Fed Affirms Flexibility on Rate Hikes; PeerIQ’s 4Q2018 Securitization Tracker

by | Jan 13, 2019 | Blog | 0 comments

Greetings,

On the macro front, Core CPI rose by 2.2% YoY in December, in line with economists’ expectations and slightly above the FOMC’s long-run inflation target. Fed chair Powell noted this week that the Committee would be patient in raising interest rates this year. The Chair reiterated they expect strong economic growth in the US but are concerned about a slowdown in global growth. Fed officials have indicated that they are willing to pause rate increases, especially if the economy weakens due to slowing growth abroad.

Consumer credit continues to grow. The Fed reported that consumer credit outstanding grew at an annualized rate of 6.7% in November to $3.98 Tn. This is the third month out of the past four that consumer credit grew more than $20 Bn, for the first time in four years.

Source: Federal Reserve, PeerIQ

LendingTree’s personal loan offers report for November showed that 37% of personal loan inquiries were for debt consolidation and 31% for refinancing credit cards. Refinancing higher cost debt has helped borrowers manage their debt service costs, keeping them well below their peak even though consumer credit outstanding is at all-time highs.

In regulatory news, there is a multi-pronged effort to provide a national regulatory swim lane to FinTech firms or a viable multi-state licensing alternative. The OCC has started accepting applications for the FinTech charter and the FDIC is also encouraging applications from de-novo banks. Meanwhile, the OCC has filed a motion seeking to dismiss legal claims from state regulators to the FinTech charter. The OCC is defending its authority to issue the charter, and resolution of this litigation will pave the way for FinTechs to apply for the charter. You can read more about our take on the OCC’s Fintech charter here and access our webinar presentation here.

Reach out to learn how PeerIQ’s risk analytics can help FinTechs satisfy risk management supervisory standards.

This week, we present PeerIQ’s 4Q2018 MPL Securitization Tracker.

PeerIQ’s 4Q2018 Marketplace Lending Securitization Tracker

We are pleased to release our 4Q2018 Marketplace Lending Securitization Tracker. Our quarterly Securitization Tracker analyzes securitizations of marketplace lending loans. We highlight several main themes below:

  • Markets are volatile as the global growth slows. The synchronized global growth story is at risk of coming undone with slowdowns in major industrialized economies including China and Germany. Policy errors on trade, interest rates, and the end of quantitative easing globally are stoking concerns of a recession.
  • Eight marketplace lending securitizations priced this quarter totaling $2.6 Bn, the slowest pace of issuance in 5 quarters. The pace of issuance slowed, substantially due to market volatility, as the total issuance volume represented a 44% drop over the total volume issued in 4Q2017, and a 25% drop from 3Q2018.
  • Total Issuance in 2018 was $15.3 Bn including deals from emerging issuers Upgrade and Enova. To date, cumulative issuance equals $44.5 Bn across 142 deals. We expect repeat issuance from Upgrade and Enova going forward.
  • Spreads widened, and yields increased on new issuance, a reversal from last quarter. Weighted average all-in yields on consumer deals increased from 3.7% to 4.1% QoQ, and on student deals from 3.4% to 3.7% QoQ.
  • New issue spreads in the Consumer MPL space were wider on the seniors and tighter on the juniors. The spreads on As were wider by 11 bps and those on Ds tighter by 124 bps on average. Weighted average all-in spreads on consumer deals widened from an all-time low of 95 bps to 101 bps QoQ.
  • Spreads widened across the stack on student loan ABS. New issue spreads on student deals were wider across the stack, with all-in spreads widening from near all-time lows of 54 bps to 107 bps.
  • Rating agencies continue to upgrade tranches. So far, rating agencies have upgraded 66 consumer MPL tranches and 63 student MPL tranches that are outstanding. Consumer Mezzanine tranches have seen the most pick up in credit enhancement. DBRS leads the rating agency league table, while Kroll dominates the unsecured consumer sub-segment and we continue to see increased engagement from all the rating agencies.
  • Citigroup, Credit Suisse, and Deutsche Bank continue to top the issuance league tables with 58% of MPL ABS transaction volume. Citi and CS have been increasing their activity in the FinTech space, with CS also offering risk retention solutions on securitizations.

Source: PeerIQ 

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