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Comment by jgorn | Hacker News Reader

How can they advertise 6 to 12% annual returns (12%!!!) for lenders when 1) PeerStreet have to take out their 0.25-1% fee && 2) All of the Big Banks are offering home mortgage rates of <4%?

When the numbers are this far apart, I can't help but be suspicious.

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Isn't the idea that each loan is high risk (hence high interest) but you can still expect a good return if you issue hundreds of such loans and each loan is tiny?

Such was the logic behind subprime CDOs. We all know how that one turned out.

PeerStreet has had zero losses, but these are asset backed loans with first position liens, so if a borrower were to stop paying then generally the property would be foreclosed on and principal and interest would be repaid from the proceeds. That's why conservative LTV is important. Your point about the benefit of diversification is correct, previously the limited investors who had access to these investments would have to make large bets on individual loans. PeerStreet makes it much easier to invest in these loans and diversify across lender, geography and loans.

How can these loans be such high risk with low LTV ratio, and backed by a physical asset? If somebody stops paying, can't they simply take possession of their real property to recoup losses?

These are business purpose, first position loans on non-owner occupied properites. This industry has been around forever, but have been very hard for most people to access. PeerStreet is changing that. And also allowing for diversification across geography, lender and loans, something very hard to get previously.

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