Greetings,
The Fed raised rates for the 3rd time on Wednesday and expect inflation to rise to their 2% target.
The range of Fed Funds Rate is now between 2% - 2.25%.
A super-majority of committee members indicated that they would like to hike rates by another 25 bps in December.
US GDP growth of 4.2% in the 2nd quarter was the fastest since 2014 Q2, and
US consumer confidence reached an 18-year high in September.
The Fed’s “dot-plot”, which indicates committee members’ views on the level of interest rates showed a
potential rate hike in December, and 2-3 hikes in 2019.
Source: Federal Reserve, Bloomberg, PeerIQ
Rising front-end rates have brought the yield spread between 10-year and 2-year rates close to zero, increasing the likelihood of
an inverted yield curve at the next rate hike. The yield spread between 10-year and 2-year treasury bonds is only ~12 bps, and an
inverted curve has presaged past recessions.
Source: PeerIQ, Bloomberg
In regulatory news,
Treasury Secretary Steven Mnuchin has indicated his support for his former OneWest colleague and the Comptroller of the Currency, Joseph Otting’s proposal to overhaul the Community Reinvestment Act (CRA). Mnuchin and Otting butted heads with CRA activists when they were selling OneWest, and would like to simplify and modernize CRA rules.
In an
op-ed, Otting
laid out his vision for redesigning the CRA which is designed to encourage banks to meet the needs of borrowers in all segments of their communities, including low and moderate-income neighborhoods. CRA rules were rolled out in 1977 – a period where “redlining” the practice of refusing credit to specific neighborhoods. Online lending and deposit-taking cuts across state lines and the rules need an update.
Otting suggest policymakers:
- Revisit how we define the communities that banks serve – Otting seeks to revise how assessment areas are defined under the CRA and expand what qualifies for CRA consideration. By defining “community” as underserved populations, rather than a geographic area in proximity to a bank’s branches, a bank can expand financial inclusion while not being narrowly limited to their geography.
- Establish metric-based thresholds for CRA performance ratings – Metric-based thresholds can reduce the cost and regulatory burden on banks, and create transparency in the CRA evaluation process.
- Make CRA performance evaluations timelier and more useful – Regular and periodic evaluations of banks’ CRA activities will help ensure that the new laws are working as intended, and provide banks with the feedback needed to fine tune their activities to reach the broader goal.
We believe that this is an important step towards increasing financial inclusion, and you can read our prior analysis
here.
Varo Money, which was granted preliminary approval for National Bank Charter last month, has
withdrawn its FDIC application. The FDIC is out-of-sync with other federal regulators – including the US Treasury, Federal Reserve, OCC, and SEC – all of whom are supportive of FinTech innovation. Varo Money joins NelNet, Square, and SoFi as others have withdrawn their charter.
LendingClub settles with SEC
The
SEC’s order enables LendingClub to put the investigation into the events of May 2016 largely behind the company. In addition to a fine, former CEO Renaud Laplanche agreed to a securities industry bar and investment company prohibition. LendingClub Advisors and Laplanche agreed to the entry of the SEC’s order without admitting or denying the SEC’s findings. The SEC Enforcement Division determined not to recommend charges against parent LendingClub Corporation, which promptly self-reported its executives’ misconduct following a review initiated by its board of directors, thoroughly remediated, and provided extraordinary cooperation with the agency’s investigation.
PeerIQ’s Marketplace Lending Loan Performance Monitor
This week we preview our MPL Loan Performance Monitor (with data as of July 2018). Our MPL Loan Performance Monitor tracks the delinquency rates, cumulative losses, cumulative prepays and transition matrices using public marketplace lending data that comprises unsecured consumer loans originated by Marketplace Lenders. Overall, we notice that delinquencies and cumulative losses on newer vintages are higher while cumulative prepayments have picked up on newer vintages at the corresponding loan age.
You can download our latest MPL Loan Performance Monitor
here.
Delinquencies by Vintage
Source: PeerIQ
Cumulative Losses by Vintage
Source: PeerIQ
The table below shows the transition matrix for all outstanding loans in the PeerIQ Public Marketplace. 97.3% of current loans stayed current, while 54.9% of loans that missed 1 payment also missed their 2nd payment. The cure rate once a loan has missed 4+ payments is negligible with 79.6% of those loans charging off as issuers recognize their charge-offs.
Source: PeerIQ
PeerIQ customers can track roll-rates and the data above in real-time by going to the Roll-Rates application on the platform. Subscribers to the TransUnion dataset can perform analysis such as the charts above on the consumer credit dataset.
Reach out to PeerIQ to learn more!
Conferences:
Industry Update:
- Fed Raises Rates and Says More Coming, Brushing Off Trump Jabs (Bloomberg, 9/26/18) The Fed raised rates for the 3rd time on Wednesday and reaffirmed their positive outlook on the economy and on inflation rising to their 2% target.
- US economy grows at fastest pace since 2014 in Q2 (FT, 9/27/18) The US economy grew at 4.2%, the fastest pace since 2014 Q2, driven by rising consumer spending.
- S. Consumer Confidence Unexpectedly Jumps to 18-Year High (Bloomberg, 9/25/18) Consumer Confidence reached 138.4 in September, the highest since August 2000, driven by low unemployment and rising incomes.
- Bankers vs. Activists: Battle Lines Form Over Low-Income Lending Rules (WSJ, 9/25/18) Steve Mnuchin and Joseph Otting are looking to redesign the CRA to improve financial inclusion by removing the criteria that limit CRA activities to geographic regions only.
- Fintech Lender Avant Courts Big Banks With Launch Of SaaS Business (benzinga.com, 9/24/18) Avant is following in the footsteps of OnDeck by offering a lending-as-a-service solution, as the company tries to diversify its revenue stream.
- Nelnet withdraws application for industrial loan charter (American Banker, 9/26/18) NelNet has withdrawn its ILC application and may refile at a later date.
- US Bank Designs Online SMB Lending Platform (PYMNTS.com, 9/26/18 US Bank launching an online platform that allows small-businesses to complete their applications in an hour for up to $250k in proceeds. US Bank recently launched a small-dollar lending program designed to compete with Pay day lenders (implied rates of ~75%).
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