Can technology make syndicated mortgages safe again?
A mortgage investment company has found a way to reduce costs and increase returns using technology. However, it might have also found a way to revive syndicated mortgages, which have taken a reputational beating in recent years because of unscrupulous players. Fundscraper arranges bridge financing for professional property investors, developers, contractors, renovation projects and fix-and-flippers, provided they’re on first or second, or combination, mortgages between one and three years. And by leveraging technology, it’s cutting costs, too. The company has a $10mln strategic finance facility and processed over $35mln of investor capital into mortgages in the last year. But its automation process, which includes suitability assessments, might be the key to reviving syndicated mortgages. According to Fundscraper’s founder and CEO, algorithms can assess suitability better than humans can, because the latter are prone to a multitude of errors. “We know the OSC is going to wrap mortgage syndication into the Securities Act, and because we’re registered as an exempt market dealer, as well as a mortgage brokerage firm, we perform at the highest standards at the exempt market dealer level, where we have to do suitability assessments on every single trade and investor,” said Luan Ha. “The only reason we can take capital from someone is because we’ve done a suitability assessment. I’d say an algorithm could assess your suitability better than a human being, who’s prone to errors, who’s prone to calculation errors, and who’s prone to all sort of misinterpretations of data. “It will tell us whether or not we should accept capital from potential investors. We’ve automated it and we’re employing some of the most rigorous standards.” Moreover, according to Ha, by lowering the cost of compliance and marketing through technology, Fundscraper has tapped into a broader pool of investors. By taking in much smaller minimums and pooling them together, Fundscraper manages greater volume. Ha added that technology has expedited the entire process and yielded higher returns. “Some of the advantages we have, as an online platform of lenders, is we can expedite the ability to fund a deal,” said Ha. “A lot of times when private mortgage funds want to fund a deal, they have to call upon investors, do the paper work and arrange funds, but with us, because we are able to shorten the pure time in takes to move funds from investors into mortgages, we do that much quicker. We transact quicker and our fee structure is lower because we’re an online platform and use technology to reduce the costs of compliance and underwriting. So borrowers will be subject to fewer fees, and those cost savings enhance returns to investors on our mortgage book.”