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SoFi's Loan Losses Pile Up as Even Wealthy Borrowers Default

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  • The White Coat Investor
    replied
    1. No. If you do use one, please go through my affiliate link:

    https://www.sofi.com/refer/101/739

    It doesn't cost you anymore but helps support the site and its missions.

    However, note that in general I am against personal loans and feel they can usually be avoided by cutting expenses or delaying purchases. That's why this link isn't more prominently displayed on the site.

    2. No.

    Leave a comment:


  • Unsalted
    replied
    *bump*

    My partner and I are shopping around for a personal loan and SoFi seems to be the best fit right now. Two questions:

    1) Is there any reason to avoid SoFi for personal loans?

    2) Have any of you had great experiences with personal loans from other companies that you would recommend?

    Leave a comment:


  • DMFA
    replied
    We just refi'd with SoFi for student loans since my wife no longer wants to commit to being a full-time non-profit employee for the next eight years.  Though I definitely imagine that refinancing student loans for professionals is probably a more reliable joint than initiating personal loans for the general population.  Seems like it could be as simple as high-risk, high-reward lending, à la junk bonds; you'd expect a higher default rate, right?
    For SoFi, the loans backing these bonds averaged more than $35,000, according to Kroll Bond Rating Agency, mature in as long as seven years, and don’t have any collateral, meaning defaults can result in relatively high losses for lenders. The borrowers had annual salaries averaging around $130,000, and most were prime credits. SoFi bundled these personal debts into bonds that it sold in 2015, and got credit ratings from Kroll for the notes last year. Credit Suisse Group AG was lead underwriter for the bonds.

    Laurel Toney, a SoFi spokeswoman, said the structure is broadly performing as the company expected and all investors in that bond remain active participants in the company’s securitization program. Candice Sun, a spokeswoman for Credit Suisse, declined to comment on the securities.

    That's a pretty low amount of loan compared to student loan refi and to physician incomes with whom they're refinancing.  Seems like a reasonable thing to package into a CDO, tbh.  Wonder if this will affect their rates or scrutiny of HIPs' student loans, or just their personal loan process.

    Also of note, that's the rating company founded by comedian Nick Kroll's dad...interesting pop culture tie-in there.

    Leave a comment:


  • Travis @ Student Loan Planner
    replied
    Another thing to consider is theoretically the investors in these notes are very sophisticated and would model prepayment risk. Mortgage bond investing has been subject to prepayment risk for a long time, and I imagine the folks buying most of these bonds are taking a look at that. At the end of the day if you have people just paying more than they have to for other reasons besides a rising interest rate environment, ie they just want to be out of debt, you're essentially getting a lower duration bond for a higher yield, which would be awesome bc then you can use that money to originate more loans.

    Leave a comment:


  • The White Coat Investor
    replied




    I can’t read your link, which gives me an error.

    In their pre IPO days, I thought SoFI was quite intriguing. Originally they only refinanced student loans for graduates of certain select, ‘elite’ colleges and universities. They had default data showing the default rate of, for instance, Harvard students, was 0.5% compared to 25% for all students. I was so intrigued I almost invested in them (alternative investment), but am now glad I didn’t. They’ve expanded beyond their original vision and that seems to have compromised their borrower quality.
    Click to expand...


    Yes, there was definitely an expansion. Similar issues at LC and Prosper. There simply wasn't enough "peer to peer" money to meet the demand for it. Think about the rate at which you would loan money to a new doc that might not be paid back for 5-15 years. Probably not 2-3%, right? It takes institutional money to get rates down as low as they are for borrowers.

    Leave a comment:


  • FIREshrink
    replied
    I can't read your link, which gives me an error.

    In their pre IPO days, I thought SoFI was quite intriguing. Originally they only refinanced student loans for graduates of certain select, 'elite' colleges and universities. They had default data showing the default rate of, for instance, Harvard students, was 0.5% compared to 25% for all students. I was so intrigued I almost invested in them (alternative investment), but am now glad I didn't. They've expanded beyond their original vision and that seems to have compromised their borrower quality.

    Leave a comment:


  • Craigy
    replied




    Remember that article is just talking about their personal loan product notes, not the student loan refinancing ones. Separate product.
    Click to expand...


    Glossed right over that!

     

    Leave a comment:


  • Complete_newbie
    replied
    Problem isn't that there is no competition. It's "validation" or lack there of in this situation of the online lending model / capturing life cycle of a borrower (student, home buyer, personal loan, wealth management...). The online lending in this way is "new" and big hedge funds funding notes on the backend. Banks were slow to roll out this aggressive marketing/online presence but they are waiting in the wings.

    For all the bravado of sofi being the "Anti-bank" (read Mike Cagney their ceos multiple interviews) they are heavily funded and rely on banks. It's all lip service.

    Their "innovation" is marketing and having an online application process. Clearly underwriting is not superior or else they wouldn't have triggers on default benchmarks.

    It's a new way of lending but nothing earth shattering.

    @craigy - had a not so great experience either at sofi either.

    Leave a comment:


  • The White Coat Investor
    replied
    Remember that article is just talking about their personal loan product notes, not the student loan refinancing ones. Separate product.

    Leave a comment:


  • Craigy
    replied




    As a borrower I don’t think I would worry so much about SoFi’s ability to withstand its other products.  If they fail, someone will still want your money.  At our house I refinanced with DRB and my wife refinanced with SoFi.  Out of the two companies the refinance was way easier with SoFi and their web interface has been substantially better than DRB’s.
    Click to expand...


    There is plenty of competition.  But if a good portion of their portfolio tanks, or this problem is not just local to SoFi, it becomes less lucrative, less attractive to investors, and then lenders would have to raise their rates to keep the product viable.  It shouldn't affect me or you since we're already refi'd, but it will become a less appealing path for current students, etc.

    DRB has drastically improved their application process and interface, but yeah their web interface for current borrowers is pretty antiquated.  Only real way to make an extra payment with DRB is to put a check in the mail, no idea how I would go about adjusting my payments, etc.  Looking forward to that change with Earnest.

    Leave a comment:


  • Dicast
    replied
    As a borrower I don't think I would worry so much about SoFi's ability to withstand its other products.  If they fail, someone will still want your money.  At our house I refinanced with DRB and my wife refinanced with SoFi.  Out of the two companies the refinance was way easier with SoFi and their web interface has been substantially better than DRB's.

    Leave a comment:


  • Craigy
    replied
    I have tried twice to refinance with SoFi and found the experience both times to be severely disappointing.  I am not sure what prompted me to try them the second time recently, perhaps that they are very persistent with their marketing and send me and my wife mailers every few months with their seemingly good rates.  Their customer service is virtually nil and they are very heavy on the bait-and-switch tactics.  So it's no surprise to me that they are having a hard time in particular.

    In addition to the defaults, one thing the article brings up is "early amortization" leading to losses for investors because of lost interest.  This has to be happening on the lender-customer side as well.  Most people I know who even consider refinancing their student loans are pretty financially savvy, fiscally responsible people.  And limiting your customer base initially to MDs and other high-income fields means that these savvy, frugal borrowers have the income to aggressively repay these loans, wiping away half or more of the interest that SoFi planned to collect when they originate the loan.

    I wonder though what this means for the student loan refi industry in general.  It would be a shame to see this go by the wayside but in theory their days might be numbered anyway depending on how high rates go.  Either way I won't have a need for the product in a couple few more years.

    I just refi'd with Earnest a couple months ago but the loan has yet to fund.  Apparently this is pretty typical, though they made out as if it was going to be a done deal within a matter of days.  Luckily I am now locked-into a fixed rate which I am even more happy about with this morning's news on expectations at the fed.  Meanwhile I'm still incurring interest on my lower variable rate loan, which may very well tick over the fixed rate loan by the time that one funds.

    Leave a comment:


  • The White Coat Investor
    replied
    I haven't found the notes particularly compelling as investments. But I think it's a great deal for the borrower!

    Bear in mind that SoFi is now quite a big financial company and while I am a firm backer of some of their products (student loan refinancing in particular but also the mortgage product) I'm less impressed with others (life insurance and these notes as investments) and still undecided on others (their roboadvisor like product, the personal loans.)

    But I love watching them innovate.

    Bear in mind that some products affect others. So if defaults on the personal loans are higher than expected, your borrowing rate for a personal loan is going to go up! Same thing if you're investing in the notes that come from securitizing the student loans.

    Leave a comment:


  • Complete_newbie
    replied
    Sofi is the same company that will manage your money (wealth management). Do you want them to (open question to all)

    Leave a comment:


  • SoFi's Loan Losses Pile Up as Even Wealthy Borrowers Default

    "Social Finance Inc.’s online borrowers are defaulting at higher rates than underwriters for one of its bond deals had expected, the latest sign that an industry that hoped to upend banking is now getting tripped up by bad loans.

    Losses on the company’s personal loans were high enough to breach key levels known as “triggers” last month on a bond deal issued in 2015 and backed by the loans, according to analysts at Morgan Stanley. If defaults keep rising, investors in bonds could end up missing out on expected interest payments."


    https://www.bloomberg.com/news/articles/2017-03-13/sofi-s-loan-losses-pile-up-as-even-wealthy-borrowers-default:link


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