Today we’ve taken an important step toward balancing overwhelming investor demand with a more steady and radically larger supply of Groundfloor loans. This post explains why we’re launching our loan origination network now, how it works and what it means for current and future Groundfloor investors.
But first, allow me to introduce myself. I’m Debora Valentine, Groundfloor’s new senior vice president of business development. In my short time since joining the company, I’ve been impressed with the professionalism, enthusiasm, commitment and vision of this team. Previously, I saw first-hand how important those attributes were to building PCFS/Provident and then National City into a multi-billion dollar lending operation. We’re well on our way to repeating that success here.
Real estate investment lending is a large, rapidly growing market. The traditional providers of financing in this category were mostly small, local, and since 2008, non-bank operations. “Hard money lending” was a cottage industry that has transformed and grown rapidly over the past five years. The lending process has moved online. Large pools of institutional capital have taken notice. Those dynamics are especially true in the single-family residential market for fix-and-flip and rental property financing. Not every investor worthy of capital “had a guy” from whom to borrow. Even today, two-thirds of house flips are financed with 100% equity capital instead of a loan. In real estate, that’s unheard of!
We’re halfway through a ten-year transformation of how financing is provided in this category, and who provides it. It’s an exciting time. We can expect to see further industry consolidation, product expansion and innovation that is expected to double overall loan volume from 2016 to 2021. It is exactly the right time to build an origination network for Groundfloor to participate in this growth by expanding the breadth of distribution.
Before I describe what's changing, here's what is not. As the originator and servicer of all loans on our platform, Groundfloor has always been and still remains responsible for evaluating, underwriting, conducting due diligence and closing the loans we offer for investment. Unlike some other issuers, we don’t buy loans that others have originated, but originate every loan ourselves. We believe this is important to maintaining quality, and that’s always been more important to us than quantity and volume.
Before today, not only the underwriting but also the application process for every loan out of the 357 we have originated (our industry’s term for selling) to date was handled directly by a Groundfloor employee. We turned away mortgage brokers and other potential partners. This made sense to start. Compared to “conforming” consumer mortgage lending, the underwriting of real estate investment loans involves a different and more complex analysis (blog: Behind The Curtain -- A Case Study of How We Choose Our Loans And Principals). We built a small direct sales team to manage the process as we ironed out wrinkles to gain greater efficiency in our origination and lending operations.
With our current lending operations team in place now for eighteen months, we’re ready to add more scale and add to our direct sales approach. For the first time, we’re training up partners (investment mortgage loan brokers, real estate brokers who work with investors, and others) to prepare Groundfloor loan application files and submit them for analysis to our underwriting team. With this initiative in the works since August, we’ve already hired and trained four experienced Business Development Managers to work with our partners and direct borrowers as well.
As a result, soon we’ll have a much larger, diverse team out there bringing in applications for Groundfloor loans. Good thing, because demand from our investors has never been stronger, or grown faster! Loans are selling out in minutes, and our first institutional investor wants more of our product too. That demand--from individuals and institutions alike--is both the reason for our origination network, and also the enabler of it. Without our successful lending track record, we wouldn’t be seeing this demand. Without the demand in place, we couldn’t successfully build a broad network.
Working with partners will enable us to meet the #1 request we hear from our investors--more loans--sooner. Our investors can look forward to more opportunities for diversification and more predictable returns. That’s why today’s news is important for Groundfloor and for you. Afterall, our founders didn’t start this company to lend more. Instead, our purpose is to help you invest more, and earn more, by taking the investment opportunity that was privately available only to the accredited few, and opening it up to everyone.
Interested brokers and third-party originators can learn more and apply to partner with us at https://www.groundfloor.us/brokers. We’ll also reply to comments and questions on the topic below. Whether you are or will become a partner or investor with us, we look forward to growing together!