Testing the online lending market in the wake of LendingClub
Online lender Social Finance Inc., or SoFi, is offering potential investors to buy $380 million of securities backed by its unsecured consumer loans.
Securitization will be a major test of bond investors’ appetite for unsecured consumer loans from rival LendingClub Company
. ousted CEO Renaud Laplanche in early May. The scandal rocked investors indebted to online lenders and raised fears of a fundamental flaw in some online lenders: that they are overly dependent on potentially fickle funding.
Such worries, along with questions about governance in the wake of the scandal, have caused LendingClub shares to lose a third of their value since early May.
Investors had bought fewer loans online in the months leading up to Mr. Laplanche’s ouster, prompting those lenders to slow down. Online lenders Prosper Marketplace Inc. and Avant Inc. said loan volumes fell 12% and 27%, respectively, between the fourth quarter of 2015 and the first quarter of 2016.
Meanwhile, SoFi completed $661 million in unsecured consumer loans in the first quarter, down 26% from the prior period, according to a securitization pre-sale report from Kroll Bond Rating Agency.
It is not yet clear to what extent investors have further slowed online loan purchases, but there has clearly been an impact.
In general, SoFi provides unsecured personal loans to more creditworthy borrowers than its competitors. The borrowers in the SoFi loan pool who will back the bonds sold to investors have an average credit score of 736 and an average income of more than $140,000.
By contrast, a loan securitization from Prosper in March had an average credit score of 704 and an average income of about $84,000. SoFi loans also tend to be larger in size and carry lower rates. The average SoFi loan balance in the pool is around $37,000, about three times what it was when the Prosper loans were securitized in March, and the average SoFi coupon was 8.39%, compared to 13.57% for Prosper.
Kroll gave the securitization, called SoFi Consumer Loan Program 2016-1, an “A” rating. It expects cumulative net loan losses to be between 7.5% and 9.5%.
Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8