dv01 has recently published another report tracking the impact of COVID-19 on the online lending marketplace.
dv01 is a top data aggregator tracking the online lending industry. dv01 connects directly with the largest online lenders in the consumer world to, normalizing loan data, providing observations unavailable anywhere else and thus has unique perspective on the online lending industry – one that has been challenged by the ongoing Coronavirus health crisis. As the health issue began to impact the economy dv01 commenced periodic reports tracking the impact of the virus on this sector of Fintech
According to this most recent report, the online lending market appears to be improving even as the Coronavirus lingers. The researchers state:
“Total [loan] impairments continued their decline throughout the month of May. After the normal seasonal spike at the start of June, impairments have continued their decline and are approaching mid-April levels, even as unemployment remains high with millions of new weekly jobless claims. For the second straight month, new impairments are below historical levels and are below levels seen since 2019.”
Many, if not all, online lenders have allowed borrowers to skip payments This is a move that is clearly appreciated by these borrowers but also boosts the probability of repayment. While investors have been impacted, it appears that most understand the severity of the crisis and the need adjust expectations until COVID-19 moves on.
Regarding delinquencies, dv01 has this to say:
“Total delinquencies continue to fall, hitting another multi-year low at the end of May, and new delinquency rates remain below historical levels. There was a normal seasonal increase at the beginning of June, which was similar to the increase seen in May, and both months were well below historical averages. Continued low delinquency rates mean near-term losses remain less of a consideration for stakeholders as opposed to understanding post-modification borrower payment behavior.”
Regarding repayment rates on COVID-19 modified loans, encouragingly these continue to increase. dv01 reports that a third of these loans having resumed payments and 45% percent of modified loans requested in March have received payment.
So the market appears to improving, which is good news for all.
Regarding loan originations, dv01 reports more dismal numbers. As one would expect, originations have declines as has been widely reported.
dv01 states that May issuance volume fell 13% month over month and was down 67% year over year – a significant decline. The number of loans fell less drastically from April to May – down only 6%, but issuers also decreased average lending amounts as part of credit tightening. FICO scores have been rising as platforms gird for the changing economic environment. The tighter credit is highlighted by the data that top grade loans increased (12%) month over month and now represents over 75% of new originations.
The report makes a strong defense for the online lending industry overall stating:
“The continued issuance of new loans throughout the COVID-19 pandemic nullifies another concern wary participants have expressed about the resilience of online lenders. Similar to speculation that online loans may underperform in a downturn—which dv01 has shown to be unfounded nearly two months into an economic downturn worse than that of 2008—there were theories that investors would exit en masse and issuers would be unable to originate new loans. Yet new loans continue to be made and purchased, further illustrating the viability of the marketplace issuance model.”
Let’s see what the next few months bring.