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November 18, 2016  

SFIG Offers Marketplace-Loan Guidelines

The Structured Finance Industry Group is developing a set of recommended practices for issuers of bonds backed by marketplace-originated personal loans.

The trade group plans to release the guidelines in three phases, with the first to be unveiled on Dec. 1 at Information Management Network’s “Investors’ Conference on Marketplace Lending” in New York. The initial component will deal in disclosures of loan-by-loan data to bond buyers.

The subsequent “best-practices” recommendations would cover how asset pools should be assembled and ongoing disclosures of loan performance. The guidelines mark the first public pronouncement from a committee of originators, bankers, bond buyers and vendors that SFIG assembled in July 2015 to study the marketplace-lending industry.

When it comes to loan-by-loan data, SFIG’s recommendations likely will resemble those that issuers of bonds backed by auto loans and mortgages must follow under the SEC’s Regulation AB. The information would include loan terms, sizes, borrower income and credit ratings.

While it already is common for issuers to release those details, investors said a more standardized approach would be helpful. “You’re not always getting a full-blown data set,” one buysider said, noting that current disclosures vary from deal to deal.

SFIG’s initiative follows a difficult stretch for the once-booming marketplace-loan industry, including lessened ability to tap capital-markets funding. To that end, the project is aimed, in part, at easing bond buyers while perhaps keeping regulators at bay. “We wanted to be supportive of the growth of the sector, which can provide low-cost funding to the consumer, but at the same time enable it to grow in a responsible fashion,” SFIG executive director Richard Johns said. “In other words, we would not want to see it over-regulated, and see self-regulation as a way to support innovation while protecting both this market and the overall securitization market from the risk of any disruption event.”

The U.S. Treasury Department and Consumer Financial Protection Bureau, for example, have been considering whether specific controls for marketplace loans are necessary — with both agencies dispatching representatives to the conference. Among the ideas they have discussed are bank charters for originators.

IMN’s conference, currently in its second year, is expected to draw about 500 people to the Marriott New York Downtown hotel. That’s down from about 650 last year, reflecting the sector’s recent hiccups.

Those troubles have included weaker-than-expected loan performance, threats of bond downgrades from Moody’s and questions about loan enforceability. Originator Lending Club also was hit with a data-tampering scandal this year, as the firm’s chief competitor, Prosper Marketplace, conducted broad layoffs. Some lenders have gone out of business. “The frothiness has come down a bit, but there is a strong argument for being at the conference,” IMN executive Jade Friedensohn said. “There is value to hear from survivors about what they’ve gone through and come out stronger. Are you focusing harder on underwriting? Who is doing your servicing? That has become a hot topic.”

Speakers at the conference will include: Antonio Weiss, counselor to Treasury Secretary Jacob Lew; Social Finance chief executive Mike Cagney; Prosper president Ron Suber; Marlette Funding chief executive Jeffrey Meiler; Lending Club chief executive Scott Sanborn; and Deutsche Bank director Randal Johnson.