- Today’s main news: Fundrise IPO is over-subscribed. P2P lenders prevented from offering wholesale finance.
- Today’s main analysis: Online lending student loans favor the rich.
- Today’s thought-provoking articles: Dodd-Frank Retention Rule. Orchard’s online lending snapshot. Lend Academy interview with SoFi’s Mike Cagney. Seniors’ income boosted by sharing economy.
- Fundrise IPO over-subscribed. GP:” We are very excited about this new funing path / opportunity and we think all startups should consider and look at this options”. AT: “This is a great position to be in.”
- Even good-guy student loan startups favor the rich. AT: “This is an incredible analysis of the online student loan niche from SoFi to CommonBond. I’m not sure there is a fail-safe way to tilt the balance of favoritism from the wealthy to the disadvantaged, in this market or in any other. At the end of the day, the student loan marketplace still benefits less wealthy borrowers.”
- Dodd-Frank Risk Retention Rule effective now. AT: “The big question on the table is, how much of the Dodd-Frank Act will the Trump Administration be able to roll back? Will it include the risk retention rule? We’ll have to wait and see.”
- Orchard online lending snapshot.
- Lend Academy podcast interview with Mike Cagney. GP: “Good timing for the interview, lots of things everybody would like to know about SoFi.”
- OnDeck Capital COO to step down. GP:” Interesting move, validating the overall fintech investors trends.”
- Former Lending Club GC ends up at Roofstock. GP:” Very interesting move as well. Probably a little shove from Lending Club, and a little pull from Roofstock.”
- Orchard Platform predicts Super Bowl winner. AT: “Too bad. You can’t be right all the time.”
- P2P lenders prevented from offering wholesale finance. AT: “I often wonder why government’s don’t just let the market decide.”
- LendInvest responds to UK’s modern industrial strategy.
- German crowdinvesting grew by 39% in 2016. AT: “It’s still way behind other countries.”
- Wonga to sell BillPay to Klarna.
- United States
- Fundrise IPO Over-Subscribed, Increases Max Share Offer Under Reg A+ (Crowdfund Insider), Rated: A
- Even Good-Guy Student Loan Startups Still Favor the Rich (BuzzFeed), Rated: AAA
- Dodd-Frank Risk Retention (RR) Rule Effective Now (PeerIQ), Rated: AAA
- Weekly Online Lending Snapshot – February 03, 2017 (Orchard), Rated: AAA
- Podcast 89: Mike Cagney of SoFi (Lend Academy), Rated: AAA
- OnDeck Capital COO James Hobson to step down (Reuters), Rated: A
- Jason Altieri, Former GC at Lending Club, Lands at Roofstock (Crowdfund Insider), Rated: A
- Orchard Platform Predicts Super Bowl Outcome (Crowdfund Insider), Rated: B
- United Kingdom
- Peer-to-peer lenders prevented from offering wholesale finance (This is Money), Rated: AAA
- LendInvest Responds to the UK Government’s Modern Industrial Strategy (Crowdfund Insider), Rated: A
- European Union
- Germany: Investment Crowdfunding Grew by 39% in 2016 (Crowdfund Insider), Rated: AAA
- Wonga strikes £60m deal to sell European unit to Swedish suitor (Sky News), Rated: A
- Seniors enjoy significant income boost from the sharing economy (News.com.au), Rated: AAA
- Company Slammed by Short Seller Over Deals Says More Coming (Bloomberg Markets), Rated: AAA
- About 480,000 investors involved with problematic P2P lenders by Jan (Global Times), Rated: A
Fundrise IPO Over-Subscribed, Increases Max Share Offer Under Reg A+ (Crowdfund Insider), Rated: A
In a solid indication of confidence of the young real estate crowdfunding platform, Fundrise has received solid investor interest in its self-crowdfunding IPO under Reg A+. Demand was sufficient to compel management to increase the maximum funding round from 2 million shares to 3 million shares of Class B Common Stock. At a price per share of $5.00, this means Fundrise may now raise up to $15 million.
The offer was only made available to individuals that had previously invested via the Fundrise platform. As of today, the platform indicates the “offering is paused due to high demand.”
Even Good-Guy Student Loan Startups Still Favor the Rich (BuzzFeed), Rated: AAA
Last February, the online lending company SoFi paid $5 million for a 30-second ad during the Super Bowl.
That wasn’t where it always landed. The original version of the ad included three more words: “You’re probably not.” But at the last minute, SoFi cut them. The message, a spokesperson told Adweek, wasn’t “authentic” to the company’s image.
The problem these startups purport to solve is, inarguably, a huge one. Forty-four million Americans currently owe more than $1.4 trillion in student debt. That’s $1.4 trillion dollars hanging over 44 million heads, and, for those who can’t repay their loans, it’s a lifetime of ruined credit scores and dodging collections agencies.
But although the marketing has changed, the demographics have not. Ratings reports from the past four months show that the average Earnest borrower is a 32-year-old with an annual income of $143,447 and monthly free cash flow after expenses of $4,524. CommonBond’s average borrower is 33 years old with an annual income of $159,028 and $5,996 in monthly free cash flow. SoFi’s average borrower, in the new bond with the AAA rating from S&P, is 34 years old, with an annual income of $170,260 and free cash flow of $7,088. (Most graduates saddled with student loan debt don’t fit that description, which is why applicants for private refinancing often need their creditworthyparents to cosign, a caveat that doesn’t get mentioned in the ads.)
Kevin Reed, chief operating officer at Peer IQ, a risk analysis firm focused on online lending, said the emphasis on new metrics is aimed at venture capital investors, not institutional investors. “When you’re pitching Silicon Valley, you need an angle, some competitive differentiation,” he said.
In fact, one of the strongest signals that these online lenders are focusing on elite borrowers is the fact that banks like Citizens, which jumped in to compete in the refinancing ring, have a similar customer base but don’t use cutting-edge technology to find them.
In marketing documents obtained by the Financial Times, the company told investors that refinancing is “how they find the best and brightest and prevent them from attaching to a bank or broker.” In the same documents, SoFi also stressed it has the regulatory freedom to zero in on niche markets such as “the ‘next five percent.’” (That’s a term for the wealth bracket just a couple of rungs below the “1%.”) The company has already become a “one-stop shop for high earners,” focused on offering HENRYs more products, like mortgages, and personal loans.
High ratings have driven the refinancing boom. But Jon Riber, senior vice president at the ratings agency DBRS, told BuzzFeed News that the new metrics are unproven and haven’t been through a full credit cycle, so DBRS determines ratings looking at traditional data like FICO scores: “When it comes to free cash flow and income, we consider that but it doesn’t go into our model for forecasting defaults,” he said.
When you drill down into the ratings reports, there are some signs that the type of borrower is changing. For example, although 65% of the borrowers in Earnest’s latest securitization are making more than $100,000, the largest category is $50,000 to $99,000, which represents 32% of the securitization.
Dan Macklin, the SoFi co-founder, also said he didn’t think it was fair to describe SoFi clients as rich. Although SoFi borrowers earn salaries above the national average, many of them live in expensive cities, so they are not as well off as they seem.
DeGisi from CommonBond acknowledged that the average new borrower looks similar to the average old one, but claimed that CommonBond has been able to substantially broaden its customer base.
Dodd-Frank Risk Retention (RR) Rule Effective Now (PeerIQ), Rated: AAA
President Trump signed a memorandum to review Dodd-Frank Act on Friday. Loosening bank regulation, as noted by WSJ, would return approximately $100 Bn excess capital to investors and shareholders and improve bank ROE.
The credit risk retention rules required under the Dodd-Frank Act became effective for all asset types on December 24th last year.
The final rule stipulates a 5% risk retention requirement to align the interests of investors with the sponsors of securitization transactions by requiring “skin in the game” via:
- a 5% interest in each class of the securitization (an “eligible vertical interest,” or “EVI”);
- a 5% of the fair value of the securitization in a first loss, subordinate tranche (an “eligible horizontal residual interest,” or “EHRI”);
- any combination of an EVI and an EHRI such that the sum of the fair value of the EHRI and the percentage of the EVI are equal to at least 5 percent of the securitization (a “L-shaped” retention interest).
The transfer and hedging restrictions for RMBS are different from those of non-RMBS securitization. For RMBS, they expire on or after the date that is (1) the latest of (a) five years after the date of the closing of the securitization or (b) the date on which the total unpaid principal balance (UPB) of the securitized assets is reduced to 25 percent of the original UPB of the transaction, but (2) in any event no later than seven years after the date of the closing of the securitization.
For all ABS deals other than RMBS, the transfer and hedging restrictions expire on or after the date that is the latest of (1) the date on which the total UPB of the securitized assets that collateralize the securitization is reduced to 33 percent of the original UPB at deal close, (2) the date on which the total UPB under the ABS interests issued in the securitization is reduced to 33 percent of the original UPB at deal closing, or (3) two years after the date of the closing of the securitization transaction.
The risk retention rule also contains an exemption for securitizations that consist solely of qualifying high-quality loans that satisfied specific underwriting criteria.
We highlight two important benefits from issuer’s perspective for QM designation. Issuers are 1) insulated from claims and defenses by borrowers due to safe harbor, and 2) are not required to retain 5% of capital structure per the credit risk retention rule. For example, all loans in SFPMT 2016-1 collateral pool are designated as QM and SFPMT 2016-1 is exempted from the risk retention rule.
Marketplace lending ABS is a relatively young segment in the securitization space. The three most prominent options are: majority owned affiliate (MOA), capitalized manager vehicle (CMV) and capitalized majority-owned affiliate (C-MOA).
Majority owned affiliate (MOA) – CLO managers raise equity capital from 3rd party investors through the creation of MOA to finance the purchase of risk retention securities. MOA holds the retention interest, but the securitizers control the major economic decisions of the MOA in relation to the retention interest and any other assets owned by the MOA. Control is measured by ownership of 50% or more of the equity of an entity or ownership of any other controlling financial interest under GAAP.
Capitalized Manager Vehicle (CMV) – In this solution, instead of CLO Managers serving as asset managers, the CMV is the primary asset manager. The CMV then hires CLO Managers as sub‐advisors. The CMV receives management fees on retained interest. The key accounting consideration is ensuring the CMV is not consolidated by the CLO Manager.
Weekly Online Lending Snapshot – February 03, 2017 (Orchard), Rated: AAA
Interest in the space has been accelerating since the first of the year. Late last week it was reported that the American Banker’s Association is looking for an online lending platform to help its members expand their digital lending offerings, and it was reported that Citigroup Inc., has launched its own online lending offering which will make loans of up to $1 million available to small businesses. Also, in small business lending news, Credibility Capital announced this week that it successfully sold a pool of whole loans using Orchard’s software to share and affirm the data of a seasoned loan portfolio with its regional bank client.
Podcast 89: Mike Cagney of SoFi (Lend Academy), Rated: AAA
In many ways SoFi has become the leading company in all of fintech at least in this country. They raised $1 billion in Q3 of 2015, the largest equity round ever in our industry by a considerable margin. Since then they have continued to add new products, break records and execute flawlessly.
- How Mike explains what SoFi does today.
- The part of the business that Mike is most excited about.
- Where they are at in their student loan business today.
- Why their unsecured consumer loan product is very different to others in the market.
- The killer product they have in the real estate market.
- How SoFi views their wealth management product.
- Why they decided to move into life insurance.
- How Mike feels about the Superbowl ad they did in 2016.
- How they have been raising money recently.
- What is it about SoFi that makes their securitizations so successful.
- How they would handle a shutdown in the securitization market.
- Where SoFi is focusing their resources when it comes to tech.
- What SoFi customers have in common.
- The international plans for SoFi and their expansion to Australia.
- The future vision for SoFi and their place in financial services.
OnDeck Capital COO James Hobson to step down (Reuters), Rated: A
James Hobson, the chief operating officer of marketplace lender OnDeck Capital Inc, will resign from his role on March 15 to become chief executive of online insurance startup Attune, according to an OnDeck statement.
Jason Altieri, Former GC at Lending Club, Lands at Roofstock (Crowdfund Insider), Rated: A
Roofstock, an online marketplace that facilitates direct purchases of rental property, has announced the appointment of Jason Altieri as Chief Legal and Compliance Officer. Altieri was previously General Counsel at publicly traded marketplace lending platform Lending Club (NYSE:LC).
Altieri left Lending Club last October where, according to his LinkedIn profile, he remains an advisor.
Orchard Platform Predicts Super Bowl Outcome (Crowdfund Insider), Rated: B
The population of New England, at approximately 14.7 million is 1.45 times the population of Georgia, approximately 10.1 million. New total loan volume in the New England region has been proportionally somewhat higher since 2010; In 2016 through September, New England had 1.58 times the loan volume that Georgia does.
Parteger says that during 2016 borrowers from New England had higher incomes and FICO scores, with lower debt-to-income ratios. Borrowers in Georgia had one percent lower revolving credit utilization.
A larger percentage of borrowers in New England rent their home, a lower percentage have mortgages.
During 2016, both regions experienced similar sized loans. Interest rates were slightly higher in Georgia. Loans in New England were graded slightly higher but loans in Georgia had lower risk grades.
Using 2014 vintage loans, Pargeter says the Georgia has a slightly higher charge-off rate and a big higher average interest rate so overall returns are a bit better in Georgia. Falcons get the edge on this one.
Orchard says the Falcons will win!
Peer-to-peer lenders prevented from offering wholesale finance (This is Money), Rated: AAA
Peer-to-peer lenders are to be prevented from offering wholesale finance because it is considered too risky for private individuals.
But the City watchdog, the Financial Conduct Authority, is thought to fear this would mimic banking – but without the same protection for individuals or regulations for the firms involved.
LendInvest Responds to the UK Government’s Modern Industrial Strategy (Crowdfund Insider), Rated: A
Last week, UK Prime Minister Theresa May unveiled a modern Industrial Strategy proposal to help build on the country’s strengths and take on its weaknesses.
LendInvest’s team noted they plan to get behind four pillars to help kickstart the country’s productivity:
- Technology and innovation: LendInvest noted that the strategy makes a significant investment in research and development for nascent UK sectors, which includes an Industrial Strategy Challenge Fund.
- Infrastructure: The online lender shared that there were some commitments, including investments towards road, rail and digital infrastructure to enhance mobility and connectivity for citizens and businesses across the country.
- Developing skills: LendInvest stated it encouraged the government to invest in skills initiatives for small and medium enterprises (SMEs) property professionals to ensure that would-be property entrepreneurs are equipped with the tools to get projects off the ground.
- Supporting businesses to start and grow: The website that while the government has already established the Patient Capital Review, it also welcomes further funding from the British Business Bank and a commitment to helping the BBB in providing finance businesses outside of London and the South East. It also encourages the government to use the review into entrepreneur to better understand how to support property developers to grow their businesses.
Germany: Investment Crowdfunding Grew by 39% in 2016 (Crowdfund Insider), Rated: AAA
In a publication created by Crowdfunding.de, the report, entitled “Marktreport 2016: Crowdinvesting in Deutschland,” states that investment crowdfunding grew by 39% during 2016 reaching €63.8 million.
The sector was largely powered by a sharp increase in real estate crowdfunding that captured €40.3 million growing by 92.5% during the year. Platforms like Exporo, Zinsland, Zinsbuastein, Bergfürst and IFunded closed 48 real estate crowdfunding rounds in 2016. Exporo led the group with €21.4 million in funding.
Funding for SMEs and start-ups hit €18.8 million which is approximately at the same level of 2015. Companisto led this sector with just over 50% of funding or €9.4 million in total.
Wonga strikes £60m deal to sell European unit to Swedish suitor (Sky News), Rated: A
Sky News has learnt that Wonga will confirm that it has decided to offload BillPay, one of its most valuable units, to Klarna, a Swedish provider of e-commerce solutions.
Talks between Wonga and Klarna have been taking place for several months, although they had appeared to falter several weeks ago owing to a number of domestic issues faced by the Swedish purchaser.
The sale of BillPay will be the most significant international disposal undertaken by Wonga, which is striving to rebuild its business in the wake of a string of scandals and a regulatory crackdown in the UK.
Wonga’s losses have totalled nearly £120m in the last two years following a string of scandals and costs associated with cutting hundreds of jobs.
Seniors enjoy significant income boost from the sharing economy (News.com.au), Rated: AAA
New research by peer-to-peer lender RateSetter has found that 44 per cent of over-55s earn money through sharing economy services such as online marketplaces, ride sharing, renting out rooms to travellers and lending money via online platforms.
RateSetter’s research found that over-65s are the fastest growing group of spenders in the sharing economy, paying an average $82 a month, but younger generations aged below 44 remain the biggest spenders at more than $110 a month.
Online marketplaces such as eBay and Gumtree remain the most popular part of the sharing economy, with 54 per cent of people using them.
Company Slammed by Short Seller Over Deals Says More Coming (Bloomberg Markets), Rated: AAA
Credit China FinTech Holdings Ltd. is planning more investments as it aggressively expands beyond its original loans and lease-financing businesses into online payments and peer-to-peer lending.
The company, part of a consortium that offered to buy a stake in Ping An Securities Group Holdings Ltd. last month, is currently in talks with “multiple” financial-services companies based in Asia outside China, Chief Executive Officer Phang Yew Kiat said in an interview in Hong Kong on Wednesday.
The firm’s acquisition strategy — which is now focused outside China — has been driven by HK$4.3 billion ($554 million) of funds that it raised over the past three years, Phang said.
The acquisitions put Credit China onto the radar of short seller Anonymous Analytics, which expressed doubts over some of the investments in December, as it rated the company a “strong sell.” In a report, Anonymous alleged Credit China had engaged in “a number of questionable” investments, including the purchase of a stake in payment provider Shanghai Jifu, which the short seller said was linked to a “key individual” within Credit China.
About 480,000 investors involved with problematic P2P lenders by Jan (Global Times), Rated: A
Over the last three years, a growing number of investors have got involved with problematic P2P lending platforms, according to the report. The figure reached 478,000 by the end of January, accounting for 4.5 percent of P2P investors in China.
About 64 platforms reported problems or suspended their business in January, including three lenders whose managers disappeared, the report said.