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SoFi consumer loan ABS trending toward shorter-term collateral

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SoFi Lending Corp. continued its preference for shorter-termed loans in the fourth unsecured consumer loan ABS offering of 2019.

The $465 million SoFi Consumer Loan Program 2019-4 Trust is preparing to come to market with a deal that is maintaining an upward trend of free cash flow, according to a summary of provisional ratings from Morningstar Inc.’s DBRS.

SoFi offers the ABS market four classes of investment-grade bonds. Class A notes claimed triple-A ratings from DBRS, Kroll Bond Rating Agency and S&P Global; class B obtained double-A from both DBRS and S&P, and double-A-plus from Kroll; class C earned single-A ratings from all three agencies; and class D received triple B from DBRS and a triple-B-plus from KBRA. S&P did not rate the fourth tranche, according to rating agency documents.

The deal has a structural feature that requires the notes to begin a so-called turbo principal amortization if they breach certain performance parameters, according to presale reports. SoFi, which underwrites student refinancing, mortgage and consumer loans, implemented a new custom scoring model to help it more accurately assess and rank the risk of severe losses and delinquencies, according to DBRS.

Changes in the mix of underlying loans lowered the expected loss ratio by 30 basis points, and excess spread increased 0.16%, according to Kroll. Compared to SCLP 2019-3, the collateral in 2019-4 had a slightly higher weighted average FICO score of 756, up from 755. The collateral also showed a weighted average free cash flow (FCF) of $5,760, up from about $5,600 on SCLP 2019-2, according to Kroll.

The terms of the underlying loans are also trending shorter, as 2019-4 has a higher percentage of 24- and 36-month loans and fewer loans in the 72- to 84-month range, according to S&P's analysis. This results in a weighted average base-case default rate of 7.5 percent, down from 8.0 percent, for the 2019-3 pool.

SoFi has several other attractive features. For one, fixed-rate unsecured consumer loans collateralize 98% of the pool. Variable-rate loans comprise the rest, at 2%, according to DBRS. That, however, was an increase from the 1.25% of variable-rate loans present in the SCLP 2019-3 deal, according to Kroll.

The lender services all of the underlying loans in house, according to rating agencies. Also, SoFi verifies income on all obligors who borrow more than $20,000 and conducts random employment verification through an authorized representative of the applicant’s employer, according to Kroll.

The terms of the underlying loans are also trending shorter, according to presale reports. This issuance has more loans with terms of 24 months, 48 months and 60 months, and fewer 36- and 84-month loans, according to Kroll.

The borrowers associated with the collateralized loans have a weighted average FICO score of 756; a weighted average borrower income of $156,226; and a weighted average monthly free cash flow after expenses of $5,760, up from about $5,600 on SCLP 2019-2, according to Kroll.

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