The online or digital lending sector has been criticized for its inability to scale effectively or to be able to endure challenging environments like those created due to COVID-19. However, it now appears that overall credit quality, through online lenders, has performed better than some may have expected.
Market data from the past month reveals that the number or percentage of borrowers in the US who made payments on time kept rising throughout August 2020. This trend continued even after the special unemployment benefits from the federal government were no longer being offered.
Vadim Verkhoglyad, an analyst working at data company dv01, claimed earlier this month that there was “no material drop-off” in loan performance after unemployment benefits were no longer being offered. Verkhoglyad’s comments came after dvo1 released report on the performance of over 2.3 million loans from across the American digital lending sector.
As first reported by American Banker, there were about 5% of US borrowers, before COVID, that were not being able to pay their online loans on time. This percentage grew to over 16% in May of this year, as many borrowers began asking for forbearance. However, these requests dropped to below 9% during August 2020.
But credit performance in the US digital lending space might continue to get worse, especially if the unemployment rate keeps going up, and also if the Congress is unable to get more stimulus payments approved.
It’s worth noting that American consumers are now beginning to deleverage instead of borrowing more capital to maintain consumption, according to Todd Baker from Columbia University’s Richman Center for Business, Law and Public Policy.
Like in other parts of the world such as India, consumer spending in the US has dropped, which may have made it easier for people to pay off their existing loans. The US personal savings rate has stayed at around 15% since April of this year, which is notably the first time this has happened in 50 years.
Loan issuance in the US digital lending sector increased by 21% during the months of June and July 2020, however, it’s down about 56% overall, when compared to the same period in 2019, according to the report from dv01.
dv01, which offers a data platform for online lending, has now received a significant boost as SoFi is uploading $19 billion worth of SoFi student loan securitization to the platform.
According to a note from the company, the new partnership is a “big step forward” regarding lending transparency for institutional investors buying asset-backed securities (ABS). dv01 standardizes any data received and offers an aggregate perspective of the growing online lending sector – an important aspect of SoFi’s business.
According to dv01, it is responsible for ensuring data integrity throughout the entire lifecycle of the underlying collateral, as well as making data easily accessible to any necessary parties, at no additional charge, as services are paid for through the securitization waterfall.
As covered in April 2020, dv01 had revealed at that time that the total percentage of payment impaired loans showed a dramatic increase in payment impairment since March 18, 2020, which had come after the COVID-19 outbreak.