Banks Aggressively Push Peer-to-Peer Loans

Bidding for peer-to-peer loans has become highly competitive, as small banks have joined fast-money and retail investors searching online marketplaces for the strongest and highest-yielding credits, according to American Banker.

One crowd-funded mortgage source, RealtyMogul, said it is selling whole loans to banks at between 3 and 4 percent, a fraction of the 12 percent rate range that investors expect.

Capital One Financial, BMC Bancshares in Dallas and Congressional Bank in Bethesda, Md., are among banks who now refer customers or purchase outright whole loans made by online-marketplace operators such as Prosper Marketplace and LendingClub. The peer-funded loans help diversify the banks’ balance sheets.

Unfortunately for the newly interested banks, only a limited number of high-quality peer-to-peer loans are available. Standard & Poor’s estimated in March that only $5 billion in loans originated from Prosper and LendingClub — a limited pool of assets that banks will now have to fight investors to acquire.

“As a bank, there are only a few asset classes we are allowed to own. This is one,” said Jonathan Morris, president of BMC Bankshares. “The other option is government bonds — not really exciting. As the rate curve goes back to traditional norms, hedge funds have tons of options, but banks are in the loan world.”

That means partnerships with peer lenders make a lot of sense, according to Renaud Laplanche, CEO of LendingClub. “Bank participation with peer lenders combines low operation costs of marketplaces with low costs of capital at banks,” Laplanche said.