The Intriguing History of the 30-Year Fixed Rate Mortgage

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards and may receive a commission. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

As part of a complete personal finance education, I submit that the longread article Financing the American Home by Marc Rubenstein should also be required reading. I learned a lot of important facts about the history and meaning behind the 30-year fixed-rate fully prepayable mortgage:

From the consumer’s perspective, it’s an amazing product. It’s a simple loan that offers stable repayments, kept low because they are spread out over such a long period of time. Its kicker is a free option to prepay, which shields the borrower from interest rate risk. If rates go up, borrowers can commend themselves on a great bargain; if they go down, stay calm—the loan can be refinanced without penalty. Win/win.

You’ll only find it in the United States (except for one small European country):

Yet, with the exception of Denmark, it doesn’t exist anywhere else in the world. Even baseball exists in more countries.

Which leads to an interesting observation:

To many, the idea that the US, a beacon of the free market, should support its mortgage market so directly seems odd. The former Governor of the Bank of England, Mervyn King, once remarked: “You Americans are so strange. Most countries have socialised healthcare and a private market in mortgages. You have socialised mortgages and a private market in healthcare.

The article goes on to explore how individual homeownership as a widespread goal has been widely accepted in the US for hundreds of years. Yet, every time the US government tries to shift the mortgage market back towards free-market capitalism, there are no takers. The 30-year fixed mortgage is a clear example of government subsidization (even though they try to obscure it). If the government were to exit the market today and remove their backstop guarantee, mortgage rates (and home values) would have to find a new market-based equilibrium. In other words: tighter lending standards, higher interest rates, and thus at least somewhat lower home values.

So we should be really happy that we have the 30-year fixed mortgage and never pay it off, right? Cheap, dependable leverage forever! I happen to also be reading the book How I Invest My Money by Joshua Brown and Brian Portnoy, where “25 finance experts reveal how they save, spend, and invest”. I’m only about six interview in, but you know what every. single. person. has in common so far? They own their primary home, outright with no mortgage! So even with all of the potential financial benefits of low interest rates, tax deductions, and refinance optionality, they felt the psychological benefits outweighed all of that. Wow. These familiar names that I’ve read and linked to many times, including Joshua Brown, Morgan Housel, Christine Benz, and Bob Seawright (with more to add I’m sure) – they’ve all gotten “the letter” that we got when we paid off our mortgage:

So what’s the best move? Here’s my two cents. If you want to own a home and live in it for the foreseeable future, then buy one for both psychological and financial reasons. Use that nifty 30-year fixed mortgage, but don’t necessarily borrow the max that they’ll allow. Then roughly time the mortgage payoff with your retirement date. Love your awesome job and want to work until 65? Then take your time. Serious about early financial independence? Then refinance or prepay principal to shorten the term, and pay it off as part of one of your final retirement goals. I have to agree that a paid-off primary residence offers well-being benefits that are hard to put a price upon.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Peerstreet Case Study #4: The Perpetually-Late $10M Beverly Hills Estate

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards and may receive a commission. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

I’ve invested over $50,000 of my “alternative” money into PeerStreet real estate notes because of the ability to diversify into 50+ different high-interest loans backed by physical real estate. Here is a case study of a $10 million mansion that bounced in and out of late status for years, only to suddenly get paid back in full. You can find additional case study links and the most recent update to my overall portfolio performance in my Peerstreet review.

I called this property “90210” as it was located in a prime spot in Beverly Hills. The loan photo on the Peerstreet listing was quite drab:

Here’s what it looked like on the MLS page when they listed it for over $10 million:

Initial investment details.

  • Property: Single-family residential property in California.
  • Target Net Investor Rate/Term: 8.25% APR for 31 months.
  • Appraised at $8.75M = 60% LTV.
  • Cash-out/Bridge loan secured by the property in first position.
  • Loan originator retained 13% “skin in the game”.

Timeline.

  • June 2018. Loan originated. Original maturity date was January 2020.
  • June 2019. Payments are now late.
  • August to September 2019. Payments are still late. Demand letters are sent.
  • October 2019 to January 2020. Intermittent payments are made, but still behind and late.
  • February 2020. Peerstreet approves a loan extension to April 2020.
  • April 2020. Late again.
  • May 2020. Loan brought current!
  • July 2020. Guess whose late again?
  • August 2020. Another extension is approved, but does it really matter?
  • September 2020 to January 2021. Still… late.
  • February 2021. Loan is suddenly paid off in full.

Final numbers. As the loan was paid off in full, I earned the full promised 8.25% annualized return but for 31 months instead of the original 18 months. I guess that worked out to my benefit, given the current low interest rate environment. My overall annualized return across my entire Peerstreet portfolio is currently 6.9%. These numbers are net of all PeerStreet fees.

My commentary. This loan is an example where for nearly three years, I stared at the same loan that with a late/default status every time I logged into Peerstreet. It spent more time late than current, yet one day it suddenly became paid off in full and actually improved my overall return numbers. The originator appears to be juggling many different loans, but the property remained valuable enough that they really had to eventually pay off this loan despite having to pay me 8.25% interest while I waited.

It was good to see (and rare these days) to see the originator keep an interest in the loan, as that is usually taken as a sign of confidence. I wish I could only invest in loans with such “skin in the game”, but the reality is that Peerstreet inventory is currently in such great demand that nearly all of their notes sell out instantly to automated investors.

Again, the lesson is to diversify, ignore the late status, and invest money with which you can be patient. Let Peerstreet do the due diligence and manage the late payments and possibly the foreclosure process.

Bottom line. At the moment, out of the $50,000+ I’ve now invested into 66 loans at PeerStreet over 4+ years, 55 were paid back, 8 are current, and 3 are late. However, many of those paid-off loans were late at some point in time. This is one example of a single-family residential loan that was constantly late for years, but ended up being paid in full. The annualized return for this loan was 8.25%, while my overall annualized return across my entire portfolio is 6.9%.

If you are interested, you can sign up and browse investments at PeerStreet for free before depositing any funds or making any investments. You must qualify as an accredited investor (either via income or net worth) to invest. If you already invest with them, they now sync with Mint.com.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Big List of Free Consumer Data Reports (2/2): See Your Confidential Rental History, Insurance, Retail, & Employment Data

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards and may receive a commission. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

magUpdated for 2021. Here is the second part of my big list of free consumer reports from over 50 different reporting agencies. The first part included your credit, banking, and subprime lending-related information. This part includes your housing, insurance, and employment history. You can request a free copy every 12 months of what these databases have stored about you and are telling prospective landlords, insurers, or employers.

Again, you may not need to check all of these, and many may not even have a file on you anyway. But for example if you are a renter then you’d want to make sure your rental history is clean and correct, or if were applying for life insurance you might check your medical reports.

Based on my situation, I have checked the following reports out of the ones listed below – CLUE Auto, CLUE Property, MIB.com, Milliman IntelliScript.

Rental History

Realpage (LeasingDesk) Consumer Report. Provides tenant screening through their LeasingDesk product, including “the industry’s largest rental payment history database.”

CoreLogic SafeRent. SafeRent provides both tenant and employment screening data, including information regarding landlord tenant and criminal public court records. One free report every 12 months.

Experian RentBureau Rental History Report. “Every 24 hours, Experian RentBureau receives updated rental payment history data from property owners/managers, electronic rent payment services and collection companies and makes that information available immediately to the multifamily industry through our resident screening partners.”

First Advantage Resident History Report. Tenant and employment background checks. One free report every 12 months.

Contemporary Information Corp. CIC provides background checks on prospective tenants and/or employees and contractors for landlords and management companies. Keep records of any rental evictions.

Tenant Data. Provides tenant history reports, including any reported damages, unpaid balances, evictions, lease violations, noise complaints, or unauthorized pets.

Screening Reports, Inc. A national provider of background screening service to the multi-family housing industry.

TransUnion Rental Screening Solutions. SmartMove provides tenant credit, eviction, and background checks.

  • MySmartMove.com FAQ page
  • SmartMove will disclose the contents of a criminal and/or credit report retained by SmartMove to an individual who requests a copy of their report. To verify your identity and obtain a copy of your report(s) or dispute any information within that report, please contact customer service at 866-775-0961.

Auto and Property Insurance

C.L.U.E. Personal Property Report. A division of LexisNexis, CLUE stands for Comprehensive Loss Underwriting Exchange, which collects information that is used to calculate your insurance premiums. This report provides a seven year history of losses associated with an individual and his/her personal property. Includes date of loss, loss type, and amount paid along with general information such as policy number, claim number and insurance company name. This also means you can find out about previous claims on the house you are currently renting or recently bought, even if they weren’t made by you.

C.L.U.E. Auto Report. This report provides a seven year history of automobile insurance losses associated with an individual. Includes date of loss, loss type, and amount paid along with general information such as policy number, claim number and insurance company name.

A-PLUS Loss History Reports, subsidiary of Verisk. ISO stands for Insurance Services Office, A-PLUS stands for Automated Property Loss Underwriting System. Auto and property loss claim history.

Drivers History. Owned by TransUnion. Collects driving violations.

Insurance Information Exchange (IIX), subsidiary of Verisk. Provide reports including your motor vehicle records and driver history, including any traffic violations or related criminal history. May require proof of adverse action to obtain free report.

Utilities

National Consumer Telecom and Utilities Exchange. NCTUE tracks when people don’t pay their phone, cable, or utility bills. One free report every 12 months.

Retail

The Retail Equation. Tracks product return and exchange abuse at retail merchants.

Gaming

VIP Preferred. Tracks consumer data regarding check-cashing at casinos.

Medical History

MIB (previously known as Medical Information Bureau). Run by 470 insurance companies with a “primary mission of detecting and deterring fraud that may occur in the course of obtaining life, health, disability income, critical illness, and long-term care insurance.” They record information of “underwriting significance” like medical conditions or hazardous activities. If you have not applied for individually underwritten life, health, or disability income insurance during the preceding seven year period, then you probably don’t have a record.

Milliman IntelliScript. Tracks your prescription drug purchase history. “Milliman IntelliScript will have prescription information about you only if you authorized the release of your medical records to an insurance company and that company requested that we gather a report on you.”

Employment History

The following companies all offer background screening services for employers. Most will not have any information about you unless you authorized a potential employer to run a background check on you (probably during the application process). Some will not provide you information unless there was adverse action. Otherwise, you can get one free copy every 12 months.

The Work Number (division of Equifax). They also keep historical income records.

Accurate Background, Inc.

  • AccurateBackground.com “You may contact our Client Services team at 800.216.8024, or send an email to customer_service@accurate.com. Please include your full name and the search reference ID, if available.”
  • 800-216-8024

American Databank, LLC.

Backgroundchecks.com.

Checkr

EmpInfo

  • EmpInfo.com report request page (scroll down to FCRA section).
  • Generally won’t have a report on everyone, only for people specifically requested by an employer.
  • 800-274-9694

First Advantage Background Check. Tenant and employment background checks. One free report every 12 months.

HireRight, recently merged with General Information Services (GIS)

Info Cubic.

IntelliCorp

OPENonline

Pre-employ

Professional Screening & Information, Inc.

Sterling (acquired EmployeeScreenIQ)

PeopleFacts

Truework

Reminder: Also see Part 1: Big List of Free Consumer Reports with Your Credit, Banking, and Payday Lending Data.

Sources: ConsumerFinance.gov, FTC.gov, Wikipedia

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Big List of Free Consumer Data Reports 2021 (1/2): See Your Confidential Credit, Banking, and Payday Lending Data

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards and may receive a commission. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

magUpdated for 2021. Since these are available every 12 months, it is a good idea to check these near or around the same time each year. A lot of companies make their money by collecting and selling data – your personal data. In the past, it was often difficult if not impossible to see what they were telling prospective lenders, landlords, even employers about you. Under the FCRA and/or FACT Act, many consumer reporting agencies (CRAs) are now legally required to send you a free copy of your report every 12 months, as well as provide a way to dispute incorrect information.

Some have an online request form, but some require snail mail with proof of identity. You probably won’t want to bother checking all of them, but if you’ve experienced any sort of rejection or adverse reaction in these areas the cause might be found inside one of these databases. Keep in mind that you may not have a file with all of these places. Requesting a copy of your own consumer reports does not hurt your credit score.

Based on my own situation, I have checked the following reports out of the ones listed below – Experian, Equifax, TransUnion, CoreLogic Credco, Chexsystems, and LexisNexis.

Credit-Related

Experian, Equifax, and TransUnion. The three major credit bureaus track your credit accounts, payment history, and other related information like bankrupts and liens. Free copy of each once every 12 months.

(Note: As part of a class action settlement, you may also request up to six additional free copies of your Equifax credit report directly from myEquifax during any 12-month period through December 2026.)

You can also now freeze your credit reports for free, but you must contact each bureau separately. For the contact info, please see Big List of Ways To Protect Your Identity: Free Credit Monitoring, Free Credit Locks, and Free Credit Freezes

CoreLogic Credco. One of the largest credit-related CRAs and often used by mortgage lenders, your CoreLogic Credco Consumer File can contain: previous homeownership and mortgage info, rental payment history, any reported delinquencies, and other debt obligations like child support. Free copy once every 12 months.

LexisNexis. One of the largest personal information databases that includes public records, real estate transaction and ownership data, lien, judgment, and bankruptcy records, professional license information, and historical addresses on file. Free copy, must mail in form.

Innovis. A supplementary credit report and identity verification provider. Free copy once every 12 months.

SageStream, LLC (formerly ID Analytics). Per their site, they are a “a credit reporting agency that produces credit reports and scores from our repository of consumer information contributed by a wide array of companies including leading financial services organizations, wireless providers, utilities, retailers, auto lenders and many others” Free copy, must fax or mail in a written form.

Banking-Related

Chexsystems. A consumer information database used by an estimated 80-90% of all banks to help determine the risk of opening new accounts. Think of it as the banks’ version of a credit bureau. If a person commits check fraud or overdraws their account, it will be listed here. In addition, the simple act of opening or closing a bank account may be recorded in their database. Having a negative ChexSystems record can leave you blacklisted from opening bank accounts at most major banks. Free copy once every 12 months. You can now request your report online.

CrossCheck, Inc. Provides check verification services for various industries, including automotive sales and repair, building supply, home improvement, retail, medical, dental, and veterinarian industries.

Global Payments Check Services, Inc. Provides check verification services for various industries.

TeleCheck. Per their site, they provide “industry-leading check acceptance, check processing and risk analytics services to merchants and financial institutions.” One of the major companies that protect businesses and banks from bad checks. Must order by phone or mail.

Certegy Check Services. Per their site, a “check risk management company that provides verification, guarantee and risk analytics to thousands of businesses that choose to accept checks as a form of payment for goods or services.” Clients include check-cashing stores and casinos. Free copy once every 12 months. Must order by phone or mail.

Early Warning Services. A collaboration between a group of big banks including Bank of America, BB&T, Capital One, JPMorgan Chase and Wells Fargo. Provides fraud prevention and risk management in relation to bank accounts and payment transactions. Must order by phone.

Subprime-Related (Payday Lending)

The following companies focus on subprime customers with clients including payday lenders, title loan lenders, rent-to-own stores, and subprime auto loan providers.

Teletrack (affiliated with CoreLogic).

FactorTrust. Free copy once every 12 months. Owned by TransUnion.

Clarity Services, Inc.

DataX Ltd.

Microbilt and subsidiary Payment Reporting Builds Credit (PRBC). Microbilt is a provider of credit data for the “approximately 110 million underserved and underbanked consumers in the United States.” Free copy once every 12 months.

Next up, I will double-check and update Part 2: Rental History, Insurance, & Employment Data.

Sources: ConsumerFinance.gov, FTC.gov, Wikipedia

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Fundrise Starter Portfolio vs. VNQ Vanguard REIT ETF Review: 3-Year Update (December 2020)

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards and may receive a commission. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

fundrise_logo

Updated December 2020. Here is my 3-year update on my experiment comparing a Fundrise eREIT portfolio and the Vanguard REIT ETF. In Fundrise, we have a start-up that bought a concentrated basket of roughly 20 properties chosen from the private market. In Vanguard, we have a one of the largest real estate ETFs in the world that owns a passive slice of 181 public-traded REITs. I invested $1,000 into both in October 2017 and plan to let them run for at least 5 years.

Fundrise Starter Portfolio background. When I bought in, the Fundrise Starter Portfolio was a simple 50/50 mix of two eREITs: the Fundrise Income eREIT and the Fundrise Growth eREIT*. Since these are finite baskets of entire properties, over time they will close one fund and start another similar basket. What new investors are buying today will be different than what I bought in 2017. Each private eREIT works within recent crowdfunding legislation that allows all investors to own a basket of individual real estate properties (not just accredited investors with high net worth). The minimum deposit is $500. You must buy shares directly from Fundrise, and there are liquidity restrictions as this is meant to be a long-term investment. There are also additional options available with higher investments:

Vanguard REIT ETF background. The Vanguard REIT ETF (VNQ) is one of the largest index funds to invest in publicly-traded real estate investment trusts (REITs). You can purchase it via any brokerage account. You have the liquidity of being to sell on any day the stock market is open. A single share currently costs about $85, but many brokers offer fractional dollar-based trades if you want. All shareholders are holding the same ratio of (tens of?) thousands of office buildings, hotels, storage centers, nursing homes, shopping centers, apartment complexes, timber REITs, and so on. Here are the recent top 10 holdings:

Expenses. The Fundrise Starter Portfolio has an 0.85% annual asset management fee and a 0.15% annual investment advisory fee (1% “all-in” total). The Vanguard REIT ETF has an expense ratio of 0.12%, but each public REIT also has their own internal costs to manage their properties. We will see if Fundrise can provide higher net returns for this concentrated holding. REITs may also use debt to increase their real estate exposure (leverage).

Fundrise Portfolio updates.

  • October 2017. $1,000 initial investment – 50 shares @ $10.00/share Income eREIT and 48.78 shares @ $10.25/share Growth eREIT.
  • December 2018. Total of $83.63 in dividend and capital gains distributions received in 2018. Based on balance of $1,117 on 12/31/18, this was a trailing 12-month yield of 7.48%.
  • December 2019. Total of $82.62 in dividend and capital gains distributions received in 2019. Based on balance of $1,276 on 12/31/19, this was a trailing 12-month yield of 6.47%.
  • December 2020. Total of $66.16 in dividend and capital gains distributions received in 2020 YTD as of 12/13/2020.
  • Final balance on 11/30/2020 was $1,371. Balances include adjusted NAV and reinvested dividends.

Vanguard REIT ETF performance updates. I own VNQ and the mutual fund equivalent VGSLX (same underlying holdings) in my retirement portfolio, but will be using Morningstar tools to track the performance of a $1,000 investment bought on the same date of 10/20/17.

  • October 2017. $1,000 initial investment – 11.9545 shares at $83.65/share.
  • December 2018. Total of $3.53 in dividend and capital gains distributions per share received in 2018. Based on closing price of $74.57 on 12/31/18, this was a trailing 12-month yield of 4.73%.
  • December 2019. Total of $3.14 in dividend and capital gains distributions per share received in 2019. Based on closing price of $92.79 on 12/31/18, this was a trailing 12-month yield of 3.38%.
  • December 2020. Total of $2.00 in dividend and capital gains distributions per share received in 2020 YTD as of 12/13/2020.
  • Final balance on 11/30/2020 was $1,132. (includes reinvested dividends).

Five-year time horizon. Both Fundrise and VNQ usually announce dividend distributions on a quarterly basis. Vanguard updates the NAV daily, but Fundrise only updates their NAV quarterly. Fundrise NAVs are only estimates as there is no daily market value available since they hold entire apartment complexes, office buildings, and so on (similar to your house, but with even fewer comps). Your liquidity from Fundrise is limited to quarterly windows that are not guaranteed. These are meant to be long-term investments so that they can sell at the desired time and avoid forced sales. Therefore, I plan on holding onto this investment for 5 years at the minimum. This will allow the investments to “play out” and also avoid any early redemption fees.

Bottom line. I’m now 3 years in my buy-and-hold-and-watch experiment where I compare investing in real estate via Fundrise direct investment and the largest REIT index ETF from Vanguard. I’ll provide occasional updates, as we won’t get the most useful information until after 5+ years.

You can learn more about all Fundrise eREIT options here. Anyone can invest with Fundrise; you don’t need to be an accredited investor. This is the second time I have invested with Fundrise. The first time ended when I decided to test out a withdrawal in my Fundrise Liquidity and Redemption review.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Peerstreet Case Study #3: COVID-Era Commercial Property Foreclosure Disaster

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards and may receive a commission. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

I’ve invested over $50,000 of my “alternative” money into PeerStreet real estate notes because of the ability to diversify into 50+ different high-interest loans backed by physical real estate. Here is a case study shared by a helpful reader about a “disaster” loan with multiple bad factors – bankrupt building owner, bankrupt tenant, a charitable donation, poorly-aligned incentives, COVID-19 pandemic, civil unrest, and forced selling. You can find additional case study links and the most recent update to my overall portfolio performance in my Peerstreet review.

Initial investment details.

  • Property: Office building in Springfield, Ohio.
  • Target Net Investor Rate/Term: 8.75% APR for 31 months.
  • Amount: $3,600,404 loan.
  • 60% LTV based on 3rd-party appraisal of $7.76 million.
  • Loan secured by the property in first position.
  • Cash-out refinance.

Timeline.

  • February 2018. Loan is originated.
  • December 2018. Payments stop.
  • January 2019. Payments are over 30 days late, demand letters are sent, etc.
  • April 2019. Foreclosure complaint filed.
  • April 2020. A year has passed. Foreclosure process drags on, but now all foreclosures are halted due to COVID-19.
  • August 2020. Foreclosure auction date set for October 2020.
  • October 2020. PeerStreet abruptly decides to sell to a third-party for net proceeds to investors of $573,281.31 for a final return (including interest paid to date) of 18% of the original investment.

How did a $3.6 million loan backed by a building that was appraised for $7.8 million in 2018 end up only giving back investors $580,000 less than two years later? How did a loan with a supposedly 60% loan-to-value ratio end up paying back only 18 cents on the dollar? After reading all the screenshots and documentation provided along with some poking around online, here’s what happened in the background.

A wealthy couple donates what might be the most prestigious commercial address in downtown Springfield, Ohio. The address is literally “1 Main Street.” Look at the building entrance from Google Maps Streetview. The lucky nonprofit recipient immediately agrees to sell it to EF Hutton, which renames it EF Hutton Tower. The nonprofit is happy, but they are on a payment plan and also get paid partially in EF Hutton stock. (Cue ominous music…)

EF Hutton is now both the building owner and the anchor tenant. So the same company that owns the building is also the source of most of the rental income. They now want a cash-out refinance, and obtain an appraisal of $7.78 million in January 2018. Now, if there was an independent buyer for this property, the appraisal might have been done with more skepticism. But it was appraised as a charitable donation (i.e tax write-off) for a needy non-profit! Many people potentially benefited from a high appraisal. The building owner gets more money from the cash-out refi, the donor get a bigger tax break, the recipient gets a high-publicity donation, even Peerstreet got a note with a great LTV%. Everyone except the person holding the bag at the end.

Okay, so time moves on. EF Hutton is quickly in financial trouble and being investigated by the SEC, somehow pivoting from stock trading to mobile phones to cryptocurrencies on its way to bankruptcy. Check out this Springfield News Sun article about their $12 million in debt. The anchor tenant is broke. There is no rent being paid. The nonprofit is owed money. Property insurance and property taxes are not being paid. The building is no longer being maintained. From a Peerstreet letter to noteholders:

As the foreclosure proceedings were ongoing, PeerStreet made repeated efforts to gain access to the property and assess its condition. After the court granted PeerStreet partial access to the property, we discovered water damage, deferred maintenance on the elevators and other maintenance issues caused by the borrower’s failure to maintain the property, which inspectors estimated would cost over $1M to remedy.

In addition to this, the borrower stopped making property insurance payments, which PeerStreet then advanced to protect investors’ interests in the collateral. The borrower also defaulted on property taxes in excess of $700,000.00.

COVID-19 crushes the local economy. Nobody is there to protect the building during civil unrest. There is no anchor tenant. $1m in property damage. $700,000 in property taxes. Even so, I don’t understand why Peerstreet didn’t just wait for the foreclosure auction. I’d personally feel more confident if there was an open auction. Could they have held out until after the pandemic passes? That’s what I would have done if I was the sole owner. However, Peerstreet might simply value a fast resolution over absolute final return.

Final numbers. As noted above, the final return (including interest paid to date) was 18% of the original investment. (As in, you put in $100 originally and get $18 back.)

My commentary. Both bad luck and bad incentives lined up for such a bad result. The appraisal was obviously too high in retrospect. Whenever someone donates something big, even though it is a charitable act, the donor still wants it to be valued as highly as possible while the nonprofit also benefits. The tax deduction here was worth millions. EF Hutton also wanted the highest valuation possible as it was a cash-out refi. COVID and economic factors only made it worse. Once it was clear that they had no more skin in the game (equity), EF Hutton let the property fall into ruin.

A cynic might wonder if EF Hutton knew this would happen and wanted to walk away with as much money in its pockets as possible? Where did all the money from their $12 million in debt go? Highly suspicious.

Getting back 18 cents on the dollar really hurts, and makes me wonder how this might happen on a more commonplace residential property (and how to avoid it). You would still need an inflated appraisal (avoid cash-out refis?). You would also need the owner to stop caring about the property and let it get totally trashed (maintain equity?). You would need a severe economic downturn and a forced sale (more skin in the game from Peerstreet to encourage more patience?).

Finally, this is another lesson in the importance of diversification. If this was a $1,000 loan amongst 50 different loans, your loss would be 1.6% of your total $50,000 portfolio.

Bottom line. Even though I’ve now invested and reinvesting $60,000+ into 63 loans at PeerStreet over 4+ years, I haven’t had one (knock on wood) completely “blow up”. I’ve had several spend several months in default, only to be paid back in full with interest. Thanks to a helpful reader, I was able to share this story and hopefully provide some educational value. Most importantly, this should teach you to diversify even if the loan looks solid, as even if you replaced any one of my $1,000 loans with this “worst-case scenario”, thanks to diversification my overall portfolio return would still be positive.

If you are interested, you can sign up and browse investments at PeerStreet for free before depositing any funds or making any investments. You must qualify as an accredited investor (either via income or net worth) to invest. If you already invest with them, they now sync with Mint.com.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

PeerStreet Review 2021: Fractional Real-Estate Loan Returns (IRR) After 4.5 Years

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards and may receive a commission. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

Updated February 2021. I started investing in PeerStreet real-estate backed loans in July 2016. I’ve long liked the idea of hard money loans, but I wanted more diversification as opposed to tying all my money up with one single property. Peerstreet requires you to be an accredited investor. (There are other real-estate sites like Fundrise that don’t require that status.) Here are my overall numbers after over four years, with details below:

  • Total deposits (loaned principal): $35,000 ($60,000)
  • Total interest and fees earned: $3,979
  • 52 loans made and paid off, 8 current loans, and 3 late/default.
  • Internal rate of return (IRR) of 6.92% as of 2/16/2021.

Basic idea: Short-term loans backed by real estate. Real estate equity investors want to take out short-term loans (6 to 24 months) and don’t fit the profile of a traditional mortgage borrower. They are professional investors with multiple properties, need bridge financing, or they are on a tight timeline. As a real-estate-backed loan investor, you lend them money at 6% to 12% and usually backed by a first lien on the property. The borrower stands to lose the equity in their property, so they are incentivized to avoid default. In the worst case, you would foreclose and liquidate the property in order to get your money back. However, this is better than Prosper or LendingClub where it is an unsecured loan and your only recourse is to lower their credit score.

What are PeerStreet strengths? Here are the reasons that I decided to put more a higher amount of money into PeerStreet as compared to other worthwhile real estate marketplace sites:

  • Debt-only focus. Other real estate (RE) sites will offer both equity and debt (and things in between). PeerStreet only focuses on debt, and I also prefer the simplicity of debt. There is limited upside but also less downside. Traditionally, this might be called “hard money lending”.
  • Lower $1,000 investment minimum. Many RE investment sites have minimums of $10,000 or $25,000. At PeerStreet, $25,000 will get me slices of loans from 25 different real estate properties. You can even reinvest your earnings with as little as $100.
  • Greater availability of investments. Amongst all the RE websites that I have joined, PeerStreet has the highest and most steady volume of loans that I’ve seen. I dislike having idle cash just sit there, waiting and not earning interest. They apparently have a unique process where they have a network of lenders that bring in loans for them. They don’t originate loans themselves, they basically buy loans from these partners if they fit their criteria. This steady volume allows the lower $1,000 minimums and more diversification, as well as easy reinvestment of matured loans.
  • Automated investing. The above two characteristics allow PeerStreet to run an automated investment program. You give them say $5,000 and they will invest it automatically amongst five $1,000 loans. You can set certain criteria (LTV ratio, term length, interest rate). When a loan matures, the software can automatically reinvest your available cash. I don’t even have to log in.
  • Consistent underwriting. You should perform your own due diligence in this area, as you can only feel comfortable with automated investing if you think every loan is underwritten fairly. The riskier loans get higher interest rates. The less-risky loans get lower interest rates. The shady borrowers are turned away. I hope they earn their cut by doing this difficult task.
  • Strong venture capital backing. They have a history of increased funding. Series A was $15 million in November 2016. Series B was $30 million in April 2018. Series C was $60 million in October 2019.

Here’s a screenshot of the automated investing customizer tool:

What are PeerStreet drawbacks? A general drawback to real-estate backed loans is that your upside is limited to the full interest being paid back on time, while your downside is much larger if there is a prolonged housing crash. As long as housing prices are flat to strong, everything will probably work out fine because your collateral will cover everything. This is why it is important to have a cushion via the loan-to-value ratio.

In my opinion, one major drawback specific to Peerstreet is lower yields. This is just my limited understanding and I may be wrong, but PeerStreet has a network of lenders bringing in these deals and thus need to be paid some sort of “finders fee”, so the net yield to the investor feels lower than other sites. You could argue that this is also their secret sauce that brings in the high loan volume (and ideally the ability to be more selective), but at some point the rate is too low to justify the risks being taken.

In the current low-interest rate environment, it is also my opinion that too many real estate crowdfunding sites are chasing too few loans, which has been driving down the interest rates offered. I started out being able to find a lot of loans in the 8% to 9% range, but now the more conservative notes are in the 7%-7.5% range. In the current yield environment, my target is an 8% return while also maintaining a loan-to-value ratio of 70% or less.

How does PeerStreet make money? As with other real estate marketplace lenders, they charge a servicing fee. PeerStreet charges between 0.25% and 1%, taken out from the interest payments. This way, PeerStreet only gets paid when you get paid. When you invest, you see the fee and net interest rate that you’ll earn. In exchange, they help source the investments, set up all the required legal structures, service the loans, and coordinate the foreclosure process in case of default. In some cases, the originating lenders retains a partial interest in the loan (“skin in the game”). Here’s a partial screenshot:

peerstreet_fee

What if PeerStreet goes bankrupt? This is the same question posed to LendingClub and Prosper, and their solution is also the same. The loans are held in a bankruptcy-remote entity and will continue to be serviced by a third-party even in a bankruptcy event. From their FAQ:

PeerStreet also holds loans in a bankruptcy-remote entity that is separate from our primary corporate entity. In the event PeerStreet no longer remains in business, a third-party “special member” will step in to manage loan investments and ensure that investors continue to receive interest and principal payments. Additionally, investor funds are held in an Investors Trust Account with City National Bank and FDIC insured up to $250,000.

Tax forms? In previous years, I received both a 1099-INT and a 1099-OID. Basically, both include your gains that will be taxed at ordinary income rates (like bank account interest). Here’s what PeerStreet says:

PeerStreet investors will be issued a consolidated Form 1099 for the income distributed from their investment positions. Investors may receive one or more of the following types of 1099 form:

1099-OID for notes with terms longer than one year (at the time of issue)
1099-INT for notes with terms less than one year (at the time of issue)
1099-MISC for incentives, late fees or other income, if more than $600.

My personal performance. I started with a $10,000 investment in 2016, added another $15,000 in 2017, and added another $10,000 in 2019. Altogether, I also made about $25,000 of withdrawals whenever a loan was paid back and the loan inventory was not attractive. (They pay no interest in idle cash, and I don’t like their short-term options.) Each of my loans was less than 5% of the total portfolio. In order to get first dibs on the good loans, I set up automatic reinvestment when possible.

Here is a screenshot from my account:

As of February 2021, my internal rate of return (IRR) is 6.92% annualized net of all fees and taking into account the periods where my cash was idle. I verified this using my own spreadsheet and it matches the reporting by Peerstreet. Right now, 3 loans are in some phase of the foreclosure process. These loans are all less than 70% LTV, but I don’t know what the final recovery amount will be. In the past, I have had several late loans and all were resolved with no loss of principal (but that is no guarantee of the future). I expect my final IRR to be in the 6% to 7% range.

If you are thinking about this investment, the things I would want you to know are:

  • Real-estate backed loans are highly illiquid and the “maturity date” is just a hopeful number. You can’t just make a few clicks and sell, while the foreclosure process can take years to complete.
  • If you want some degree of reliable cashflow and/or liquidity for your funds, it is important to diversify across multiple, smaller loans.
  • The collateral makes a huge difference. With P2P unsecured loans, being 60 days late usually meant I was going to recover pennies on the dollar. With Peerstreet, I could wait around for an extra year yet still end up with all my principal plus most of the owed interest (if not more due to late charges). I have had many missed maturity dates over the years, but none of my loans have actually resulted in a loss. Usually the borrower realizes that they are better off figuring out how to pay back the loan rather than lose the property. Case Study #1. Case Study #2.
  • My expected net return of 6% to 7% has a good chance to be higher than even many “junk” bonds (and certainly high-grade corporate bonds) in this ultra-low interest rate environment. Being able to earn even 5-6% when corporate bonds are earning only 2-3% is going to attract some attention. Peerstreet is already working on packaging their loans into a fund, which may result in institutional money taking over soon.
  • It shouldn’t be overlooked that my ownership period did not include any prolonged, severe housing price drops.

Case studies. Here are detailed examples from my own investing experience that help illustrate my points:

Other sites that are offering new asset classes are Fundrise (direct ownership of real estate equity), FarmTogether (farmland), Masterworks (art), and Yieldstreet (various). I’ve also invested in LendingClub and Prosper (consumer loans).

Bottom line. PeerStreet offers higher-yield, short-term loans backed by physical real estate. As compared to traditional “hard money lending” on single local properties, Peerstreet allows investors to diversify easily with a $1,000 minimum investment per property, automated reinvestment, and nationwide exposure. In exchange, PeerStreet charges a servicing fee between 0.25% and 1%, taken out of the interest charged to the borrower. The returns you see in the listing are net of their fees. This is a unique asset class and it is important to understand the patience required due to limited liquidity.

If you are interested, you can sign up and browse investments at PeerStreet for free before depositing any funds or making any investments. You must qualify as an accredited investor (either via income or net worth) to invest. If you already invest with them, they now sync with Mint.com.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Refinance Window? 30-Year Fixed at 3%, But New Refinance Fee Added Soon

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards and may receive a commission. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

Mortgage rates have hit another all-time low, with some 30-year fixed rate mortgages below 3% and 15-year fixed below 2.5%. I know that many folks have already refinanced successfully, but these lower rates may offer even more homeowners the ability to lower their payments and/or pay off their home sooner. Importantly, Fannie Mae and Freddie Mac announced an additional 0.5% fee on refinances that was supposed to start on 9/1, but that was just delayed to 12/1. This could add thousands to your upfront cost. The fact that they ultimately buy 2/3rd of all refi loans and called this an “adverse market refinance fee” also suggests that they feel rates are so low that they don’t properly compensate for the risk involved.

Here is how mortgage rates have changed in just the last 12 months, per Freddie Mac. Would anyone who lived through the 2009 boom-and-bust have expected a 30-year fixed mortgage to cost the same as a 5/1 ARM?

You may not get these rates as they do assume some points, and it may actually work out better for your situation to pay less in upfront closing costs in exchange for a higher interest rate than 2.91%. You can calculate a breakeven point upon which your saved monthly payments completely offset your upfront costs, and also how far you are “ahead” at certain time periods like 3 or 5 years down the road.

Bottom line. Mortgage rates are even lower and many new homeowners will now able to lower their mortgage rates via a refinance. In addition, a new refinance fee that can add thousands to your upfront cost will be added on 12/1. From what I understand, it’s rather hectic right now and refi’s can take over a month, so you will need to start soon and “pack your patience”.

If you are serious, get an accurate full quote with all the costs involved with a reputable mortgage comparison site like LendingTree (tip: they will likely call whatever phone number you choose to enter) or go local and call up your neighborhood broker. You don’t have to provide your Social Security number to get a quote. If you like what you see, lock in the rate as they can change quickly.


My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

People Are Switching Homes Less Often, Housing Inventory At Historic Lows

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards and may receive a commission. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

Tucked inside a WSJ article about Zillow and Opendoor cutbacks, there was a chart of the average tenure of US homeowners. I wasn’t aware of this trend. The average homeowner now stays put for 4 years longer than before the 2008 crisis (8.2 vs. 4.2 years).

A different WSJ article revealed that the amount of housing inventory available for sale is the lowest in 37 years on a per capita basis (the entire time this data series has been tracked). However, the two charts don’t fully match up. From 2000-2008, people consistently switched homes about every 4 years, but the inventory went up and up. After the 2008 recession, people both started staying in place and the inventory went down.

If the economy was improving from 2009 to 2019 (up until recently of course), why did homeowners move less and less often? Mortgage interest rates? Mortgage underwriting standards? Boomers choosing to age in place? Millennials preferring to rent, not buy? Lack of new housing construction? I feel like there is something meaningful behind all of this, but I don’t know what it is.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Special Coronavirus Relief: Paid Leave, Mortgage Payments, Student Loans, Credit Cards, and Unemployment

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards and may receive a commission. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

Wow. I thought that I was prepared, but I must admit that I was still shaken by last week. For those facing severe financial emergencies right now, so I have tried to collect information and links to where you can hopefully find some help. Be prepared advocate for yourself; many of these will only be given to those who ask and are persistent. Everything is in flux as well, so if you don’t find success try again later. There will be more government stimulus coming.

Paid leave for small/mid-sized business employees, including part-time workers and self-employed. Eligible employees can receive up to 80 hours of paid sick leave and expanded paid child care leave for 12 weeks when employees’ children’s schools are closed or child care providers are unavailable. Business must have less than 500 employees (52% of workforce). This is done via refundable payroll tax credits. DOL press release. NYT article.

The act provided paid sick leave and expanded family and medical leave for COVID-19 related reasons and created the refundable paid sick leave credit and the paid child-care leave credit for eligible employers. Eligible employers are businesses and tax-exempt organizations with fewer than 500 employees that are required to provide emergency paid sick leave and emergency paid family and medical leave under the act. Eligible employers will be able to claim these credits based on qualifying leave they provide between the effective date and Dec. 31, 2020. Equivalent credits are available to self-employed individuals based on similar circumstances.

Unemployment insurance. Many states are expanding their eligibility rules for unemployment benefits. You might be eligible if you have to stay at home to care for children. You may not have to officially quit your current job (i.e. your employer temporarily shuts down). You might be eligible if you are under quarantine or have to take care of someone under quarantine or infected. Please visit the Department of Labor for your specific state. CNBC article. DOL.gov/coronavirus.

Mortgage payments. Contact your mortgage or home-equity loan servicer directly to ask about mortgage payment deferral options. Fannie and Freddie Mac have instructed their loan servicers to suspend mortgage payments for up to 12 months if borrowers suffer hardship. In New York, the impacted can defer mortgage payments from any servicer for 90 days. Bank of America is allowing deferrals on a case-by-case basis, with the waived payments being added to the end of their loan term. CNBC article.

Student loans. President Trump announced that federally-held student loans would be set to 0% interest for at least 60 days in addition to being able to request forbearance for 60 days, but there has been a lot of difficulty in actually making the requests with loan servicers as they have cut back on call center hours. There will also be an automatic suspension of payments for any borrower more than 31 days delinquent as of March 13, 2020, or who becomes more than 31 days delinquent. Press release. ED.gov. Studentaid.gov.

Credit cards and auto loans. Chase, Citibank, American Express, US Bank, Discover, Ally Bank, and Apple have all announced some sort of accommodation for coronavirus. The offers are often vague, but it can’t hurt to call and ask for details. For example, Discover says it won’t report late payment to credit bureaus, but what about late fees and penalty APRs? Chase says they might waive fees or extend payment due dates, but only on a case-by-case basis. Apple (if approved) will allow you to skip your March credit card payment without incurring interest charges. Ally Bank will allow deferral of auto loan payments for 120 days, but finance charges will still accrue. Some of these are rather lame, like offering up credit line increases that were always available anyway.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Coronavirus + Mortgage Rates at 8-Year Lows = Refinance Boom

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards and may receive a commission. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

Update March 2020: 30-year fixed rates on 3/4 were at 3.0%-3.25%. If you’re looking for some good news to distract you right now, check out refinancing your mortgage. In November 2018, the average 30-year mortgage rate was nearly 5%. Right now, you can find 30-year rates at around 3.25% and lower with zero points. Mortgage rates are at all-time lows again, with the previous lows back in 2016 and 2012 (source):

At these lower rates, millions more homeowners can save money by refinancing rates, even after taking into account the loan fees (source). This is based on industry data on the rates of existing mortgages.

If you are refinancing, try to see if you can lower your rate, how much your lower monthly payment will be, and how long it will take to break even with the refinancing costs. Here is an example scenario from the WSJ:

WHEN IT IS WORTH REFINANCING
– Home buyer puts 20% down on a home worth $266,300, the median home price in January.
– No plans to move soon.
– Pays a 4% rate, resulting in a monthly payment excluding taxes, fees and insurance of $1,017.09, according to LendingTree.
– Dropping to a 3.25% rate would decrease the payment from $1,017.09 to $927.16. The homeowner would save around $90 a month, with exclusions.
– Assuming refinancing costs of $2,000, this homeowner would need to stay in the home for a little less than two years to make it worth the money.

If you are willing to take a slightly higher rate (negative points), you can even get a “no cost” refinance where the negative points cover your refinance costs. This way, your monthly costs go down with no upfront cost at all.

Bottom line. Due to coronavirus fears, interest rates are now at or nearing all-time lows. This also means that millions more homeowners may be able to lower their mortgage rate via a refinance. If you are serious, get an accurate full quote with all the costs involved with a reputable comparison site like LendingTree (tip: they will likely call whatever phone number you choose to enter) or go local and call up your neighborhood broker. If you are just curious, try an “instant quote” that doesn’t require any upfront information. If you do like what you see, lock in the rate as they can pop back up quickly.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Peerstreet Case Study #2: NJ Commercial Property Foreclosure Recovery

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards and may receive a commission. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

I’ve invested over $50,000 of my “alternative” money into PeerStreet real estate notes because of the ability to diversify into 50+ different high-interest loans backed by physical real estate. Here is a case study of a commercial property loan where Peerstreet negotiated an exit when it was already very deep into the foreclosure process. You can find additional case study links and the most recent update to my overall portfolio performance in my Peerstreet review.

Initial investment details.

  • Property: Commercial property in New Jersey.
  • Target Net Investor Rate/Term: 9.25% APR for 17 months.
  • Amount invested: $1,133 out of $1,700,000 loan.
  • Appraised at $4M = 43% LTV.
  • Loan secured by the property in first position.
  • Bridge loan to redevelop into a 179-unit apartment building.

Timeline.

  • May 2018. Loaned out $1,133, my share of $1,700,000 total.
  • June 2018. One single interest payment was made.
  • August 2018. No more payments.
  • September 2018. Legal notices sent.
  • November 2018. PeerStreet and the borrower agree to a forbearance agreement. The terms of the forbearance include, the borrower paying $8,500 and in return, PeerStreet will not file the foreclosure complaint until the end of November. The borrower states that they are in the process of refinancing the loan.
  • December 2018. The forbearance agreement has expired and the borrower has not cured or paid off their loan. The loan file has been sent to a local law firm to initiate legal proceedings against the borrower. Foreclosure counsel filed the foreclosure complaint on December 13, 2018. The complaint has been sent out for service.
  • February 2019. All parties have been Served. Once the time to answer expires, we will move for defaults.
  • June 2019. Foreclosure counsel filed the final judgment package and are waiting on the court to enter the same. Judgment should be entered in the next 3 to 6 weeks
  • July 2019. The foreclosure process continues and PeerStreet is in negotiations to sell the note back to the lender. On 7/31/2019, PeerStreet provided the originating lender with an updated payoff statement as repurchase discussions continue. PeerStreet continues to wait for the Court’s ruling on its Motion for Final Judgment in the foreclosure.
  • September 2019. The Escrow Agent advised that it has received the bulk of the funds for the repurchase of the loan at $1,850,000.00.
  • October 2019. PeerStreet has completed its sale of the note, and final proceeds have been distributed to investors. Proceeds from the sale were $1,815,227, net of costs and fees associated with the foreclosure. The cash-on-cash return on this investment, after taking into account interest and fees paid to investors, was positive at 107.7%.

Final numbers. I invested $1,113 in May 2018 and got paid $87.52 of interest and $1,113 of principal for a total of $1,265.27 as of October 2019. (This was an automated reinvestment which included whatever cash was in my account, thus the odd numbers.) This works out to a 7.86% total return over 17 months, which is roughly a 5.5% annualized return. My overall annualized return across my entire portfolio is 7.3%. These numbers are net of all PeerStreet fees.

My commentary. This loan is an example of Peerstreet negotiating a settlement, in this case getting my principal back and even a a small positive return. This loan was initially concerning because the lender made a single payment and then stopped. While you have collateral, if the loan goes into default, it takes a very, very long time to seize and sell that collateral. This is why you need to diversify your notes and never invest money you need anytime soon.

I can only assume that Peerstreet negotiated with the lender here because they just didn’t want it to drag out any further. They might have gotten more money if they foreclosed, but they would also have had to finish the foreclosure, prep it for sale, market it, and then wait for a sale of the property. The lender still took advantage of the situation, as they basically didn’t have to pay any interest for 17 months and then they ended up paying less interest than they initially promised. The borrower also likely had a bad mark on their credit report, which should hurt their ability to get future loans.

I’ve read many reviews of real estate crowdfunding sites done by new investors who haven’t had the chance to experience how it all works out. Some are overly positive because they haven’t had any late payments yet, while others are too negative because they have some really late loans and assume the worst. With Peerstreet, both of my loans that went “bad” took over a year to sort out, but in the end they had positive returns. Of course, that is not always the case and I have lost some principal on a single note from another now-defunct real estate site.

Bottom line. Out of the $50,000+ I’ve now invested into 51 loans at PeerStreet over 3+ years, 48 were paid back in full in a timely manner, while three have reached various stages of the foreclosure process. This is one example where we went pretty deep into the foreclosure process, but PeerStreet negotiated directly with the borrower to settle the debt and thus avoided another several months of waiting and selling the property. The annualized return for this loan was 5.5%, while my overall annualized return across my entire portfolio is 7.3%.

If you are interested, you can sign up and browse investments at PeerStreet for free before depositing any funds or making any investments. You must qualify as an accredited investor (either via income or net worth) to invest. If you already invest with them, they now sync with Mint.com.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.