FREED ABS Trust 2021-3FP is bringing $230 million in asset-backed securities to market, in a deal secured by unsecured consumer loans extended by Freedom Financial Network, LLC, which operates through several entities.
One of those entities is Freedom Debt Relief, which negotiates on behalf of consumers to settle consumer debt with creditors. On average, FDR reduces debt on behalf of its customers by 45%, according to details about the notes from DBRS Morningstar.
The current transaction will only include loans from the FreedomPlus loan program, which Freedom Financial Asset Management, LLC, (FFAM) markets to potential customers through partners and mail offerings, according to DBRS. FreedomPlus offers consumer loans to prime and subprime borrowers, which it calls F+ loans.
Cross River Bank (CRB) and MetaBank National Association originated the loans in the transaction, according to DBRS.
In many states, marketplace operators such as FFAM are not licensed to issue loans, so they rely on bank partnerships to originate the loans. Such banks are allowed to issue loans and export their own states’ legal usury limits to customers outside their states, following a Supreme Court ruling in 1980.
FREED ABS Trust 2021-3FP includes several forms of credit enhancement, including a reserve fund amounting to about 1% of the cutoff date pool balance; plus overcollateralization in the amount of 15% of the cutoff date pool balance; and subordination.
DBRS considered several aspects of the underlying loans in the pool to make its preliminary rating decision. All of the loans originated by CRB and MetaBank charge rates within their usury limits of 30.0% and 36.0%, respectively, for New Jersey and South Dakota, respectively.
Further, the loans have a weighted average APR of 20.0%, DBRS said. The pool excludes loans to borrowers in states where active legislation is challenging the exportation of state usury laws related to true lender issues. Loans to borrowers in Colorado, West Virginia and Maine are excluded from the pool, as are loans to borrowers in the U.S. Court of Appeals for the 2nd Circuit, which includes New York Connecticut and Vermont, are also excluded, due to active legislation.
FFAM also operates with a loan sale agreement that requires FFAM to repurchase any loan that has a breach of representation and warranty that materially affects the interests of the purchaser, DBRS said.
DBRS expects to assign ‘AA’ ratings to the $113.8 million class A notes and the $52.8 million class B notes, plus an ‘A’ rating to the $26.4 million class C notes.
