We are coming out of a period that has impacted every aspect of our lives – from the way we interact with family to our investments across all asset classes. We hope that everyone reading this has been safe and healthy in their personal lives.
Throughout the pandemic, we maintained our commitment of transparency and honesty to our current and future investors. We have always believed that by providing insight into loan performance, we can better help you capitalize on the opportunities available on our platform. The better off our stakeholders are, the better our marketplace will be.
With that in mind, we are excited to provide you with updated historical and current loan performance data. As a reminder, historical results may not be indicative of future performance, and the information contained in this post is provided for informational purposes and is not investment advice.
Default: A loan is labelled as being in “Default” when PeerStreet files the foreclosure complaint or notice of default. Foreclosure timelines vary from State to State.
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 timely make its payments. Once the foreclosure process starts, the most common outcomes are either: (i) loan reinstatement or pay off before the property is foreclosed on or (ii) PeerStreet taking ownership of the property at auction resulting in an "REO". Properties taken over as REO are typically then marketed to be sold.
Judicial Foreclosures: Foreclosures that are carried out via the filing of civil complaints in state courts. These foreclosure actions are procedurally similar to other civil lawsuits and must follow the processes, timelines, and procedures of the corresponding courthouses. Judicial foreclosure states include New Jersey, New York, and Florida, to name a few.
Non-Judicial Foreclosures: Foreclosures that are carried out outside of the ordinary court systems. Upon default, in jurisdictions that allow non-judicial foreclosures, lenders can typically instruct a third-party trustee to schedule a foreclosure auction without getting a court order. Non-Judicial foreclosure states include California and Texas.
Performing Loan: A loan that is current on payments.
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The economy has reopened, and many moratoriums on foreclosures and evictions have lifted. We have seen real estate prices rise and are continuing to return investor capital.
1. Of the 673 loans referred to foreclosure since April 2020, 322 (48%) have paid off. Payoffs have accelerated due to the lifting of foreclosure and eviction moratoriums and rising real estate prices, which provide attractive exits for distressed borrowers who were delinquent or late on their payments.
2. While PeerStreet does sometimes need to work through the foreclosure process to return cash to investors, we also work to negotiate outside of the legal process in the hopes of achieving better and faster resolutions. Foreclosures take time and finding solutions without going through that process can help us return capital to investors in a more timely manner.
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We strive to return our investors’ capital in a timely manner, but different jurisdictions have different foreclosure timelines. Non-judicial foreclosure states typically have shorter timelines for foreclosure and thus, in general, saw more resolutions early into the pandemic. Over the last few months, however, court backlogs in judicial foreclosure states began improving and the payoff rates in these states have improved.
1. At the start of the pandemic, judicial foreclosures were at a standstill while many American court systems were indefinitely closed and/or backlogged. In states like California, which do not rely on a judicial process to carry out foreclosures, we saw early success in resolving defaulted loans.
2. 56% of properties that were referred to foreclosure between April 2020 and June 2021 were located in non-judicial states. While non-judicial markets have been leading the trend in recent payoffs, resolutions in judicial states have begun to pick up as well. As moratoriums expire and real estate prices continue to rise, outcomes in judicial foreclosure states have also improved. The S&P/Case-Shiller Home Price Index has gained 15% year-over-year in these markets.
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Thanks to continuing efforts to negotiate resolutions while legal proceedings are ongoing, foreclosures in judicial and non-judicial markets generally resolve over the same amount of time. The moratoriums on foreclosures have slowed the pace of resolutions over the last year, but recent trends are looking more optimistic.
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Note: Loans shown here are limited to residential bridge loans that were referred to a foreclosure attorney between April 2020 and June 2021. This may vary from other exhibits that look at all loans, since PeerStreet’s inception, for which a notice of default or foreclosure complaint were filed.
1. Historically, the resolution timeline has not materially varied between judicial and non-judicial markets. This is because 85% of loans that enter foreclosure are worked out without needing to complete the foreclosure process.
2. 50% of loans referred to foreclosure have historically been resolved within 5 months of the original maturity date. We have seen this timeline extended over the past several months due to court closures and moratoriums, but as the foreclosure process gets back to normal and real estate transactions continue to pick up, foreclosure timelines are expected to contract.
3. Many loans contain default interest provisions, which increase the interest rate owed by borrowers when defaults occur. For this reason, investors are often compensated for the extended timeline of defaulted loans, earning a median historical annualized return premium of 30 to 40 bps above the expected investor rate. (See the light blue bar above).
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Loans that go into foreclosure remain a minority and, given the nature of these asset backed investments, equity cushions have buffered portfolio-wide losses.
1. Of the 7,614 loans that paid off or were liquidated as of June 30, 2021, only 335 (4.40%) went into foreclosure. Of those 335 defaulted loans, 29 loans suffered a principal loss – that’s 0.3% of all paid off or liquidated loans. The median loss of those 29 loans was -8.4%.
2. The median return on all loans that went into foreclosure was 8.2%, with 50% of the 286 loans that went into foreclosure returning at least 0.4% higher than the original expected rate.
3. Foreclosure outcomes are a confluence of many factors including the housing market, foreclosure procedures, idiosyncratic borrower and property details, and loan leverage. For this reason, future outcomes may differ from historical outcomes.
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As the economy hits its stride, we are seeing positive and promising trends toward better performing loans. There has been consistent growth on the platform of performing loans, while delinquency rates on recent purchases remain low and stagnant.
1. Loans purchased since September 2020 have performed better than historical averages. As of June 30, 2021 only 1 loan out of 790 loans purchased since that date was more than 2 months late on payment.
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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.
