President Trump will nominate Joseph Otting as the head of the Office of the Comptroller of the Currency, responsible for overseeing federal banks. Otting served as CEO of OneWest Bank where current Treasury Secretary, Steve Mnuchin, previously served as Chairman. If confirmed by the Senate, Otting will play a role in the Trump administration’s efforts to ease rules written under the Dodd-Frank Act.
House Republicans passed the Financial Choice Act sponsored by Jeb Hensarling (R-TX). The bill has little chance of passing the Senate in current form. We recommend the following WSJ article What’s in the Financial Choice Act? which summarizes the key provisions of the bill.
On the securitization front, Lending Club has filed papers with the SEC for a new ABS deal consisting of unsecured consumer loans. We note that LendingClub Corp. is the deal sponsor – an important shift indicating the new Lending Club leadership team is re-visiting a long-held practice of avoiding deal sponsorship.
The issuer of the deal is Consumer Loan Underlying Bond Credit Trust 2017-NP1. The shelf acronym “CLUB” appears to be a reference to Club Deals, or multi-seller programs.
A club deal program enables Lending Club to drive standardization – in offering docs, covenants, structure, servicing, collateral consistency, and offering cadence. As a sponsor, Lending Club is able control its brand in the public ABS markets and manage competing interests amongst issuers, placement agents, and investors. (See this week’s article from Structured Credit Investor on the emergence of multi-seller deals citing PeerIQ data.)
A club deal structure enables Lending Club to offer its whole loan investors a repeat, reliable path to liquidity and permanent financing. Moreover, participating investors can spread the substantial fixed costs of securitization, which may be quite onerous for a sole investor, over a larger deal size and multiple parties. The larger deal size begets greater interest from ABS investor community that can now justify the up-front due diligence costs with the expectation of large, repeat issuance. (PeerIQ describes the Club Deals in our prior newsletter and special considerations such as 3rd party valuation.)
The pattern is consistent with the “multi-seller” deals seen in SoFi transactions and exemplified recently in Marlette’s MFT 2017-1 which included players such as Cross River Bank, Marlette, and Goldman Sachs. Given the diversity of whole loan buyers, we expect other platforms to follow suit.
We also note an improvement in the ABS 15-G SEC filing associated with CLUBT 2017-NP1. ABS-15G SEC fillings improve transparency and independence with respect to reps and warranties related to the collateral pool in a securitization. Below is a list of attributes that are verified under “Agreed Upon Procedures” in an offering process for two recent Lending Club deals.
The inclusion of Credit Score at Origination is a welcome addition to the list of attributes subject to verification.
Nevertheless, there is still much more to do to raise the standard of verification across the industry. We cite the deficiencies in the current art of the ABS 15-G process in our prior newsletter. Namely, the process is manual, costly, incomplete in scope and breadth, and the verification is “skin-deep” as the data to be verified is sourced only from parties motivated to complete the transaction (against the spirit of independence in SEC Rule 15G).
Issuers that lead on transparency and offer enhanced verification – across a broader set of attributes and over a 100% sample – can significantly differentiate on building trust with investors.
The conflict-laden ABS 15-G process needs to be replaced with technology solutions that enable loan-level verification at scale. We look forward to sharing more in the months ahead. Investors and issuers should feel free to contact PeerIQ to learn more or participate in a trial.
PeerIQ in the News:
- Marketplace ABS Evolving (SCI, 6/5/17)
- Prosper’s Recent Securitization Well Received by Investors (LendAcademy, 6/8/17)
- Monday June 5 2017, Daily News Digest (LendingTimes, 6/5/17)
- At $3 Billion in Loans, Amazon is Quickly Becoming a Huge SME Lender(CrowdFundInsider, 6/8/17) Non-bank lending continues to grow as banks retrench.
- Fintech’s Ultimate Value: Making Sense of the Data Explosion (American Banker,6/5/17) Fintech VC, Pascal Bouvier, contends that solutions that allow us to make sense of data offer the real value in FinTech. We agree!
- Jamie Dimon Wants This Guy to Disrupt JPMorgan (Bloomberg, 6/7/17) David Hudson selected as Global Head of Markets Execution as part of an effort by JPMorgan to adapt to changing market structures.
- Lenders Seeking to Provide Real-Time Credit Offers Online Can Cut Implementation from Months to Weeks with TransUnion Find My Offer Solution (GlobalNewswire, 7/6/16) TransUnion announces the launch of Find My Offer to help lenders deliver relevant credit offers to consumers online.
- Apple Taking on Venmo with Peer-to-Peer Payments (CNN, 6/5/17) Apple announced the long speculated-upon addition of P2P payments to Apple Pay, now making Apple a direct competitor with PayPal, Venmo, Square Cash and popular bank services like Chase QuickPay and Zelle.
- Reg AB Casts Scrutiny on Subprime Auto (AB Alert, 6/9/17) Investors and rating agencies are considering greater scrutiny of auto-loan ABS in the wake of Reg AB data.
- Trump’s America Is Facing a $13 Trillion Consumer Debt Hangover (Bloomberg, 6/6/17) Elusive pickups in income growth paired with growing signs of pain among borrowers heighten the need for vigilant risk monitoring.
- World Bank Forecasts Global Economic Growth to Hit Seven-Year High Next Year (WSJ, 6/4/17) Global economic growth is set to hit a seven-year high next year, according to the World Bank, led in large part by accelerating emerging markets. But it cautioned that downside risks including emerging market debt, dominate the outlook.
- U.S. Financial Institutions: The Case for Community Banks (KBRA, 6/2017) Kroll Bond Rating Agency released a new research report examining community banks and their belief that well-run community banks deserve to be rated in the investment grade category.
- Americans are Suddenly Defaulting on Their Credit Cards (BusinessInsider, 6/9/17) The spike in credit card charge off rates despite low levels of unemployment requires greater monitoring and responsiveness to changing credit conditions.
- An Amazon Engineer is Letting Thousands of Twitch Users Play the Stock Market with $50,000 of His Own Money (BusinessInsider, 5/30/17) Amazon engineer behind StockStream is letting players vote on how to invest $50,000 of his actual savings on the stock market.