Peer-to-peer loans might seem like a fringe asset class. After all, this is still a tiny market, and there have only been one or two securitizations to date. But after some early losses and regulatory hiccups, Prosper, Lending Club and other online lenders have gotten their acts together. They are growing fast, and in the process taking some of banks’ best customers. As Glen Fest reports, the primary driver of loan activity at these two market leaders is credit card debt consolidation.
So while there may not be much securitization of P2P loans — yet — online lenders are taking assets that might otherwise be used as collateral for asset-backed securities.
Online lenders are also starting to make loans to small businesses that either can’t get credit from banks or find the terms of asset-based or factor lending too onerous. And traditional lenders are paying attention. The Loan Syndications and Trading Association devoted a session of its annual conference in October of last year to P2P lending.
Final rules implementing the Volcker Rule have been three years in the making, but there were still some surprises. While most types of asset-backed securities avoided being lumped together with hedge funds and private equity as off limits for banks, deals backed by securities, as opposed to loans, were not so lucky. That means banks may have to unload their significant holdings of collateralized loan obligations backed by trust preferred securities as well as collateralized loan obligations with any bond holdings. John Hintze explains that rules implementing trading restrictions will negatively impact on the securitization market by reducing liquidity.
Speaking of liquidity, another story by John checks back on the Financial Industry Regulatory Authority’s proposal to disseminate secondary market pricing data on asset-backed securities. It received just one comment letter, from the Securities Industry and Financial Markets Association, which is concerned that increased transparency will lead to decreased, not increased, liquidity.
Another regulation on the horizon, risk retention, doesn’t seem to be having much impact on CLOs. Despite protests that smaller CLO managers would not be able to hold on to 5% of their deals, new entrants continue to enter the market. As Carol Clouse writes, this is expected to continue in 2014.
We also have to stories on the mortgage market. Felipe Ossa writes that, despite concerns about deteriorating underwriting, commercial mortgage bonds appear to be headed for a banner year. Prospects for private-label residential mortgage securitization are not so good. Kate Berry of sister publication American Banker looks at the likelihood that a hike in the guarantee fees charged by Fannie Mae and Freddie Mac will attract more private capital to the mortgage market.