Weekly Industry Update: Donuts at the CFPB, LC’s Pass-Through Security, Mortgage Delinquency Case Study
By Vy Phan
December 3, 2017
- Expands the market. The pass-through security reflects the same risk and return characteristics of a whole loan pool. However, the product enjoys greater marketability since it is i) in a security format, ii) cleared via the DTCC, iii) offers the potential for liquidity in OTC markets. These characteristics enable a much wider pool of investors – including pensions, endowments, and asset managers – to enter the market.
- Lower Financing Costs. Additionally, as market liquidity grows, the CUSIPs may enjoy lower-cost repo financing as an alternative to higher-cost credit facilities.
- Secondary Markets. The product addresses certain investors’ demand for secondary market liquidity. LendingClub is able to ‘ride the rails’ of existing capital markets infrastructure by creating a marketable security that obviates the need to build a distinct secondary market.
- Valuation. The price discovery generated from markets in CUSIPs will enable valuation agents such as PeerIQ and Duff & Phelps to calibrate pricing to observed trades in the market. Today, raw whole loans are treated as Level III assets per standards from the SEC and FASB. The ability to incorporate observed transaction prices means that whole loans have a path to move towards a Level II pricing standard. See here for PeerIQ’s approach to pricing and valuation.
- Upstart’s UPST 2017-2 A priced at a 90 bps spread, slightly tighter than 95-100 guidance. The deal has 58.75% initial credit enhancement for senior tranche, higher than other personal loan deals from shelves such as CLUB, MFT, and PMIT. Additionally, the deal has a KBRA base case loss range, 17.5% - 19.5%.
- CLUB 2017-P2 is LendingClub’s second prime securitization. CLUB 2017-P2 priced its A class at an 85 bps spread, 12 bps tighter than CLUB 2017-P1 A from September, despite a longer WAL of 0.97 WAL vs 0.77 WAL on CLUB 2017-P1. The B and C tranches received a better rating, BBB and BB vs BBB- and BB- in CLUB 2017-P1.
- SOFI 2017-F is the 6th student loan securitization this year with $565 Mn securitized. Notably, the deal has the lowest WA 3-Year CDR among all SOFI deals in 2017.
Conferences:
- PeerIQ’s Kevin Walsh will speak at NY Fintech’s event on December 6th at 6:30PM titled, “Ditch the FICO Score”—RSVP here
PeerIQ in the News:
- Monday November 27 2017, Daily News Digest (Lending Times, 11/27/17)
- Marketplace Lending News Roundup – November 25 (LendAcademy, 11/25/17)
Industry Update:
- Powell Says Case ‘Coming Together’ for December Rate Hike (Bloomberg, 11/28/17) Jerome Powell, nominated for Fed Chair, told lawmakers the case for raising interest rates at next month’s policy meeting is strengthening, as the labor market improves without spurring the U.S. economy to overheat.
- The ‘Dovish’ Powell Comments That Caught Wall Street Off Guard (WSJ, 11/29/17) Fed Chair Nominee Jerome Powell suggested the U.S. labor market has room to tighten even as the unemployment rate sits near a 17-year low.
- Donald Trump’s Appointee Asserts Control Over CFPB for Now (WSJ, 11/27/17) White House budget chief and an Obama-era official both claim rights to lead the regulator.
- U.S. Economy Reaches Its Potential Output for First Time in Decade (WSJ ,11/29/17) U.S. GDP growth revised up to 3.3% rate for third quarter, the first time actual gross domestic product had exceeded potential GDP since the fourth quarter of 2007.
- U.S. New-Home Sales Unexpectedly Rise to Highest in a Decade (Bloomberg, 11/27/17) U.S. purchases of new homes unexpectedly advanced in broad fashion last month, reaching the strongest pace in a decade and offering an encouraging signal for residential construction.
- US storms cause ‘remarkable’ spike in mortgage delinquencies (Global Capital, 11/29/17) Hurricanes Harvey, Irma and Maria have caused US mortgage delinquencies to rise to the highest level in four years.
- Online lenders pull out the popcorn, as the Trump administration fights to control the CFPB (TechCrunch, 11/25/17) Online lenders will be more impacted by the landmark decision to repeal legislation designed to restricts banks from imposing mandatory arbitration on customers.
- Seeking bigger U.S. presence, Barclays joins crowded online lending market (American Banker, 11/21/17) British giant Barclays is the latest bank to join the crowded field of online lending, offering unsecured personal loans online, targeting prime and super-prime borrowers.
- A Conversation with Affirm's CEO Max Levchin (The Financial Revolutionist, 11/24/17) The FR’s Gregg Schoenberg spent time with Affirm CEO, Max Levchin to discuss the future of the company within the alternative lending market.
- LendingClub Closes First-of-Its-Kind Transaction in Marketplace Lending (PRNewswire, 12/1/17) Lending Club announced that it has closed a first-of-its-kind transaction in marketplace lending—a whole loan transaction structured as a tradeable pass-through security called a CLUB Certificate.
- My Quarterly Marketplace Lending Results – Q3 2017 (LendAcademy, 11/22/17) Peter Renton shares returns from 14 different accounts across a variety of investment vehicles and platforms.
- Bitcoin heads to Wall Street Whether Regulators are Ready or Not (Bloomberg, 12/3/2017). Bitcoin soars to record high after report that the CME will be launching a derivative tracking Bitcoin prices.
Lighter Fare:
- Bitcoin mining consumes more energy than 159 countries (itwire, 11/23/17) Bitcoin power consumption increased ~30% in the past month.