Securitization has become increasingly utilized by marketplace lending platforms and in 2016 a record number of deals were done; Lend Academy provides details on securitization structuring, Lending Club's recent securitization and the importance of transparency in their article; in Lending Club's December securitization the total amount of loans in the portfolio was approximately $131.3 million and the portfolio was rated by Kroll Bond Rating Agency. Source
A blog post from deBanked provides insight on the use of data scientists in marketplace lending; while these platforms are built on data programming and analytics, Justin Dickerson of Crossfold Analytics implies that the industry could be inefficiently utilizing data scientists resulting in lower returns and income losses broadly across the industry; Dickerson provides recommendations for data science groups specifically noting the importance of building a strong data science infrastructure with less focus on a massive data science team. Source
LendIt will be hosting a forum today on risk retention in securitization at 2:00 PM EST; the forum will be held in conjunction with Cadwalader and Lending Times; speakers will provide insight on key factors to consider in choosing the optimal risk retention structure, commercial considerations related to sponsors including brand and investor relationships, requirements necessary to establish a majority owned-affiliate including the amount of equity that must be retained by the sponsor versus an investor and other related topics; register here and join the webinar today.
The securitization market for marketplace loans has been increasing in recent years, in reviewing the State of the Securitization panel from LendIt USA 2016 we hear about the deals getting done, new risk retention requirements and what issues crop up when selling to investors.
Panelists covered the increase in rated securitizations from Moody's, Fitch and Kroll, noting the overall market is still small compared to auto or credit cards however it continues growing.
The new risk retention requirements will force sponsors to hold a residual of equity interests when in the past some were able to sell off 100%, though it would depend on the sponsor and the deal.
Common issues when selling deals
- Investors want to know how loans are underwritten, serviced and what does loan performance look like
- Length of performance history is a common theme, investors want to know how the asset performs as compared to credit card deals or auto securitizations
- Selling the deal in comparison to a similar asset helps to mitigate questions and analyze loss scenarios
- Investors want to see platforms retain risk
- True lender, Madden v. Midland, they want to avoid a deal that ends up being dragged through court, like many subprime mortgage securitizations
- Servicing needs to have capacity to make calls and get payments in, whether the servicing is in house or outsourced
To hear more about risk retention, please signup for our LendIt Forum scheduled for today at 2:00 PM EST. You can register here.
Check out the full video interview here:
AutoGravity has added First Investors Financial Services to its car loan financing network; AutoGravity has developed an app that allows car buyers to choose a car online and receive four financing offers; the addition of First Investors Financial Services will broaden the available financing options for users. Source
Canada reported significant growth in online and marketplace lending in 2016; fintech growth in the country was also substantial with Canada reporting a 74% increase in fintech investment; a blog post from Aspire gives a roundup of online and marketplace lending activity in 2016 which included many partnerships and equity rounds; also provides predictions for the market in 2017; among its seven predictions are more bank partnerships and increased institutional investment. Source
LQD Business Finance is an alternative lender in small business lending; 2016 was the company's first year in business; it reported closed loans of $33 million and also closed its Series A round; CEO George Souri expects growing its origination run rate to $80 million by the end of 2017 and to $200 million over the next 24 months. Source
Online lending platform Marcus by Goldman Sachs is now open to all borrowers; the bank launched its lending platform in October 2016 for borrowers receiving an email code; like other marketplace lending platforms it offers low borrower interest rates; one of its leading advantages is that it offers no fees; Goldman Sachs will announce its fourth quarter earnings in January with insight expected on the new platform's business. Source
P2P lender China Rapid Finance has announced a partnership with Tencent's wealth management group, Licaitong; China Rapid Finance will list investments on the Licaitong platform; the product listings will include fixed-term investments ranging from nine months to 18 months with expected annualized returns ranging from 4.65% to 6.19%; the investment products reached capacity of RMB 27 million ($3.89 million) within two hours of the launch; China Rapid Finance will continue to offer investments through the Licaitong partnership; in a statement regarding the partnership, Dr. Zang Wang, CEO of China Rapid Finance, said, "This collaboration between CRF and Tencent's Licaitong platform will support the development of inclusive finance in China." Source
PeerIQ has released its fourth quarter "Marketplace Lending Securitization Tracker" with details on the marketplace lending securitization market; the chart below shows the marketplace lending securitization issuance for the top 10 originators; SoFi leads the list with $6.85 billion in securitized loans, followed by Prosper and Avant. Source
