On Thursday, President Trump announced his nomination of Jerome Powell to succeed Fed Chairwoman Janet Yellen as the next chairman of the central bank. While this is the first time in 40 years that a president has not asked the current Fed Chair to stay for another term, Powell’s behavior as a Fed Governor and support for the current Chairwoman indicates he would stay the course set by Janet Yellen. In his time as a Fed Governor, Powell has never cast a dissenting vote.
Also on Thursday, President Trump rolled out his new tax plan which reduces the number of tax brackets from seven to four and cuts the corporate tax rate to 20% from 35%. Relevant to marketplace lenders, the tax plan reduces the mortgage interest deduction cap by half. Borrowers can deduct interest payments on mortgage principal balances up to $500,000, down from $1 Mn currently. In reaction to the news, the homebuilder index traded down 2.5%. However, the stock price performance of constituents was divergent, affecting the high-end builders more, with TOL down 9.4% and LEN down 3.3% on the news.
Transunion published a study highlighting the growth in market share by FinTech lenders in the unsecured personal lending space. FinTech lenders accounted for 30% of all origination volume in 2016 and have contributed to expanding borrower access to unsecured credit. FinTech lenders have also generated better risk-adjusted performance on their portfolios than banks and credit unions.
In securitization news this week, Darien Rowayton Bank filed ABS 15G for its DRB 2017-C deal as well as SoFi for its SCLP 2017-6 deal. JP Morgan, Deutsche Bank, Goldman Sachs, and Mizuho Securities are running the SoFi deal.
SoFi’s Latest Consumer Lending Deal
SCLP 2017-6 is the largest deal on SoFi’s shelf, and the first since SCLP 2017-5, which priced concurrently with Mike Cagney’s resignation. As we discussed in our previous blog post, SCLP 2017-5 priced slightly wider on the news (10 to 15 bps). SoFi’s latest consumer lending deal, SCLP 2017-6, is the first deal from SoFi with borrowers living in FEMA declared disaster areas, comprising approximately 12% of the deal. We included some other highlights below:
- SCLP 2017-6 has an excess spread 26 bps less than SCLP 2017-5, due primarily to a higher WAC on the bonds
- SCLP 2017-6 is the first SCLP deal with a class rated lower than A since SCLP 2017-2, which had a two-class structure
- SCLP 2017-6 is the first deal of 2017 with a C class and the second time on the shelf ever
- In addition to the loans owned by SoFi, Goldman Sachs and one other loan contributor are putting their loans back to the sponsor in connection with the securitization
- Collateral quality has improved despite the higher deal size (e.g., credit scores are higher, loan balance are somewhat smaller, etc.)
Source: PeerIQ, Company Filings, Kroll Bond Rating Agency, S&P
SCLP 2017-6 Structure
Continuing the trend of its last three deals, SCLP 2017-6 has a lower initial and target OC when compared to the prior deal on the shelf (as seen in the table above). Although it may seem that SoFi is structuring deals more aggressively, the A and B classes have higher initial CE when compared to SCLP 2017-5 by 2.38% and 0.76% respectively. As seen highlighted in blue on the chart below, SoFi accomplished this with the subordination of the C class, which when combined with the deal’s initial OC, provides more significant support for the A and B classes. The drop in excess spread is another consideration for classes A and B to require higher credit enhancements.
Source: PeerIQ, Company Filings, Kroll Bond Rating Agency, S&P
Overall, ABS markets remain well bid with a record 16 months of issuance and spread tightening. PeerIQ observes over half-a-dozen deals coming to market before year-end as issuers take steps to accelerate their offerings during favorable market conditions.
However, we continue to observe increased variation in deal structure and collateral quality. Overall these factors increase the need for investors to utilize 3rd party risk management services, such as those offered by PeerIQ, to improve investment decision making.
PeerIQ in the News:
- PeerIQ Appoints Senior Credit Risk Executive Kevin Walsh as Chief Commercial Officer (GlobalNewswire, 11/3/17)
- Mosaic partners with PeerIQ to provide enhanced loan-level transparency to their $307M solar loan securitization (GlobeNewswire, 10/30/17)
- 3 Online Marketing Tips for Alternative Lenders (TayloredContent, 11/1/17)
- PeerIQ and Mosaic Strike Securitization Partnership (LendIt, 10/31/17)
- SoFi deepens capital stack with latest consumer loan offering (GlobalCapital, 11/1/17) SoFi offers investors a deeper capital stack with its latest consumer loan ABS deal, while also shifting the mix of collateral in the portfolio towards longer-term loans.
- Moody’s upgrades and confirms 27 tranches sponsored by SoFi Lending Corp. (Moody’s, 10/31/17) Moody’s upgraded the ratings of 26 tranches and confirmed the rating of 1 tranche from 13 SoFi Professional Loan Program transactions, an important sign of confidence after SoFi’s C-suite changes.
- Online lenders can get needed credit to small businesses (TheHill, 10/26/17) With the right policies in place, online small-business lending platforms can start to narrow the global small-business credit gap.
- New Mobile Application Designed to Reinvent Personal Credit (Muskogee Phoenix, 10/26/17) Affirm’s mobile application offers consumers an alternative to traditional credit cards when they purchase goods from online merchants.
- Think Finance Bankruptcy Exposes Fallout with Victory Park Capital (WSJ, 11/2/17) Lack of legal clarity around “True Lender” continues to hamper lending market.
- GAFA Will Have a Profound Impact on the Future of Finance (Lend Academy, 11/1/17) Peter Renton analyzes the role of Amazon, Google, Facebook, and Apple. See PeerIQ’s analysis last week on Big Tech vs. Big Banks for our take.
- Trump Taps Jerome Powell As Next Fed Chair In Call For Continuity (Forbes, 11/2/17) President Trump named Jerome Powell, a former investment banker, and private equity executive, as the next chair of the Federal Reserve on Thursday.
- View From The C-Suite: Alternative Funding Execs Talk Shop, The Landscape, And The Future (10/30/17, Debanked) Christine Chang, CEO of 6th Avenue Capital, Heather Francis, CEO of Elevate Funding and Torrie Inouye, National Funding president offer their take on the direction of the alt lending space.
- Humans Are Still Better Than AI at StarCraft—for Now (MITTechnologyReview, 11/1/17) A StarCraft gamer won 4-0 in the world’s first contest between AI systems, one of which was developed by Facebook’s AI research lab, and professional human players.