Private money lenders use PeerStreet as a way to maximize their capital. Lenders who sell private money loans through PeerStreet typically want to recapitalize quickly so they can turn around and immediately make new loans.
Which means, they want to fund their loans fast.
In this article, we’re going to describe four of the most common roadblocks lenders run into when submitting loans for PeerStreet to fund.
These issues don’t usually prevent you from selling a loan from your portfolio, but they most certainly slow it down, sometimes adding days or weeks to the process.
If you learn how PeerStreet evaluates loans and make sure everything we look for is in order prior to submitting your application, we can often finalize the purchase of a loan in as little as five to seven days.
Want to see how PeerStreet can help you fund loans faster? Learn more and sign up today.
The Big Picture: Know the PeerStreet Process
Because loans are securitized and funded through PeerStreet’s investment marketplace, there are high expectations of loan quality. Investors trust PeerStreet to provide high-quality investment options, which is why our team verifies all aspects of every loan to help identify potential downstream issues—as well as unscrupulous borrowers.
PeerStreet underwrites every loan with a thorough and methodical process that examines all aspects of the loan, the property, and the borrower.
As such, the PeerStreet underwriting process is “professional-grade” and may differ from your own underwriting process. We may look into things and documents that you weren’t expecting.
Here are the most common setbacks that surprise PeerStreet lenders when submitting loans to the PeerStreet platform for funding.
Roadblock #1: Not Including Two Valuations (Yours and a Third Party)
We always look for a quality third-party attestation of value in the loan, and we provide a list of well-vetted, PeerStreet-approved vendors to our approved lenders to choose from to back up your valuation.
However, the third-party opinion is not the only property value we consider. We also look for and value your opinion of the property value.
Lenders like you are typically experts in your local real estate market. You may know things about the community that a third-party assessor doesn’t understand. For that reason, we take both opinions into consideration when evaluating property value. We can work through any difference of opinion between your Broker Price Opinion (BPO) of the property value and that of the valuation vendor.
Some applications, however, come to us without the lender’s research and perspective. When that happens, we sometimes have to slow down the process and do additional research before moving forward with the purchase.
Roadblock #2: Not Thoroughly Researching Your Borrower’s Credit and Background
While many private money lenders only focus on the asset, we also want assurances on the borrower.
We don’t ask for tax returns or anything onerous, but we do consider their FICO score and look at their background for criminal charges or charges of fraud. We also look for red flags using basic public record and Google searches. If something comes up—such as a fraud or felony—we look into it.
Unfortunately, we sometimes receive loan paperwork that doesn’t include this kind of research ahead of time.
Running a credit and background check before you submit a loan can save us the time of asking you questions you don’t know the answer to (e.g., what are the details surrounding the felony on the borrower’s record?).
If the borrower has something in their background that’s easily explainable, provide that background in your loan file, and we can often move the process along quickly.
In the case of fraud, the loan is probably not a good fit for us. Even if it’s just a $1,000 bad check, it will show up on our background check as fraud, and we’re likely to pass on the loan.
Roadblock #3: Not Removing the “General Exception” Clause in Title Insurance
A title insurance contract commonly uses some version of a “general exception” clause. General clauses leave open a wide array of reasons for the insurance company to not cover the loan. And, as the loan holder, this amounts to higher risk.
Therefore, we require all title insurance to list out specific exceptions. For instance, instead of “all easements of record,” we expect something like “easement recorded on 1/2/18, at book 2, page 5.”
By calling these out specifically, we leave little room for an insurance company to deny a claim in a case where something doesn’t work out as expected. It might mean a bit more legal work, but it’s a benefit for you, PeerStreet, and your investors.
Roadblock #4: Not Ensuring the Correct Person Has Signed the Loan
If you’re doing business with a non-individual (such as an LLC), the entity documents will dictate who can do business on behalf of that company.
Make sure the right person’s signature is on the paperwork. In the case of a non-individual (entity) who’s the legal borrower on a loan, this is one of the primary items that our legal team looks for before final approval and close.
In addition, it’s important to double-check that your borrower is still in good standing. For example, if a corporation isn’t active—according to the state—we can’t accept the corporation as a borrower on the loan.
We Have These Standards Because We’re a Marketplace
As individual loan originators, many private money lenders are more lenient when it comes to some of these guidelines than we are at PeerStreet.
We have relatively high standards because we’re a marketplace. After we purchase loans from private money lenders like you, we use those loans to create investments that are attractive to a wide variety of investors, including major institutional investors.
We’ve created our guidelines to help ensure we can make those investment options as attractive as possible, and that’s why we follow our guidelines consistently when making decisions about what loans that we’re able to fund through the PeerStreet investment marketplace.
By doing so, we keep our business model strong, allowing you to recapitalize quickly so you can originate more loans—but also keeping our investments attractive to those looking to invest in products we offer through our marketplace.
If you take steps ahead of time to have your loan documentation completed in a way that avoids the common roadblocks we’ve listed here, you’ll significantly increase your odds of having your loan accepted and processed as quickly as possible.
Want to see how partnering with PeerStreet can help grow your private lending business?
