November 11, 2014

P2P and internet loan marketplace pricing on the rise

The P2P and internet loan marketplace has become increasingly popular in recent years, and a new analysis suggests bidding activity and pricing for these loans could be at its most competitive yet.

One recent report in American Banker noted that not only is the number of institutions that take part in the peer-to-peer marketplace growing, but the types of organizations involved are changing. Opportunistic money and retail investors are continuing to enter the market, however, even small banks are now taking part.

The rise in popularity of the loans generated by crowdfunding sites and internet marketplaces has had a profound effect on loan sales. For example, investors initially expected the yields of whole loans to be somewhere around 12 percent. Now, thanks to increased demand for these loans, yields have fallen to below 5 percent, the news source noted.

Jilliene Helman, chief executive at real estate lending firm RealtyMogul, stated her firm has been selling whole loans for as low as 3 percent yields.

"Real estate loans have the potential to grow faster than consumer and small-business peer lending," she said, according to American Banker. "As banks get involved, they can hold the collateral for a strong investment."

As the P2P marketplaces gain more acceptance in the market, banks are generating agreements to refer customers or buy whole loans from These P2P and online markets like LendingClub, which they see as a new opportunity to expand their balance sheets.

What issues remain?
According to American Banker, many members of the financial services industry have expressed their concern over how well the peer-to-peer bidding strategies will hold up in worse economic times.

Considering the market hasn't yet gone through a full credit cycle, no one knows for sure how the industry will react when it does. One of the biggest questions surrounds which type of lender - banks or peer funders - would be forced to tighten credit standards first.

Ravi Subbaraya, TD Bank's senior vice president, pointed out that this may actually depend more on the institution borrowed from than the borrower.

"A super-prime borrower who drops in credit score for a banker is only going to drop even more for peer lenders down the credit line. At that point your investor flees," Subbaraya explained, according to the media outlet. "Peer lending is like equity investing. In bad times, you won't get your money back." 

According to Forbes, the two largest peer-to-peer lending platforms - LendingClub and Prosper - have originated more than $6 billion worth of loans in less than a decade.

For more information on the strategies to access loans originated in the P2P marketplace and other loan sale platforms, speak with a loan sale advisor at Garnet Capital Advisors today.