Weekly Industry Update: Quarterly MPL Loan Performance Monitor & OCC Charter Update

By March 20, 2017Blog

The OCC is moving forward with its special purpose national bank charter for fintech firms. This week the agency released a draft supplement to its licensing manual. At the same time, the OCC is facing challenges from several state regulators on whether the agency has the legal authority to award charters. Also, some House Republicans sent a letter to the OCC requesting a comment period on rules before “rushing” to finalize the charter.  

In our December analysis of the charter framework, we noted participants should closely monitor the proposed capital and liquidity requirements. We see that that in the recent draft the capital and liquidity rules remain unspecified leaving the OCC with flexibility. Notably, the OCC is not requiring profitability as a condition for the charter, but rather a “credible path and timeline” to profitability.

Additionally, qualifying FinTechs require significant investment in governance, risk management systems, and financial inclusion plans. Chartered FinTechs must adopt a top-down culture of compliance, meet strict supervisory guidelines (summarized here), have seasoned bank professionals on boards and management teams, and seek approval from bank regulators on major business plan changes. More generally, under the charter, FinTechs must culturally resemble the very banks they seek to disrupt.  Applications for the charter will be made available to the public on the OCC website.

On the securitization front, there are currently three deals in the horizon. Kroll assigned preliminary ratings to Marlette’s MFT 2017-1. The $257.44 Mn transaction expected to close on March 23rd is the third securitization collateralized by unsecured consumer loans originated by Cross River Bank. The deal was priced on March 17th, and upsized to $304.47 Mn. Further, Goldman Sachs, Bank of America and Deutsche bank are leading a $461 Mn offering by SoFi, SoFi 2017-B. Lastly, Avant is working with Credit Suisse to bring a $300 Mn personal loan securitization to market.

SoFi plans to step up loan production in 2017, seeking to reach $12 Bn in originations across market segments in 2017, which is in line with our October forecast.

Finally, we have released our new quarterly MPL Loan Performance Monitor and summarize major observations below:

  • Lending Club targeted the most significant increases of borrowing rate to riskier borrowers in E, F, and G-grades. Prosper’s recent borrowing rate increases are mild comparing to Lending Club’s rate actions. We expect that the overall borrowing interest rates will continue to increase in response to hikes in Federal Funds rates.
  • For both Lending Club and Prosper, charge-off rates continue to be elevated for loans in 2016 vintages. The increase in charge off rates agree with delinquent loan pipelines as loans transition from delinquency to charge-off states. (Recent underwriting tightening will not show-up in 2016 vintage performance.)

Conferences: 

PeerIQ in the News:

Industry Update:

  • Yirendai Q4 2016 Earnings Review (LendAcademy, 3/16/17) Yirendai continues impressive origination growth, originating 20.28B RMB ($2.9 Bn USD) in loans in 2016, growing over 100% year over year. 

Lighter Fare: