The securitization world may be buzzing over P2P but it’s still only one lender, Social Finance, that has issued rated deals.
What helped get the online lender those ratings, at least in part, were precisely the features that differentiate it from many others in the broader P2P sector: the fact that it originates its own loans and has shifted away from retail investors and towards institutional investors in its funding.
Online business loan provider Ondeck has also issued a rated deal but it was never funded by retail investors in a P2P fashion.
“When we think about SoFi we don’t think about them as P2P,” said Chuck Weilamann, head of U.S. ABS in the global structured finance group at DBRS, which has rated both of the lender’s two securitizations.
SoFi did not make an official available for comment as of press time.
Weilamann pointed out that other P2P lenders such as Lending Club and Prosper operate fully as platforms. “The intent is never to aggregate loans,” he said. “Technically it’s originated by a bank, they hold it briefly and then they auction it off. It’s an originate-to-distribute model.”
For both LendingClub and Prosper, the originator is the aptly-named WebBank, an FDIC-insured bank that started up in 1997 and is headquartered in Salt Lake City
The distinction with a self-originating P2P lender matters, Weilamann said.
“We’re concerned with an alignment of interest,” he added, saying that SoFi provides the reps and warranties for the collateral in its deal. “It’s a traditional originator, seller and holder of the residual interest.”
P2P lenders that are pure platforms would need to address this issue in order to make their deals ratable.
In an April report on the P2P lending about the hurdles the industry would need to clear before getting a rating, Standard & Poor’s suggested there was more of an alignment in deals backed by traditional loans — such as credit cards — that were originated, managed, and serviced by a single institutions.
The agency added that approach promotes “more consistent underwriting and collateral performance, particularly in stressful economic conditions.”
S&P went on to rate SoFi’s second securitization for $251 million in July. As of press time the P2P lender is in the market with a third deal for $303 million.
SoFi’s transactions have a third-party servicer: Tru Student, a unit of the nonprofit Student Assistance Foundation of Montana.
While Tru Student has limited history servicing private student loans, the back-up servicer, Pennsylvania Higher Education Assistance Agency, has experience in this area. The primary servicing in the current transaction is eventually going to be transferred to the Higher Education Loan Authority of the State of Missouri.
S&P analyst did not return requests for comment as of press time.
Players expect that deals backed by collateral originated through pure P2P platforms will get done by investors that buy and securitize those loans.
That’s the approach taken by the only other issuer of asset-backeds in this sector: Eaglewood Capital Management. The investor has purchased Lending Club loans and then bundled them into two unrated deals totaling $175 million.
Lending Club is a fast-growing platform, with origination climbing fast in every quarter since its inception seven years ago. Loans facilitated on the platform crossed the $1 billion threshold for the first time in 2Q2014.
Eaglewood did not make an official available for comment.
Maria Luisa de Gaetano, team leader of structured finance at Moody’s, pointed out that the purchaser of P2P loans is going have its own set of standards based on a combination of FICO scores, payment history, and any number of additional data sets.
“It’s not like they’re buying a black box,” she said, adding they can even come to the table to help craft those origination standards.
This could also help align interest in the underwriting of collateral that makes its way into a rated securitization.
Another SoFi trait that distinguishes from some others in the sector — and which S&P cited as a strength — is that funding now comes primarily from institutional investors and banks, a decided shift away from its original intention to tap mostly individual investors, in particular alumni from the schools where it was targeting active students and recent graduates.
The agency went on to give specific examples of the financing pledges made by the large investors: “As of May 31, 2014, SoFi had $230 million of forward loan participation commitments from depositary institutions and $241 million of borrowing capacity from its four warehouse lenders.”