More difficulties, it seems, for online lending marketplaces, as reports are emerging of parcels of consumer loans going bad faster than expected. As it turns out, good underwriting is harder to do than it seems from the outside — something that startups and bond underwriters are starting to learn the hard way.
At least four different sets of bonds are approaching “triggers” that will force lenders or underwriters to start paying down bonds early. Said triggers are brought on by delinquencies and defaults. Avant Inc. and its underwriters, for example, will have to starting repaying three of its asset-backed notes, according to a person with knowledge of the matter. That goes with data that two of Avant’s securities breached triggers for the first time ever this month. CircleBack Lending is also looking at some triggers going off soon, according to Morgan Stanley.
The four loan securities — taken together — were valued at about $500 million when they were sold last year.
Neither alt lender has any comment to offer at this time.
And though these are the brightest flashing signs, they aren’t the only ones. LendingClub Corp. raised interest rates and tightened its standards for at least the second time last month — a response to higher delinquencies rates.
“There was a rush to grow,” said Bryan Sullivan, Chief Financial Officer of loanDepot, a mortgage company that last year began making unsecured loans to consumers online. He was speaking generally about the industry, although loanDepot’s own loan losses on a bond in September broke through the ceilings that had been set by underwriters at Jefferies Group.
That rush, however, seems to be cooling off — as loan-backed securities are not quite going the distance that early boosters thought they would — and borrowers are turning out to be less reliable than initial data models predicted.