Fitch: Confidence in Marketplace Lending ABS Gets Hammered

Risk MoneyThe marketplace lending industry is getting hammered of late.  The after-shock reverberations following the resignation of Lending Club co-founder and CEO Renaud Laplanche continues to be a hot topic of conversation. Today, Fitch has come out with a report stating “investor confidence in marketplace lending ABS “tumbled” this past week.  Fitch states this most recent news adds to challenges for the young industry.

Fitch also states it currently rates two ABS deals backed by Prosper loans. Fitch says performance of these securities have been within expectations AND they do not expect the ratings to suffer at all. But then Fitch points to “heightened scrutiny from investors and regulators” as they involve Lending Club.  According to Fitch, investor confidence is vital at this critical stage to establish long term, stable funding sources.

Fitch also says marketplace lending platforms have employed underwriting standards quite similar to traditional lenders. Their concern remains with the “rigor” of the model during a full credit cycle. Fitch states that recent capital markets volatility have not helped the situation. Sponsors and issuers have “utilized back-up servicers to mitigate servicer operational risks in the deals” they rate.

Marketplace Lending 2There is also the regulatory drums that have been pounding inside the beltway. Fitch mentions the Treasury Report that identified specific risks including the concern that “although data-driven algorithms can lower the cost of underwriting and reduce costs, they can also produce a variety of credit outcomes and raise the risk of fair lending violations.”

Fitch believes established marketplace lending platforms have an “uphill battle” to win back investor confidence. They are of the opinion that ABS may be able to overcome headline risk if they can navigate the current choppy waters.


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