Harmoney CEO 'getting excited' about potential move into the residential mortgage market

Harmoney CEO 'getting excited' about potential move into the residential mortgage market

By Gareth Vaughan

New Zealand's only licenced peer-to-peer (P2P) lender is eyeing a push into the residential mortgage market.

Neil Roberts, Harmoney's CEO and majority owner, told interest.co.nz in a Double Shot interview his firm is looking "long and hard" at entering the mortgage market, where banks are competing fiercely for business and where the Reserve Bank has placed restrictions on high loan-to-value ratio lending. Roberts said plotting a possible move into mortgages was currently a greater priority for Harmoney than entering the SME market.

"We're looking long and hard at mortgages and the potential of peer-to-peer mortgages," Roberts said. "And if we're to do it it'll be some time off, but we're certainly getting excited by a few concepts there."

"It (a home loan) is obviously a very different proposition to a personal loan but it does offer attraction within itself," Roberts said. "So we're working on that and a number of other things that are thoughts at this point, and just seeing what we can do, what does our community want, what might they respond to (both) investors and borrowers and go from there."

He said Harmoney was looking at first mortgages.

"With a mortgage you get the opportunity to have subordinated debt so you can actually fractionalise a single mortgage and take proportions that are risk weighted. So that's an interesting concept and one that down the high LVR (loan to value ratio) might provide for a better return for investors, and they might like to take that type of credit and that type of risk on," said Roberts.

In the more mature US P2P market home loans are a relatively new area P2P lenders have been moving into. One such company is LendingHome, whose website says; "Get a real estate loan. No bank required." Lending Home's website also asks the question; "What type of property are you financing?" Borrowers are then asked to choose from three options which are "buy and flip," "rental property," and "primary or second home."

Another US P2P lender that has entered the mortgage market is SoFi, whose website says "put as little as 10% down on loans up to $3m."

About 20% of funding from retail investors

Harmoney, which officially launched on September 10 last year with $100 million to lend from institutions including Heartland Bank and the New York based Blue Elephant Capital Management, is aiming to lend $100 million in its first year of operation. Roberts said to date Harmoney has lent $30 million with loan sizes averaging $14,000 to $15,000. Heartland said this week it has lent about $17 million so far through Harmoney's online platform.

In terms of the actual P2P side of the business, Roberts said more than 20% of funding was coming from retail investors and this was growing rapidly. And, he said, there are some surprises in terms of the types of borrowers and lenders being attracted to Harmoney.

"On the borrower side we're predominantly homeowners. And on the lender side we have a spike, an unusual spike, of young people that are actually saving for a (house) deposit and obviously trying to keep up with the Auckland market and house prices, enjoying the attraction of a higher interest rate," Roberts said.

The average size of investment via Harmoney is about $5,000 with the biggest to date $350,000. Roberts estimated average interest rates for investors at about 15% to 16%.

In terms of borrowers the average age is 43 skewed towards employed men with above average incomes.

"It's middle New Zealand, I guess is the best way to describe it," Roberts said.

Approving about 20% of loan applications

Harmoney is approving about 20% of loan applications and Roberts said loan losses to date were running at about 0.01% of the book. Interest rates being paid across three to five year loan terms average 17% to 18%, with Roberts expecting the average loan term to be 27 to 28 months.

The firm's lending is predominantly around debt consolidation, especially for credit card debt, with some car loans, and lending for "life events" such as holidays and people having babies.

"We're about to increase personal loans at the upper end,"Roberts said. "There's certainly demand at the upper end for a secured by residential property personal loan so we'll have that out in the market in the next few weeks as a small enhancement."

Meanwhile, he said it was "somewhat of a surprise" that Harmoney remains the country's only licenced P2P lender with Roberts having expected competition from other P2P lenders by now. The Financial Markets Authority is considering three licence applications.

Aussie push

Harmoney, in which Trade Me bought a 15% stake for $7.7 million in January, is also seeking P2P licencing in Australia from the Australian Securities and Investments Commission, hoping to be operating there within about three to four months.

"We do expect it (Australia) to be a larger market for us (than New Zealand) and therefore we are working with a few international peer-to-peer funders to see what we might be able to do for Australia," said Roberts.

"It's very exciting. It's very competitive over in Australia compared to here currently, and it's a massive market and one in which we really do want to play. There are some well established peer-to-peer platforms over there. Not in terms of volume, or in terms of penetration of the market, but in terms of the longevity."

"So the market is heating up, there is growth. And coming from a small country, even if we're very good here, we're always vulnerable to a larger Australian business coming in here and competing. So the plan was always to get into Australia as well. And eventually, hopefully, we can have Kiwis investing in Australian loans and vice versa," said Roberts.

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How very sad, 17 to 18% cost of credit, age 43, above average incomes.
If 17 to 18% is the average what are the upper and lower quartile numbers?

Sometimes I wonder about p2pl.  Why would anyone paying a home mortgage apply for a p2pl loan with upwards of 20% interest? because I notice on harmoney's website that a lot of the non-collateralized loan applications are going to persons with household mortgages.  If the home owning p2pl debtor becomes financially distressed which loan will they prioritize? the non-collateralized p2pl loan, or the bank loan collateralized against their family home?  harmoney carries zero risk from issuing all such loans.

For the same reason there are tens of thousands of people in new Zealand right now with money (read: thousands of dollars) owing on GE/Q/some other letter credit card at well over 25%p.a and in some cases 30%

I can see people using this to "Top up" their deposit to the required amount to get a bank mortgage. If that were the case you would see quick turnover on loans and decreasing your overall risk as an investor. If, however the housing market were to crash...

Perhaps an entry is put on to the personal properties security register.
That would make the loan secured.
My understanding is that if the debtor went into hardship and had a mortgage, the original lender of the mortgage would get paid out of the sale of the property, anything left over goes to the creditors listed in order of the PPSR (assuming there are no other secured assets) then unsecured lenders after that.
If people want to borrow in any capacity they should certainly be aware of what will happen to them if they default. I have defaulted on credit and loans with ANZ and BNZ banks. What people believe to be true about lending and laws are not what is actual truth or reality. There is a lot of substantial and scary stuff going on with the lending and collection industries which is deliberately being kept hidden from the consumer. Please, do your homework first before borrowing. If you think some hotshot lawyer will bail you out if you get into financial strife, think again. You won't know until its too late. The fact that they are approved by the FMA means nothing for the consumer.