The following post was written by PeerStreet’s Head of Originations, Marc Heenan.
If you’ve been investing on PeerStreet, you’ve hopefully developed a comfort with our platform, process, investments and the lenders who work with us. However, you may not fully understand how PeerStreet onboards lenders. This post will help provide clarity around that process in addition to more insight into how we evaluate lenders who want to do business with PeerStreet.
What Kinds of Standards Do We Have for Lenders?
Here’s is how our assessment works:
- We evaluate everything from the lender’s underwriting guidelines to prior loans originated, legal docs, background checks on the principals, and more.
- What kind of due diligence does the lender perform on its borrowers? Are its loans compatible with PeerStreet’s more conservative credit box? We aim to do business with high-quality operators, which enables us to surface those counterparties.
- The track record of each lender indicates how loans have performed in the past. Many of our lenders were formed post-crisis but their key principals went through the recession.
What If the Lender Suffered During the Recession?
A perfect record is not a requirement. From PeerStreet’s perspective, if a lender experienced trauma during the recession (as many did), applied those learnings to improve underwriting standards and credit policies and, hence, was able to make it through that rough period, that can be a positive signal.Lenders with Expertise of Local Markets
Next, we analyze the markets in which the lender operates. One of PeerStreet’s key tenets is to work with lenders who are experts on the housing markets where they lend. We believe local expertise and relationships help reduce risk. Our lenders understand which borrowers to work with and which ones to avoid, as well as local real estate nuances that are specific to their area. These lenders serve as PeerStreet’s eyes and ears and help us avoid potential problems before they start.
This is why PeerStreet is different from other companies in the real estate marketplace industry. We know real estate experts from Seattle, for example, are often the best evaluators of real estate in Seattle. Our investors benefit from those partnerships, rather than us solely and independently making evaluations on local markets from afar.
While there are exceptions to this rule, most of the loans sold through the platform to date were originated by lenders who remain focused on their immediate markets. The PeerStreet lenders who do lend in multiple geographies have proven track records and processes to do so successfully (and we require an additional layer of diligence).
Financially Strong Partnerships
Another key tenet is to work with lenders who have the financial wherewithal to fund loans and sell them to PeerStreet. These lenders typically include mortgage funds and lenders who source loans for individual beneficiaries and family offices. Finally, in our continuing effort to get to know and understand our lenders, we conduct background, criminal, credit and internet checks on the key principles.
PeerStreet’s lender diligence and onboarding process is thorough. While the above is a simplification, hopefully, it provides a better understanding of what we look for in our lending relationships. If you have more questions about this process, please shoot us an email at firstname.lastname@example.org or call 844-733-7787.
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