This is a continuation of my Finovate Sprint 2011 Part 1, Finovate Sprint 2011 Part 2, and Finovate Spring 2011 Live Blog (Part 3)
This is a continuation of my Finovate Sprint 2011 Part 1, Finovate Sprint 2011 Part 2, and Finovate Spring 2011 Live Blog (Part 3)
Lazy Man…thanks for the write up. Just wanted to clarify, LendStreet’s business model leverages the power of social lending to help quality distressed debtors restructure debt and maintain financial security. We do not provide cash loans like Prosper or LendingClub, our loans go to repay the existing creditors directly, at a discount. This structure allows us to provide debt relief and a low interest loan to the debtor while mitigating risks and providing a fair return for investors.
Thanks,
I got lost on the “quality distressed debtors” phrase. It seems to be a bit of an oxymoron. Doesn’t it still boil down to investors loaning money in the same way as Lending Club. It might not go directly to debtor in the form of cash, but I think that is inconsequential to the lender. It seems like the lender still requires distressed debtor to pay the money back. I’m unclear on how the risks are mitigated.
The investment process is similar to Lending Club, however investors get the debt at a discount (i.e. pay $8,000 for $10,000 loan). The money going to the creditor directly is not inconsequential since it ensures that the borrower is not claiming one intent but using it for another (i.e. indicating debt consolidation but using it for a trip to Vegas). Not that I’m saying that’s the case with borrowers on either of the existing platforms but the possibility exist. If the borrower were to use the debt for another purpose than consolidation, he/she now has two debt to service rather than one, which means higher combined monthly payments, hence increased risk. A key thing in credit is the person’s capacity to repay (i.e. cash flow), not just their intent to repay. Secondly, experts have indicated that 78% of people who consolidate their debt tend to regrow it. We mitigate that risk by closing the accounts and incorporating restrictions on new debt. As far as “quality distressed debtors” being an oxymoron, I’d have to respectfully disagree. We are targeting borrowers who have historically been good credit but happen to be experiencing hardship and looking for a solution to reduce their payments and salvage their credit during that tough time.
Good answers. I look forward to seeing the returns that lenders will be making.
Thanks Lazy Man. We will keep you updated on our progress.