In 2016 the student loan securitization market increased compared to 2015 and in 2017 the market has already been off to a good start; the panelists discuss the reasons for this trend of increased issuance including knowledge, confidence and a default rate of just 3 bps; in the case of the refinance product, supply has created the demand; panel also comments on the current regulatory landscape and the Federal Family Education Loan (FFEL) Program which guarantees student loans; on the whole loan side, the panelists talk about the interest from investors, why they are deploying capital to the student loan market and the kind of returns they can expect; finally the panelists talk about risk retention and the importance of fintech in the origination of assets. Source
This week's PeerIQ industry update mentions SoFi's securitization deal, solar lender Mosaic's signal to the market of their first ABS deal and a detailed explanation about trigger breaches; SoFi has announced plans to issue a $477 million unsecured consumer loan securitization; the market was very happy to hear news from Mosaic as this is the first solar deal since early 2016, though the size of the deal has yet to be determined; the trigger breaches seen in MPL ABS deals have hurt the securitization market and caused the cost of capital to rise among lenders; PeerIQ breaks down the current deals that have breached and what it means for the overall MPL ABS market. Source
The securitization market for marketplace loans has been increasing in recent years, in reviewing the State of the Securitization panel from LendIt USA 2016 we hear about the deals getting done, new risk retention requirements and what issues crop up when selling to investors.
Panelists covered the increase in rated securitizations from Moody's, Fitch and Kroll, noting the overall market is still small compared to auto or credit cards however it continues growing.
The new risk retention requirements will force sponsors to hold a residual of equity interests when in the past some were able to sell off 100%, though it would depend on the sponsor and the deal.
Common issues when selling deals
- Investors want to know how loans are underwritten, serviced and what does loan performance look like
- Length of performance history is a common theme, investors want to know how the asset performs as compared to credit card deals or auto securitizations
- Selling the deal in comparison to a similar asset helps to mitigate questions and analyze loss scenarios
- Investors want to see platforms retain risk
- True lender, Madden v. Midland, they want to avoid a deal that ends up being dragged through court, like many subprime mortgage securitizations
- Servicing needs to have capacity to make calls and get payments in, whether the servicing is in house or outsourced
To hear more about risk retention, please signup for our LendIt Forum scheduled for today at 2:00 PM EST. You can register here.
Check out the full video interview here:
Once seen as a niche segment of finance online lenders are now originating billions in loans each year; the bigger they get the questions start to arise if they can handle an economic downturn and are their underwriting models good enough; American Banker digs into the overall industry by looking at securitization growth, whether or not traditional banking is dead and more. Source.
In an interview with P2P Finance News, Adair Turner cites P2P loan securitizations and other evolving forms of structured credit as high risk, causing a potential "red flashing light" for regulators; speaks of the evolution of the asset class as securitization portfolios from P2P lenders have been increasing in 2016; discusses complex structured investment vehicles as the most high risk specifically those issuing short term debt against longer term holdings. Source
PeerIQ has released its monthly marketplace lending update for October; focus of the report is on the 2017 forecast for marketplace lending securitizations; PeerIQ forecasts 47% year-over-year growth ($11.3 billion) in new ABS issuance with 52% growth in new originations for its base case estimate; sees high demand continuing for securitized products however institutional investors will likely be more interested in shorter duration loans to manage interest rate risk as US rates are expected to rise; PeerIQ reports continued support from rating agencies with high ratings; expects leading securitization issuers in 2017 to be SoFi, Avant and Marlette. Source
LendIt's most recent forum, Key Considerations for Risk Retention in Securitization, was held on Wednesday, January 11, 2017; the webinar provided insight on new risk retention regulations for securitization in effect beginning December 24, 2016; speakers provided insight on a range of securitization related topics including optimal risk retention structures, commercial considerations related to sponsors and requirements necessary for majority owned-affiliates; a replay of the webinar is now available.