Loan Forbearance Cure Rates; Madden Curveball; GS wins Amazon Deal

by | Jun 14, 2020 | Blog | 0 comments

Greetings,

This week, we zoom in on the American borrower, and the progress on curing loans in forbearance; more evidence of the accelerating shift towards digital-first finance; and finally, a few words on the Colorado decision that seems to set up a clear conflict with the OCC’s recent “Madden fix” final rule.

Fed Chairman Powell’s conference on Wednesday reminded us that full recovery of the economy would take time. Nothing particularly shocking – but it did lead to a spike in volatility. The VIX ended the week at 36 (50% higher than just a week prior).

We don’t claim to be able to read market gyrations – and readers, you have more than enough sources of opinion on that front! Since the end of May, our view on risk assets is “expect more downside volatility ahead” as markets make sense of it all.

Moving away from Wall Street to Main Street, the FT reports this week on positive signs that borrowers will keep their loans current after short-term forbearance programs expire this month.

Nature is Healing; Credit Card ABS Spreads Near Recovery

While bank executives have pointed to positive outcomes across a range of credit products, this has been especially true for credit cards; Synchrony, for example, noted that 75% of the customers taking payment holidays have already been able to return to “current” status. We can see that in the AAA spread data below.

Source: JPMorgan, PeerIQ

Latest on Loan Modifications in Hardship

We’re seeing that steady recovery flow through in our own data.

Source: PeerIQ Analytics Platform

Here at PeerIQ, we’ve been tracking the rate of loans in hardship programs on our platform, and this week we saw that rate fall by 59bps – the second week-on-week decline since the beginning of the COVID-19 crisis.

Source: PeerIQ Analytics Platform

We’ve also been watching closely how quickly loans in forbearance recover to being current. On May 21st, for example, only 2% of the loans that had been in forbearance the prior week converted to current. By June 11th, that weekly conversion rate had nearly tripled to 5.7%.

Yes, it’s far from a complete recovery, but the steady moves in a positive direction are encouraging!

Mnuchin Makes the Rounds for More Stimulus

Looking ahead, Secretary Mnuchin this week told lawmakers that another round of fiscal stimulus would be needed, and argued for targeted assistance for industries particularly hard-hit by COVID-19, such as travel, retail and leisure. Noting that only 16% of the 2MM jobs lost by retailers in April had returned, Mnuchin argued that “[W]e are going to need another bipartisan legislation to put more money into the economy.”

Cross River’s Platform for PPP Loans

Times are tough. If you are a qualifying small business struggling to get a PPP loan, take a look at applying via our partner, Cross River.

Cross River, a leading FinTech bank, has rolled out a fully digital process to make applications as seamless as possible. And you don’t need an existing bank relationship to apply.

Borrowers can securely link their own bank account and apply for loans (up to $2MM).

Click here for more information on how to apply.

According to the SBA, Cross River is one of the top PPP lenders in the nation, originating more loans than Square and PayPal.

Source: SBA, PeerIQ

In FinTech industry news, as we slowly start to open up, a couple stories this week highlight the continued shift to digital first finance that the lockdown has only accelerated.

On the consumer front, use of early wage access platforms has surged during the crisis, as Tear Sheet reports. These businesses (including DailyPay, PayActive, Dave, Earnin, and others) offer users access to their earned wages early, without having to wait for a biweekly payday to arrive. COVID-19 has accelerated the demand for these tools – DailyPay, for example, saw a 400% increase in March, mainly to buy essential goods, said Chief Innovation and Marketing Officer, Jeanniey Mullen.

As many outlets have reported, even before COVID-19, American workers at times struggled to pay their bills between wage payment periods. Great to see FinTechs stepping into that gap, and finding ways to support consumers during the crisis.

GS Adds Amazon to Its Quiver

On the small-business front, Amazon this week revealed a partnership with Goldman Sachs to provide Amazon merchants with revolving credit lines. Offered through Goldman’s Marcus brand, the accounts carry fixed interest charges of 6.99% to 20.99%, and are another way for Goldman to accelerate its expansion into Main Street banking.

GS now has two major partners – Apple and Amazon – in its quest to transform into a consumer bank. Left unclear however, the P&L give-up (“winner’s curse”) to win these partners in a competitive environment. Is the juice worth the squeeze?

Regulation – Two Steps Forward, One Step Back

On the regulatory front, Colorado state courts ruled this week that under state law, non-bank purchasers of loans are prohibited from using Section 27 of the Federal Deposit Insurance Act to benefit from an out-of-state bank’s interest rate exemption.

While certainly worth a closer look, its impact may be limited as the ruling appears to conflict with other CO decisions upholding “valid when made.” Furthermore, it sets up a potential conflict with the OCC’s recent final rule to clarify questions around loan assignments arising from the Madden ruling. Clearly more to come on this, as these conflicts will need to be resolved.

In other regulatory news, we saw positive steps this week by the New York State’s Department of Financial Services. American Banker reports that the regulator, a key partner to many of us in the industry, is expanding a pilot program to help FinTechs and other startups navigate regulatory issues. The program, known as DFS FastForward, creates an avenue for innovative businesses to engage directly with DFS staff and get compliance questions sorted quickly.

Given the increased reliance we all have on FinTechs during this crisis, we’re glad to see DFS taking steps to streamline the compliance process and help FinTechs help consumers.

A few fundraising announcements to highlight this week.

Payments platform Trustly, led by CEO Oscar Berglund, crossed the $1Bn valuation mark this week thanks to a new investment round led by BlackRock. The Swedish startup provides infrastructure to execute payments via bank transfer, a preferred method of payment in many European countries, and one the CEO expects to grow as millennials seek closer control over the finances through a wide range of payment options.

Also, congratulations this week to Chicago-based M1 Finance. The digital financial management firm, led by CEO Brian Barnes, raised a $33MM Series B this week, bringing their overall fundraise to $54.5MM.

In the News:

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