PeerStreet has always believed the more transparent, educational, and honest we are as a company, the better off all stakeholders in our marketplace will be. To that effect, PeerStreet continually strives to provide investors with more historical and current data of its loan performance.
Now more than ever, it is important to analyze trends and metrics to understand how macroeconomic factors can affect your portfolio’s health. By surfacing granular data, our hope is investors can make more confident, data-driven investment decisions. Continued transparency is a mantra we are taking forward.
This report outlines the loan performance PeerStreet has seen historically and how that performance has been impacted by COVID-19. It is worth noting that, due to the pandemic, certain qualifying borrowers were granted mortgage payment deferrals. Deferred loans are categorized as paid current in the data sets below.
Key Definitions:
L-30, L-60, L-90, L-120: Late 30, Late 60, Late 90, Late 120+ this means that a loan has not paid a payment in 30+ days.
Delinquent: PeerStreet classifies a loan as ‘delinquent’ when it is 60 or more days late (Late 60+).
Foreclosure: The action of enforcing the lender’s rights under the loan documents, and potentially taking possession of the underlying property, when the borrower fails to keep up their payments. Once the foreclosure process starts, the most common outcomes are either: (i) the loan is reinstated or pays off before the property is foreclosed on or (ii) PeerStreet takes ownership of the property at auction resulting in an "REO". Properties taken over as REO are typically then marketed to be sold.
Default: A loan is labelled as being in “Default” when PeerStreet commences the foreclosure process. Foreclosure timelines vary from state to state.
REO: “Real Estate Owned,” we have taken ownership of the property, usually as a result of the foreclosure process, but we have not yet sold it.
The Percent of L-30, L-60, and L-90 Late Paying Loans In The Overall Portfolio by Late Status (omitting L-120 and REOs, which are addressed further below)
*Late status buckets are discreet groupings based on month end loan status. Data includes all active loans serviced by PeerStreet within the reporting month through August 31, 2020, except for L-120 and REO loans that are addressed further below.
Key Takeaways:
The rate of missed payments on performing loans spiked in March and April as the uncertainty around COVID-19 hit the financial and real estate markets.
The effects were first felt with performing loans missing one payment (the L-30 rate) followed by these loans moving to L-60 and then L-90 in the following months.
Following the jump in March and April, delinquency rates for the L-30, L-60, and L-90 cohorts have subsequently declined from their COVID highs.
*Data includes all month over month historical transitions through August 31, 2020, unless described otherwise. The percentages are the historical probabilities of experiencing one of three distinct actions within a transition (from one month to the next). In this exhibit, CURRENT is the lowest delinquency status and LATE 120+ is the highest. A loan may not move more than one status to the right in a given month, but may move left one or more statuses.
Key Takeaways:
Historically, the probability of a current loan missing a payment in a given month has been around 5%. Said another way, 95% of the time, a loan that is current continues to perform.
Looking at the period between March and April, however, the incidence of current loans missing payments more than doubled to 12%. This was the spike in the green line shown in the previous exhibit.
Late 30 and Late 60 loans were also impacted, with more loans falling deeper into delinquency (the red bar) and fewer delinquent loans being brought current (the green bar).
In July, the improvement rates (the green bars) on the Late 30, Late 60, and Late 90 loans came back towards historical averages and the missed payment rate of current loans dropped back down to 6%.
Late 120+ is almost entirely blue indicating that these loans are unlikely to change statuses month-to-month. These are mainly loans in the foreclosure process which have an extended resolution timeline, so these loans typically remain in this status for extended periods of time.
The Percent of All Cohorts of Late Paying Loans In The Overall Portfolio (including Late 120 and REOs)
*Late status buckets are discreet groupings based on month end loan status. Data includes all active loans serviced by PeerStreet within the reporting month through August 31, 2020. L-120+ includes all loans more than 120 days late with the exception of loans that have transitioned to REO.
Key Takeaways:
The L-120+ rate (illustrated as the yellow line) continues to grow over time as more loans work through the foreclosure process.
The foreclosure timeline varies by state and county. It can take anywhere from 5 months to 2+ years to foreclose on a property.
Although the timing of cash flows may be impacted, loans in foreclosure do not necessarily result in loss of principal or less-than-expected interest.
Total Numbers of Loans That Have Gone Into Foreclosure and Corresponding Returns
*Data includes all historical bridge loans serviced by PeerStreet that have paid off by August 31, 2020. The Foreclosure Filed category consists of loans for which a foreclosure complaint or notice of default has been filed. Loans (and REOs) that are still outstanding are omitted from this chart, as final returns for these loans have yet to be determined.
Key Takeaways:
Through August 2020, approximately 97% of paid off bridge loans funded through the PeerStreet marketplace had never gone through foreclosure.
Of the 190 now-paid off loans for which a foreclosure action had been initiated, 87% were resolved prior to PeerStreet taking ownership of the property.
Of the 6,050 loans that paid off by August 31, 2020, 25 loans (13%) had become REO and the properties were subsequently sold.
*Annualized return is calculated on distributions to investors. This data includes only loans (and REOs) that paid off by August 31, 2020 and excludes loans that are still outstanding, as the final return for outstanding loans has yet to be determined.
Key Takeaways:
Returns vary for loans that go into foreclosure. Loans in foreclosure accrue default interest, and other fees, which may increase returns to investors if collected. At times, however, decreases in property values, foreclosure expenses, and other factors can also lead to losses.
In some instances, the equity cushion on loans, which is the difference between the appraised value of the property and the loan amount, can help insulate investors from losses.
Historically, the median return on foreclosure loans has been higher than the expected investor rate, while the average has been lower. This implies that many defaults end in positive gains for investors, while a few large losses have driven down average returns.
Diversification may partially mitigate the impact of any one negative investment.
*Data includes all historical loans serviced by PeerStreet excluding loans with limited payment history (i.e. excluding loans purchased during the six-month period ending August 31, 2020).
Key Takeaways:
This chart shows the relationship between FICO and delinquency in terms of “Ever Late” percentages. This is the historical probability that a given loan reached Late 60, Late 90 and Late 120 status at some point over its lifespan.
Borrower FICO is negatively correlated with delinquency. As FICO goes down, probability of a loan going delinquent goes up. 800+ FICO loans have an Ever Late 60 rate of 3.6%, while Sub 620 FICO loans have an Ever Late 60 rate of 30.3%.
While lower FICO loans have a higher delinquency rate, there are other factors to take into consideration including, but not limited to, lower FICO loans tending to have higher average investor rates, lower loan-to-value ratios (LTV), and greater equity cushions.
Historical Probability of Delinquency as a Product of FICO and Loan Size
*Data includes all historical loans serviced by PeerStreet excluding loans with limited payment history (i.e. excluding loans purchased during the six-month period ending August 31, 2020).
Key Takeaways:
FICO is not the only attribute correlated with delinquency. For example, among other factors, there is also a relationship between delinquency and loan size.
As indicated by the red shading, there is a multiplication effect when combining FICO with Loan Size. Increased loan size, when combined with lower FICO, has a more pronounced effect on delinquency than FICO alone.
DISCLAIMER: the data provided herein was generated from PeerStreet’s portfolio performance to date, may not be exhaustive or reflect market-wide trends, and is provided solely for informational purposes. Past performance is not an indicator or predictor of future performance. PeerStreet is not an investment adviser and nothing contained herein is, or should be construed as, investment advice. Investors should not rely on PeerStreet to make investment decisions and should independently evaluate the risks and merits of any investment opportunity themselves or in consultation with their own professional advisors.
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