Marketplace lending needs more rated securitizations and access to a secondary market in order to evolve into a full-fledge asset class. Investors looking to “buy just whole loans” will still be around, however, not at such high volumes as before, Ron Suber, president of Prosper Marketplace said last week at Lendit 2016.
“We’re going to need other doors and windows, other arrangements with other fiduciaries,” he said. ““We need a secondary market. We need price discovery, we need liquidity, we must make this happen.”
Securitization for Avant Inc., which announced last month it would now offer auto refinancing as part of the its product offering, is an important part of the company’s on-balance sheet strategy, Avant’s Chief Executive Adam Hughes said. Avant uses a hybrid business model, funding half of its loans through institutional capital and the other half through its own balance sheet.
“Having the combination gives us the flexibility in terms of when the market gets choppy, we can put more loans on the balance sheet,” he said. “And when the market is less choppy, we can sell more loans to institutions.”
However marketplace lending is uncharted territory for the ratings agencies, he said.“It’s a new asset class, so it’s about education, not only for the customer, but also for the rating agencies,” Hughes said. “We’re saying, ‘here’s what we’re doing, here is the product, here is how we’re servicing it,’ and we’re starting to see more ratings come down from those agencies.”
Avant issued its second rated securitization yesterday, a $300.7 million deal backed by unsecured personal loans. The company plans to extend $100 million in auto refinancing by yearend, he said.