Never underestimate Sir Richard Branson.
The mega-millionaire Brit has been an innovator from the beginning of his career and now it is hard to remember exactly when and where that started because his company, Virgin, is into so many industries and Sir. Richard himself seems to be everywhere. Virgin, which describes itself as a "leading branded venture capital organization" says its business plan in North American involves "blasting into markets where the customer is underserved, offering value for money, good quality, innovation, exceptional customer service, fun and a sense of competitive challenge." Virgin's existing businesses include Virgin Atlantic Airways; Virgin Mobile USA, the leading wireless youth network; Virgin Megastores; and Virgin Comics. Now Virgin is officially in the mortgage business.
But it is a mortgage business with a real twist. Last week
Virgin USA, the North American investment arm of the company, acquired a majority
stake in CircleLending, Inc., a peer-to-peer
We wrote about peer lending last summer, specifically about a British-based company called Zopa.com and one out of San Francisco called Prosper.com. Both operate on the principal that people who need to borrow and people who want to lend are better of dealing directly rather than through a bank or other middle-men. They both set themselves up to facilitate this kind of person-to-person money exchange while providing safeguards and services to both sides of the transaction.
We found the concept intriguing but were uncomfortable with many aspects, especially with Prosper and their emphasis on joining affiliate groups to secure lower interest rates (and the rates are very high) and a feeling that multiple groups appeared to be organized and run by the same entities and many of whom seemed to be established lenders.
CircleLending is on an entirely different track. They exist to facilitate intra-family or friend-to-friend lending, hoping to make it easy and less fraught with the possibilities of permanent family fracturing.
CircleLending aims to inject a level of distance and professionalism into the family lending areas. It provides a number of programs with a range of services and prices. The complete package which costs $2,299 includes preparation and recording of the Promissory Note and Mortgage or Deed of Trust, a full title abstract and preparation and recording of the Deed, and closing services including a settlement statement and a local closing agent. Payment processing and escrow services are also part of this package. At the other end of the scale, borrower and lender can opt only for loan servicing or loan servicing with escrow for $249 or $549. It appears there may also be an additional $9 per payment fee for loan servicing.
While Circle focuses primarily on mortgage secured loans they also offer packages for small and/or unsecured loans which provide documents, payment schedules, and other guidance for $99 to $199. Assistance is also available for small businesses trying to raise money from family or angel investors.
Another niche Circle is pursuing is seller financing. With the current tightening of lending standards and the emerging buyer's market there will probably be increased demand for this type of funding but it has typically been uncomfortable as well as risky for sellers. Circle can't remove all of the risk but they provide appropriate documents and a comfort level by being an intermediary for payment processing.
But where CircleLending may make its biggest impact is its brand new Family Advantage program designed to mine the growing reverse mortgage market.
Reverse mortgages are those where the house-rich but cash-poor homeowner can draw the equity out of his or her home all at once or over time with no requirement to make a payment on the loan until the house is sold. As Americans age these are growing rapidly in popularity. According to the FHA, 74,412 reverse mortgages were recorded in 2006 compared to 6,640 in 2000.
The FHA version of the reverse mortgage is both pricey and loaded with regulations. Circle estimates that the typical reverse mortgage carries fees that range from $12,000 to $20,000 and monthly fees of $25 to $30 (we could not independently verify those amounts on either the FHA or AARP websites). A Family Advantage loan costs $3,999 and an additional charge of $19 is made each time funds are disbursed which could be monthly or only once over the life of the loan. Family Advantage also allows borrower and lender to establish most of the rules. FHA requires a borrower reach the age of 62 to be eligible for a reverse mortgage. There is no age requirement for Family Advantage. Nor is there a set interest rate - borrower and lender establish that by mutual consent.
Under FHA rules only a primary residence can be used to secure a reverse mortgage and the loan must be repaid when the last borrower vacates the premises or the home is sold. Vacation or investment properties can be used as collateral for Family Advantage and the house will simply remain in the family when the borrower no longer chooses or is able to live there. Disbursement terms are also more flexible and can change at any time over the life of the loan.
We suspect that Branson has done it again. CircleLending has been flying under the radar for a while although there have been articles about it in The Boston Globe and elsewhere. With Virgin's money behind it, expect to see the company gain a lot of visibility and perhaps a substantial share of its several target markets. And one has to wonder what else he has up his sleeve for his new acquisition.