Previously unheard of only eight years ago, national and major banks and firms that act as lending intermediaries are slowly facing elimination by the “Peer-to-Peer Lending” model, which involves a reverse-auction approach.
The market of P2P lending involves matching up debtors and creditors directly to engage in the exchange of loans. The P2P network will take an origination fee in exchange for issuance of the debt, and the creditor will hold a promissory note.
The current model does not support secured credit for the issuances of direct consumer mortgages or for commercial construction, but perhaps this may be the future.
MERS & P2P Lending
While the Mortgage Electronic Registry Systems, Inc. (“MERS”) has no affiliation with P2P lending, both MERS and the P2P lending institutions enjoy two novel luxuries:
- they are not rigid and institutional like banks; and
- they enjoy a decentralized network and can be locally focused, as many hubs may originate the instruments in which they trade and/or assign.
Both decentralized models share more in common than most investors realize. MERS is in the businesses of assigning numbers to mortgages for tracking by interested parties. Meanwhile P2P lending allows retail investors to engage in the issuance of unsecured promissory notes. While P2P is relatively new, MERS has been engagedin the mortgage market since its founding in the mid-nineties.
Both platforms show interesting trends that may present some opportunities for developers. In fact, some sources have previously reported that MERS is a major stakeholder in the real estate industry, having been involved in theregistry assignment of over half of all residential mortgages in the United States.
Not Banks, Rather Hubs
Neither the P2P platforms (example of one company purporting to be the “world’s largest online marketplaceconnecting borrowers and investors”) nor the MERS national electronic database are banks themselves, but they both similarly engage in some modicum of connecting debtors and creditors in the electronic age.
While MERS is involved in the cataloging of underlying security interests, P2P lending is involved in the origination of debt instruments.
Crowdsourcing for Real Estate’s Future
Further innovation may ultimately lead to major project development in the way of combining databases in the future, but that is for the markets to decide when and where those decisions may be appropriate.
While nobody can say for certain where the development of the databases and registries relating to brick and mortar construction are heading, the continued innovation of maintaining crowd-sourced financing shows no signs of slowing.
To demonstrate the growth potential of opening credit to retail investors, one P2P company recently went public and raised over $1 billion in capital. After such a showing, the CEO was quoted in the San Francisco Times as stating that access to retail investors is an important priority in the financial services sector. “We wanted to thank our customers,” CEO Renaud Laplanche said shortly after Lending Club began trading publicly last week. “We’re being true to our mission of giving access to retail investors.””
Impacts on Senior Housing
P2P will undoubtedly open doors for senior housing investors to gain the equity capital needed for their projects. Of course, all such innovations may be subject to regulatory compliance, but the technological capability arguably exists.
Cambridge Realty Capital is on the pulse of where new financing outlets are trending online. Talk to someone at Cambridge today for other information about where the financial services sector may be headed.
