'd have 'hiring a professional money manager'. As you traverse the scale, returns on investment vs. conscious attention devoted tends to decrease. You need no money to get started on a job, but investing in the stock market requires large amounts of cash to generate significant returns. Until you have a quarter of a million dollars net worth, it just doesn't make sense to do more than slow-growth passive investment over time to fund a very specific event, retirement. Even there it's a hard sell for many people. You need to make a lot more than the average for retirement investment to really work for you. In the middle of the scale, between having a job and investing, is running a business. If you want to move up the economic ladder, the move isn't from salaried professional worker straight to investor, it's to hanging out your shingle and carving out an economic niche. In business, it's much easier to earn the kind of money you need to make investing work. Over time, you can learn your niche to the point to where you can direct others to exploit it rather than do it yourself. This is where the line blurs between business and investment, where you have a working system turning inputs to revenue, and all you have to do is watch the numbers to make sure they keep going up. And you don't need to be accredited to do it. You might think, "oh, but I could day trade and earn a ton of money if the SEC would just let me!" If you don't know the principles, the market is going to burn you badly. If you know the principles, then you'll know it's not a fast road to riches. Business will get you there much quicker. The SEC is aware that the accreditation limitations are somewhat onerous, so what they're doing is opening up some Series A rounds to unlimited numbers of unaccredited investors. If you want to bet on an emerging market, this would be the best way to do it: https://www.seedinvest.com/ https://www.seedinvest.com/ I considered investing in Virtuix, but decided I needed the money accessible right now more than I needed a lottery ticket, no matter how much I believe in the potential of VR. What did I need the money for? Tiding me over while I get my startup off the ground. Don't shy away from learning or starting a business. It'll make you a better investor when the time comes.

jgorn 10y ago

How can they advertise 6 to 12% annual returns (12%!!!) for lenders when 1) PeerStreet have to take out their 0.25-1% fee && 2) All of the Big Banks are offering home mortgage rates of <4%? When the numbers are this far apart, I can't help but be suspicious.

mac01021 10y ago
Isn't the idea that each loan is high risk (hence high interest) but you can still expect a good return if you issue hundreds of such loans and each loan is tiny?
- zenkat 10y ago
  Such was the logic behind subprime CDOs. We all know how that one turned out.
- reverius42 10y ago
  How can these loans be such high risk with low LTV ratio, and backed by a physical asset? If somebody stops paying, can't they simply take possession of their real property to recoup losses?
- brettpeerstreet 10y ago
  PeerStreet has had zero losses, but these are asset backed loans with first position liens, so if a borrower were to stop paying then generally the property would be foreclosed on and principal and interest would be repaid from the proceeds. That's why conservative LTV is important. Your point about the benefit of diversification is correct, previously the limited investors who had access to these investments would have to make large bets on individual loans. PeerStreet makes it much easier to invest in these loans and diversify across lender, geography and loans.
brettpeerstreet 10y ago
These are business purpose, first position loans on non-owner occupied properites. This industry has been around forever, but have been very hard for most people to access. PeerStreet is changing that. And also allowing for diversification across geography, lender and loans, something very hard to get previously.

liveoneggs 10y ago

how did this scam + spam make it here?

baccredited 10y ago

I have invested in 4 Peer Street loans. The appeal to me is the transparency. All of their previous loans have been paid off. Compare to realtyshares.com where it is impossible to judge the past performance of old loans. I'm drawn to these kinds of investments because they (hopefully) aren't tightly correlated to the stock market. And, unlike Lending Club, they are secured loans that are tied to property that can be liquidated if the borrower defaults. Mr. Money Mustache had a writeup on Peer Street this week: http://www.mrmoneymustache.com/2016/05/02/peerstreet/ http://www.mrmoneymustache.com/2016/05/02/peerstreet/

chollida1 10y ago

Here's the thing about this kind of loan. Its like the junk bond market for corporate debt. When things are good, as they have been from 2009 until today, then you can roll debt over and these high risk, high return loans look like a goo investment. When things go bad, people stop having access to capital to roll their loans and it isn't one loan that goes bad, its the entire sector that goes bad. The problem with this lender is that they can't show data for a period like 2008, when there were defaults all over the place. That's not their fault as they weren't around then but its something to keep in mind. if you are getting above average return for loaning money then you are by definition taking above average risk. Ask banks in 2008 how having their loans secured by the property worked. When someone defaults on their loan it isn't always because they can't pay, its often because the property is worth less than the loan value on it.

brettpeerstreet 10y ago
Great points, that's why conservative underwriting and low LTV (loan to value) ratios matter so much. Look at PeerStreet deals, they are 75% LTV and under with a site wide average of 63% LTV. Every deal that goes up is stress tested against the last 20yrs of data in the sub market, then projected against the term of the loan and that's posted with each deal that goes up. But you are absolutely right that these things matter. In 2008, the banks were loaning at 100% LTV, that means the borrower has no skin in the game. And then lenders had guaranteed take outs of their loans. Those are some of the of the big reasons so much went wrong.PeerStreet is trying to take as many learnings from the securitization market as possible, both positive and negative and factor them in.

ollybee 10y ago

A UK company with a slightlly different but related business model https://propertymoose.co.uk https://propertymoose.co.uk