Robert Greenberg is chief marketing officer at Patch of
Land. He is responsible for branding, corporate communications, lead generation, marketing automation and managing integrated-marketing activities. Prior to Patch of Land,
Greenberg led the marketing efforts for B2R Finance, where
he helped originate more than $1 billion in real estate investor loans that led to the industry’s first-ever multi-borrower,
single-family rental securitization. Reach him at
Online Lending Comes of Age
What originators need to know about a growing sector of the mortgage industry
By Robert Greenberg
No longer the new kid on the block, the alternative-lending industry has transi- tioned from the days of innovators testing the waters with new online underwriting
algorithms into a maturing industry accepted by Main
Street borrowers and Wall Street institutional investors alike.
From real estate crowdfunding to peer-to-peer
marketplace lenders, the online lending sector —
more broadly referred to as the alternative-lending
sector — ballooned in size in the United States from
2010 to 2015 before growth began to taper off a bit.
With a variety of players, there isn’t a simple description of what encompasses the alternative-lending
industry. A major component of it is defined as companies doing business via online lending platforms
beyond that of traditional brick-and-mortar lenders.
Without a doubt, the sector has faced a bumpy ride
at times. The United States has seen alternative lenders
successfully raise millions of dollars, merge or be acquired, and go public. It also has witnessed some valuations plummet and companies go out of business.
Mortgage originators will want to be well-informed
about the maturing and evolving alternative-lending
sector and all that it offers. That includes comprehending the challenges and opportunities that exist
in the sector in order to best serve present and future
Advances in technology have altered the way individuals and businesses access capital, and alternative
lenders have been at the forefront of that change,
bringing forth innovation that has shifted how Americans borrow and invest.
Alternative lending via online platforms in the
United States began, in a limited form, in 2005 and
2006 with companies such as Prosper.com and Lending Club. The sector expanded rapidly after the subprime mortgage crisis and the larger financial collapse
it sparked some 10 years ago, which led to tightened
credit conditions after traditional banks and nonbank
mortgage lenders became embroiled in the mortgage meltdown.
In fact, it could be argued that tighter credit still
persists today in some fashion as a consequence of
the financial crisis. This provided an opportunity for
alternative-lending innovators to form and act as
U.S. online lenders more than tripled their lending
volume between 2014 and 2015, from $11.7 billion to
more than $36 billion, according to an April 2016 study
by the University of Cambridge’s Centre for Alternative
Finance and the University of Chicago’s Polsky Center
for Entrepreneurship and Innovation. Online market-
place lenders are poised to reach $90 billion in origi-
nations in the U.S. by 2020, notes a 2016 U.S. Depart-
ment of Treasury report.
The growth in real estate crowdfunding, another
subsector of alternative lending that has been around
less than a decade, has quickly grown into a billion-dollar industry, and several real estate crowdfunding
platforms have reached significant size in terms of
revenue, deal flow and participation from borrowers
and investors. Institutional investors also have raised
their equity commitment in real estate crowdfunding’s profile.
In July 2017, a joint study by the Federal Reserve
Banks of Chicago and Philadelphia concluded that
online lending platforms offer access to credit at fair
prices to otherwise underserved, but still creditworthy
borrowers. The companies’ “technology platforms and
their ability to use nontraditional alternative information sources to collect soft information about credit-worthiness may provide significant value to consumers
and small-business owners, especially for those with
little or no credit history,” the joint report stated.
“In addition, as more millennials make up the pool
of small-business owners and the consumer population, they are more comfortable with technology and,
therefore, may be more comfortable dealing with an
online lender than in dealing with a traditional bank,”
the report continued. The two Federal Reserve Banks
used data from Lending Club and stress tests to inform
While alternative lending is often touted for its technological advances, mortgage originators should be
wary of overemphasizing technology to the detriment of personal interactions. Mortgage originators
who prefer to work directly with a lender rather than
through an online interface still have opportunities
to assist their clients in the alternative-lending space.
Certainly, some online portals may not staff their
origination teams with sufficient manpower to provide
high levels of customer service. But some alternative
lenders do provide “high-touch” service and make it
easy for mortgage originators to reach a real person to
get questions answered quickly and efficiently.
The advantages of alternative-lending platforms
can be multifold. Underwriting algorithms may go
beyond the traditional FICO credit scores or they may
not rely as heavily on FICO scores as do traditional
lenders. Alternative-lender SoFi briefly announced a
FICO-free lending product in 2016, but then later
reincorporated the scoring system along with its own
The benefit of going beyond FICO is that borrowers
with a limited credit history, a ding to their credit or
an error on their credit report may be turned down by
a more traditional lender but could still be approved
for a loan from an alternative lender who is looking at
asset value and other credit information beyond the
credit score. Another advantage is it’s common for
online alternative lenders to provide potential borrowers with a lending decision within minutes, hours or
just a day or two, and usually much faster than a traditional lender. These fast decisions are a significant
benefit to borrowers and are made possible by robust
While not all alternative-lending platforms are created equal, many do a good job of explaining a loan’s
terms, rates and fees. Borrowers and investors alike will
Continued on Page 90 >>
■ ■ Underwriting algorithms go beyond
■ ■ Loan decisions are often made faster, compared
with traditional lenders.
■ ■ Borrowers can apply for loans from home or after
■ ■ Much of the industry is untested by a downturn.
■ ■ Cybercrime poses concerns for the future.
■ ■ Regulators are just beginning to shape oversight.