Social Finance’s first “peer-to-peer” lending securitization deal, SoFi Professional Loan Program 2013-A, has been assigned a preliminary A’ ratings by DBRS.
SoFi, as the firm is known, is a nonbank lender whose borrowers are either enrolled in, or have graduated, from business, law, medical and other professional schools.
The A’ rating is reflective of SoFi’s “lack of history as an issuer” in the securitization space, said Nino Fanlo CFO of Social Finance.
But Fanlo thinks that the ratings will get better and eventually reach the AAA’ level because of the stellar credit quality underlying the loans in SoFi’s private student loan securitizations. The issuer has plans to do up to four student loan deals of this type in 2014. “We are already working to get the first one done at the end of the first quarter or early second,” said Fanlo.
SoFi’s 2013-A deal will offer $151.8 million in senior notes and $20 million in equity, which will likely be placed with SoFi's alumni that provide financing for student loans under the issuer's peer-to-peer lending model, according to the San Francisco-based company.
Over 90% of the borrowers in the loan pool of the issuer’s first deal are in full repayment compared to a traditional private student loan deal, which has approximately 30% of the securitized loans in full repayment.
SoFi’s deal is backed by loans originated through its “refinance” and “in-school” loan programs. The borrowers that are included in the securitized pool have already obtained employment; have a weighted average borrower income of $124,000 and have unblemished credit scores with FICOs of 753, explained Fanlo.
“We had to show the rating agency that the deal was really comparable to high quality credit cards or auto transactions,” said Fanlo.
The student loans that are securitized, are underwritten on an “ability to pay” basis. The lender partners with Cology—a provider of end-to-end private student loan origination and repayment servicing solutions for lenders—for the operation of its “in-school” underwriting platform.
In Sept. 2013, SoFi implemented risk-based pricing instead of flat-rate pricing for its refinancing program. Fanlo said that the underwriting process for these loans consider the borrower’s ability-to-repay and looks at the borrower’s free cash flow after expenses. Income is verified for 100% of the applicants.
Fanlo said that, crucially, the company offers community programs including its “career development services” that helps borrowers that have lost jobs, back to employment.
But there is no overlooking the fact that the lender has less than three years of operating history and performance history as an originator of student loans.
DBRS noted in its presale report “that the lack of origination history meant SoFi was not able to offer typical performance data for determination of base case cumulative default rate.”
The issuer has also contracted Tru Student, a relative inexperienced private student loans servicer (historically the company focuses on FFLEP loans), to service its private student loans.
However the deal will include the Pennsylvania Higher Education Assistance Agency as a back-up servicer. DBRS said in the presale report that PHEAA “has extensive experience in servicing private student loans”; servicing approximately $15.1 billion of private student loans