Notes are not secured by Peerstreet?

[Joe6Luck]

Peerstreet's FAQ @ https://info.peerstreet.com/faqs/are-the-notes-issued-by-peerstreet-secured/" class="bbc_link" target="_blank">https://info.peerstreet.com/faqs/are-the-notes-issued-by-peerstreet-secured/

"No, the Notes issued through the platform are not secured. The loan underlying each Note issuance, however, is secured by the underlying real estate."

How to understand its consequence in bad situations (e.g., borrowers failed to pay and peerstreet goes out of business)?

[Rude Dude]

My understanding is that the investment you make on peerstreet's platform is effectively unsecured. You effectively are making a loan to peerstreet, which pools all retail investor funds to originate re loans.

peerstreet or one of its entities is the holder of the Note (paid by the borrower) and the beneficiary of the Deed of Trust for each loan it originates. so, as a retail investor, your investment is not directly secured by RE itself.

there are two levels of default risk:
1) borrower default. mitigated not only by the quality of the originator's underwriting but also their servicing and collections ability. imo, the former is average and the latter is lacking and untested (as is the case with most online lenders) for this lender
2)platform bankruptcy. the probzbility of a bk is remote, but in 2017 several well known online lenders failed and there will be more. OLs have tended to fail when their cost of borrower acquisition is astronomical, their cost of funds is too high, the source of their funds is primarily from one provider (80%+), or obviously if retail or inst inv demand for loans on their marketplace is weak or highly concentrated to a handful of investors.

if peerstreet or any other lender using this model were to go belly up, creditors would have first rights to the re loans to pay off all debt. anything left would go to equith investors. not sure what class retail investors are, but there are likely several large/inst preferred equity shareholders ahead.

peerstreet is private, so i'm not sure if their capital structure is disclosed in the investment prospectus. if they have a large credit facility, i would want to know peerstreet's leverage ratio and cash positions.

read their prospectus before investing.

[HarlanRod]

This sounds so risky to me. But at least they're transparent about it. Or are they?