On-line Peer Lending Turns to Real Estate Loans
Peer-to-peer lending is hardly a newrnconcept but it went high-tech in 2005 when Prosper.com opened a market place tornlink people who had money with those who needed it. Under Prosper’s business plan lenders bid tornfund entire loans or pieces as small as $25. The more investors who bid the lower the interestrnrate the borrower is likely to get.</p
When we wrote about Prosper</ain 2006 we said we could see such a concept eventually moving into homernmortgages. Prosper however has continuedrnto focus on small – $2,000 to $25,000 – and short – one to five year – term loans and itsrnborrowers are usually seeking money for debt consolidation, home improvement orrnsmall business purposes. </p
Now there is a new on-line player focusingrnon real estate financing although with a very different business model thanrnthat of Prosper. Money360 has moved from its original business,rndirect real estate lending in California, to an internet marketplace for privaternresidential and commercial real estate lending.</p
Where Prosper targets small investors,rnMoney360 is looking at a more sophisticated audience. Many of its investors have extensiverninvolvement in real estate as developers and operators as well as investors andrnare often looking to invest in the same types of property with which they havernhad hands on experience. The company claims its lenders represent a potential poolrnof more than $500 million for residential and commercial real estate loans. </p
While Prosper qualifies borrowers,rnevaluates and rates the loan’s risk, handles the legal work and services thernresulting loan, Evan Gentry, CEO of Money360, describes its business model asrn”an eHarmony or Match.com for lending.” Potential borrowers are put through an on-linernscreening process to qualify them by experience, abilities and capacity andrntheir loans by size and the quality of collateral. Money360 then matches borrowers with lenders whornhave been screened for their preferences in a similar manner. </p
Once buyer and seller are put together,rnMoney360 steps out of the picture. Therntwo parties negotiate the loan, close it and the lender arranges for its servicing. The minimum loan size is $25,000 and there isrnno fractional lending although there is nothing to preclude groups orrnsyndicates from participating. </p
Money360’s revenue model is simple.rn Registered lenders review loans matching their parameters and can “purchase”rnmore details and contact information on those they like for a small fee of $5rnto $10. If the loan closes the lender isrncharged a marketing fee of 50 basis points for commercial and non-owner occupiedrnresidential loans. There is no marketingrnfee for loans that fall under RESPA laws. </p
Gentryrnsees a real niche for his young company. rn”Right now people don’t know where to put their money,” he said. Bank interest rates and dividends are low andrnboth local private lenders and high net worth investors are looking for a highrnrate of return with solid collateral. rnSome of them have years of experience owning or managing the types ofrnproperties on which they would now like to lend but can’t always find. “The private lending market is veryrnfragmented and disorganized,” he said. Hernnotes that lenders have used Money360 to identify opportunities right in theirrnown communities.</p
Gentry does not see the company as arncompetitor of traditional lending, especially in the residential area. “If a borrower can qualify for a regular loanrnat low rates then our investors are not competitive,” he says. But there are a lot of good loans that aren’trnbeing funded because they are slightly outside the box of traditional lending evenrnthough the borrowers may have equity or cash for a down payment. Gentry evenrnsees eventual reciprocity between his company and traditional loan originatorsrnwhere each could refer to the other those loans for which they would be thernbetter and more cost efficient lender.
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