Marketplace lenders and the funds pooling their loans jumped out of the gates in January with a slew of new activity to keep investors busy.
The San Francisco-based lender Social Finance, which is planning a loan-production spree before going public, has set a new $1 billion mortgage-origination target for the year, as hopes for stronger home loan demand pick up nationwide.
The company aims to originate $1 billion in residential home loans, including nonqualified mortgages, by the end of 2015, SoFi capital markets head Paul Fielding said in an interview Monday.
SoFi Chief Executive Mike Cagney told American Banker last month that it was planning a larger initial public offering than the $200 million to $250 million it initially targeted, and that it intends to originate between $250 million and $500 million in mortgages before an IPO filing this year.
Banks are currently sending SoFi bids on a $25 million to $30 million pool of 30-year nonqualified residential mortgages that have yield-starved investors trampling over themselves to obtain. SoFi wanted to complete the sale this month, but underlying volatility in benchmark yields and a new asset-backed security offering delayed the non-QM transaction, Fielding said. Bids are "stabilized" and the firm is accepting calls from a range of investor types, with heavy interest from real estate investment trusts, their affiliates and banks, he said.
Investors are vying for exposure to these kinds of nontraditional loans, and in various formats.
A SoFi student loan securitization last week received around $900 million in orders for only $314 million in notes offered. The company refinanced $1.2 billion in student loans in 2014.
Another firm, Blue Elephant Capital Management, which sources collateral from Prosper Marketplace in San Francisco, plans in early February to sell an unrated $60 million securitization that will help Blue Elephant reduce its reliance on a credit line with Capital One, a Blue Elephant official said. The firm has also postponed the launch of a fifth peer-to-peer investment fund from Jan. 1 to April 1, in hopes of completing the bond sale, the person said.
Some investors have for several months expected BlackRock to sell a marketplace loan securitization as well, but they say it has not happened.
The small-business-marketplace lender Funding Circle, which makes loans in the U.S. and U.K., also has new investor commitments. It just signed a purchase agreement worth 132 pounds sterling ($200 million) with New York-based KLS Diversified Asset Management, according to Albert Periu, director of capital markets at Funding Circle.
Funding Circle expects $250 million in U.S. loan originations this year, and KLS has agreed to buy a percentage of multiple loan products made in the U.S. and the U.K., he said, without elaborating on the transaction terms.
The deal may be a big one. Other Funding Circle investors, on average, have committed $50 million to $100 million over a two-year period, Periu said.
A spokeswoman for Funding Circle said the company announced the agreement in the U.K., but not in the U.S; she did not reply when asked to elaborate on that decision. A senior structured-products investor at KLS in New York did not immediately respond to a request for comment on the agreement.
Funding Circle this week also launched a one-year loan with rates near 5.99%. That product is meant to attract higher-risk investors like hedge funds. Unlike some of its peers, Funding Circle has no credit lines and is not yet large enough to securitize its portfolio, Periu said.
LendingClub, the largest direct marketplace lender, which went public in December, has propelled SoFi and other alternative consumer lenders to seek public offering.
Some analysts believe the stock of San Francisco-based LendingClub is currently overvalued. Compass Point Research & Trading recommends a sell position and holds an $18 price target on the shares, which traded at $20.43 as of midafternoon Wednesday down from the $27.90 high that the stock hit in its first month of trading.
Analysts expect these lenders, which tend to specialize in relatively small credits, to loosen their underwriting over time to make more loans. Through the first nine months last year, LendingClub originated $1.1 billion in loans, which was more than 5 times more than in the same period a year earlier.
Prosper, the largest originator after LendingClub but just one-third its size, made $1.6 billion in loans last year. Prosper has sustained accelerated growth by increasing its average loan size by about 55% since January 2013. The company announced this week plans to buy medical loan provider American Healthcare Lending.