Foreshadowing the inevitability for all forms of finance moving online, Moody’s has published a report stating the Residential Mortgage Backed Securities (RMBS) will soon be issued by marketplace lending platforms. They also believe that current regulatory and securitization frameworks will reduce additional risk with RMBS issued by marketplace lending platform.
Moody’s points to their previous statements that a lack of historical performance adds risk for marketplace lenders in general. Regarding mortgages, Moody’s states;
“New to the mortgage industry, marketplace lenders’ innovative methods and untested lending approaches increase the uncertainty in the quality and future performance of the mortgage loans they originate relative to traditional mortgage collateral from seasoned originators. While marketplace lenders may develop new, proprietary technologies to increase efficiency and transparency in loan origination, they may lack the operational robustness to ensure the production quality of the mortgage loans. Given their inexperience with an economic down cycle, marketplace lenders’ business models have not been stress tested. As such, marketplace lenders face the challenge of building strong credit management operations that monitor and test their underwriting practices and product offerings.”
Balancing out this opinion, Moody’s says there is a difference between consumer lending and mortgage loans. The existing laws will demand a higher degree of compliance compelling new online entrants to “make significant capital and knowledge investment.” These standards will help maintain online lending quality in the RMBS space.
The Moody’s report is available here.
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