The US financial crisis has wreaked havoc for the past several years on the mortgage lending business, not to mention many homeowners and debtors. It also has created opportunities for innovative firms that are looking for new ways to help debtors and make a nice return at the same time.
Don Davis, president of Novus Investments sat down with Jim Kharouf, editor-in-chief of John Lothian News, to talk about how his firm is profiting from the ongoing fallout from the mortgage crisis and the rise of peer-to-peer lending, at the Emerging Manager Forum in Miami in December.
Davis, a CTA, has tapped into the two largest firms in the space, Lending Club and Prosper, which offer individual loans to people for homes, credit card debt and other investments. Davis’ firm created its fund for accredited investors in 2012. The fund, called the Prime Meridian Income Fund, uses a dedicated API which monitors the loan activity on those sites which filters for credit scores and other metrics. From there, it lends money to customers with the expectation of a return.
“They may have credit card debt, with say $15,000 to $20,000 that they are paying high interest rates on,” Davis said. “They can do a debt-consolidation loan in the peer-to-peer lending space, get a little bit lower interest rate as a fixed loan, and they are all prime consumers.”
Davis said there is always a risk with investing into the peer-to-peer space, but his firm tries to tap into less risky borrowers. Lending Club, which launched in 2007, has facilitated more than $3 billion in loans to individuals. Prosper has issued almost $700 million in individual loans.
Davis said his fund has performed well and believes the investment still has some potential in the coming years.