Recession Talk and Global Easing; SoFi Rated Pass-Thru Innovation; Peer IQ’s Consumer Credit Index
at July 01, 2019Recession Talk and Global Easing; SoFi Rated Pass-Thru Innovation; Peer IQ’s Consumer Credit Index
Greetings,
Globally, central banks including ECB are taking steps to ease rates amidst concerns of a slowdown in growth.
A strong dollar, trade wars, and dampening animal spirits are playing out in a contracting US manufacturing sector. The slower growth creates a window of vulnerability to an economic shock or policy mistake.
This week, we dig into some of the recent US data. We also profile the first rated pass-thru security from SoFi – an industry first. Let’s dig in…
US Slowdown – Exhibit A

Source: PeerIQ, Goldman Sachs
US Slowdown – Exhibit B

Source: PeerIQ, ISM, Barclays Research

In FinTech financing news, Ocrolus, led by CEO Sam Bobley, successfully raised $24 million in their Series B led by Oak HC/FT. Ocrolus delivers financial analytics to customers by analyzing scanned copies of financial data. Their AI also has the capability to detect missing values in data and provides a first line of defense against fraud.
Also, Mortgage FinTech Blend continues its hot streak, raising $130 million dollars. This comes off the recent partnership with Salesforce and addition of Ann Mather, an executive who also serves on the boards of Netflix, Alphabet, and Airbnb. The mortgage FinTech sector continues to attract substantial VC dollars – Better, OpenDoor, Roostify, Roofstock, HouseCanary, Lenda, and Sindeo are other names to keep an eye on.
SoFi Pass Thru Security
SoFi this week secured a provisional A-rating from DBRS on a $200 MM pass-thru security consisting of student refi loans [ PSR and announcement ]. Notably, the structure is the first CUSIP that does not rely on over-collateralization or subordination to provide credit enhancement for investors. This is a promising innovation from the first FinTech to crack open the securitization market for student refi loans.
What made the deal work? In short, the base case losses for SoFi student loan refi pools are exceptionally low. The break-even stress case – the level at which investors experience principal at risk — is 4.2x base case losses. The stress multiple is sufficient per the ratings agency guidelines to justify an investment grade.
The ratings agency view is that, despite the longer duration (compared to PLs) and relatively high balances, losses would not exceed this multiple of base case losses (pegged at ~6.5%).
The transaction represents true innovation in the distribution of risk, and is a win for SoFi and for investors. We would expect other student loan refi originators to follow suit, and see this format take an increasing share of issuance going forward. Unsecured personal loans have higher loss rates than student loan refi – we do not expect this innovation to develop in that market anytime soon.

PeerIQ’s Consumer Credit Digest
PeerIQ’s Consumer Credit Digest allows users to track trends in each major asset class including Credit Availability, Credit Health, and Performance Analysis via an affordable monthly publication. The Digest is derived from TransUnion data.

Industry Update
- The Future of Housing Rises in Phoenix (WSJ, 6/19/2019) Fintech companies Opendoor, Zillow, and Offerpad disrupt housing industry using house hunting algorithms to “perfect programmatic house flipping”.
- Credit Karma Wants to Become Your Trusted Credit Adviser (Bloomberg, 6/21/2019) Credit informatics company has shifted strategy from favoring major card companies in its recommendations to leveling the playing field for smaller credit cards to emerge.
- Apple Expands Goldman Credit Card Test to Thousands of Retail Workers (Bloomberg, 6/19/2019) Apple teams up with Goldman Sachs to launch new physical credit card, currently beta testing with employees.
- Cross River gets onboarding system it coveted in fintech deal (American Banker, 6/24/2019) Jersey-based bank acquires Seed, small fintech focusing on providing financial web services for small business.
- Annual Home Price Gains Continue To Fall According To S&P CoreLogic Case-Shiller Index (PRnewswire 6/25/2019) Housing price increase ever-so-slightly decelerates, remains positive.
- Guild Mortgage launches refi option for Airbnb hosts (Housingwire, 6/24/2019) Fintech to help Airbnb hosts report money earned as qualifying income, allowing renters to qualify for refinancing.
- Japan’s Banks Pinched by Zero-Yield Experiment (WSJ, 6/26/2019) Japanese Bonds plunge below zero as a result of experiment and global economic uncertainty.
- ECB Seen Cutting Rates in September as Draghi Reloads Stimulus (Bloomberg, 6/27/2019) Also plagued with economic uncertainty, the European Central Bank signals a rate cut for December.
Lighter Fare
- Hundreds Of ‘Extinct’ Creatures Found In Honduras’ ‘Lost City Of The Monkey God’ (All Things Interesting, 6/24/2019) – Scientists discover species of bats, moths, amphibians, and reptiles that were thought to be extinct while discovering a new species of fish
Labels: #sofi
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