Weekly Industry Update: Strong Job Gains, Marcus Acquihires, MLA Testimony

The US economy added 200k jobs in January. Wage inflation accelerated to 2.9% YOY increasing the prospects of higher rates.

Janet Yellen chaired her last Fed meeting as the committee kept interest rates on hold in January. Futures are pricing in a 93% probability of a rate hike in March and 3 rate hikes for 2018. The recent sell off on the long end of the curve has seen 10-year treasury yields edge past 2.85%, providing respite to banks who were seeing their loan margins compress as the curve flattened.

In industry news, GS Marcus hired the credit card team from startup Final to bolster its efforts to launch a credit card. Given the secular slump in trading revenues at major banks, GS is focused on building high-ROE consumer banking businesses. GS expects its consumer business to generate more revenue than its trading business by 2020. In a similar development, SoFi has acquired the engineering and product teams of mortgage startup Clara Lending.

In securitization news, Marlette completed its largest securitization to date, with MFT 2018-1 coming in at $464 Mn. The deal was significantly over subscribed and eventually upsized continuing the trend of larger deal size that we pointed out in ourQ4 securitization tracker. The senior tranches were rated AA by Kroll. The collateral pool has 40,303 loans with an average loan balance of $12k, weighted average coupon of 14.3% and a FICO score of 703. All the loans were originated by Cross River Bank.

In regulatory news, a federal appeals court upheld the constitutionality of the CFPB. The court opined that the CFPB did not interfere with constitutional procedures despite its funding from the Federal Reserve. The ruling comes a week after CFPB director Mulvaney sought to lay out his vision for the bureau, which we analyzed last week. MLA’s Nat Hoopes testified before the House Financial Services Committee on behalf of the Marketplace Lending Association. We highlight some of the key points in his testimony below.

• Marketplace Lending platforms are reaching the underserved sections of the economy, and providing them access to credit, with 70% of borrowers saying that they have expanded access to credit and a path out of high-interest credit card debt.

• Online lenders use multiple factor besides credit score, enabling lenders to extend credit to credit worthy borrowers that otherwise would be rejected.

• Reinforced the need for bills such as Protecting Consumers’ Access to Credit Act of 2017, the IRS Data Verification Modernization Act of 2017, and the OCC’s efforts to create a Special Purpose National Bank Charter for qualified fintech firms, among others.

• The “valid when made” doctrine is critical to secondary trading of loans. However, the decision in the Madden case has created uncertainty that negatively impairs the availability and the price of credit to consumers and small businesses.

• MLA strongly encouraged the Committee to support FinTech firms seeking the SPNB charter that will allow them to offer credit products nationally on par with banking institutions.

Conferences:

• Ram Ahluwalia will speak on the “Marketplace Lending Snapshot: Performance, Review, ABS Issuance Outlook and Funding Trends, and Bank Partnerships” panel at SFIG Vegas 2018 on Wednesday, February 28 at 9:15 AM.
• Kevin Walsh will speak on a panel at SFIG Vegas 2018 titled, “Predictive Modeling: The Role of Big Data and Machine Learning Across the ABS Market” taking place on Monday, February 26 at 4:35 PM.

PeerIQ in the News:

• PeerIQ 4Q17 securitization tracker shows growth of marketplace lending industry (BanklessTimes, 2/1/18)

• More data required for small biz ABS to thrive — panel (Global Capital, 1/30/18) PeerIQ and other MPL market participants at the Loan Tape Conference in NYC said standardized data will be the gateway to enhancing opportunities for securitization in the MPL space.

Industry Update:

• Global Bonds Swoon as Investors Bet on Inflation, Growth (WSJ, 1/30/18) Bond yields have climbed since the start of the year, spurred by signs of growth and increasing inflation expectations, prompting a sell-off in equity markets.

• Court upholds constitutionality of Consumer Financial Protection Bureau(Politico, 1/31/18) A federal appeals court has upheld the constitutionality of the CFPB’s structure, a decision that preserves the agency’s independence, after Director Mulvaney published his direction for the bureau which we analyzed last week.

• NYDFS: If Mulvaney’s CFPB won’t protect consumers, we will (Housingwire, 1/30/18) State regulators are likely to fill in the gap that the retrenched CFPB is leaving behind.

• Why Congress Needs to Act Now to Fix the “Madden Issue” (Lend Academy, 1/29/18) Congress should codify the “valid when made” doctrine and remove the uncertainty in the secondary markets, which is hampering the availability of credit to underserved small businesses.

• How Did Bank Lending to Small Business in the United States Fare After the Financial Crisis? (SBA, Jan 2018) The report finds that bank lending to small businesses remained at depressed levels throughout the post crisis years and that the declines in small-business lending were significantly greater at large banks than at small banks.

• High-Interest Lenders Benefit From Trump’s Deregulatory Stance (WSJ, 1/29/18) The CFPB is easing its regulatory oversight of the industry benefiting payday lenders.

• House Approves New Payday Loan With 200 Percent Interest Rate (Indiana Public Media, 1/31/18) Payday lenders are pushing state legislation to allow longer-term installment loans with triple-digit APRs.

• Goldman Sachs Acquires Team Behind Credit Card Startup Final(FastCompany, 1/30/18) GS Marcus bought the credit card startup Final to bolster its efforts to launch a credit card as GS prioritizes high ROE consumer businesses.

• SoFi Buys Teams From Mortgage Startup Clara to Boost Offerings(Bloomberg, 1/30/18) SoFi has acquired the engineering and product teams of mortgage startup Clara Lending as it expands its range of consumer loan offerings.

• LendingClub Files 8K on $200 Million Warehouse Agreement(CrowdfundInsider, 1/28/18) Lending Club has opened another $200 Mn secured revolving credit facility as it continues to diversify its funding sources and expand its lending business.

• A bank’s unfolding plan to enter online consumer lending (American Banker, 1/29/18) Meta Financial expects to originate $500 Mn to $1 Bn in personal loans as part of a three-year partnership with Liberty Lending in New York.

• Capital a Key Element of Square’s Industrial Bank Charter Review (BNA, 1/30/18) Square will have to make a strong case that its banking business model and the underlying financials are solid as it seeks a banking charter to expand its product offerings.

• Marlette Funding Closes Largest Securitization Transaction in Company History (Businesswire, 1/29/18) Marlette’s MFT 2018-1 was significantly over subscribed and eventually upsized to $464 Mn.

• Bitcoin Ban Expands Across Credit Cards as Big US Banks Recoil(Bloomberg, 2/2/18) Card issuers are taking steps to ensure credit cards are not used to finance cryptocurrencies.

• Podcast 136: Don Davis of Prime Meridian (Lend Academy, 2/2/18) Peter Renton interviews Don Davis, CEO of Prime Meridian Capital Managements, and gets his thoughts on marketplace lending today and what the future holds for Prime Meridian. Transcript here.

Lighter Fare:

• The $2.5 Billion Plan to Turn Brooklyn’s Navy Yard Into a Tech Hub(Bloomberg, 1/31/18) The Brooklyn Navy Yard is transforming itself from a 20th-century warship builder to a 21st-century high-tech hub.