As lenders increasingly look to fintech companies to facilitate loan origination, one analyst warned these partnerships can be a double-edged sword.
“If [lenders] are leveraging some fintech platform that claims to have built the better mousetrap in terms of their underwriting platform but haven’t been around through credit cycles and haven’t proven that out, to me, that creates additional risk,” Fitch Ratings Agency’s Senior Director of Financial Institutions, Michael Taiano, told AFN.
Taiano was referring to loan originators with limited performance histories.
“We don’t want to get into a situation like we had in the mortgage space in 2008 and 2009 where you had a lot of these originate-and-sell models,” Taiano said, “because ultimately those originators are not holding onto the credit risk.” When banks and lenders partner with fintech companies, “the ultimate owner of the credit and the originator are kind of disconnected,” Taiano said.
If this is the case, the originator may be more willing to take on riskier borrowers, he said. While these fintechs may create “an avenue for banks and such to grow, at the end of the day it’s not their own platform that’s been proven over time,” he added.
