Skip to main content

Market Overview

Is The Marketplace Loan ABS Market Just Like The MBS Market A Decade Ago?

Share:
Is The Marketplace Loan ABS Market Just Like The MBS Market A Decade Ago?

Former Bear Stearns mortgage-backed securities (MBS) trader Perry Rahbar recently wrote about the danger of financial innovation without transparency. According to Rahbar, innovation without transparency was the true underlying cause of the Financial Crisis.

Rahbar argued that the MBS market itself wasn’t the problem. The fact that investors didn’t know exactly what they were buying was the real issue. When the MBS offerings got too complex for investors to understand, it opened the door for exploitative behavior.

Related Link: Washington Seeks Better Control Of Fintech Companies

Now, nearly a decade later, Rahbar is concerned that the same phenomenon may be occurring in the marketplace lending space. Online lenders like LendingClub Corp (NYSE: LC), Lendingtree Inc (NASDAQ: TREE) and On Deck Capital Inc (NYSE: ONDK) have generated explosive growth in recent years. As the number of online loans has risen, the complexity of marketplace loan asset-backed securities (ABSs) has as well.

“With less regulation than banks and no consistent reporting practices across lenders, it’s extremely difficult for investors to figure out what they’re buying and how it’s performing,” Rahbar explained.

Much like MBSs, there is nothing inherently wrong with online-loan ABSs. However, if the market doesn’t maintain transparency, it opens the door for abuse.

“Without innovative solutions to new problems, we risk reverting to 2008 decision-making,” Rahbar concluded. “Or, worse, we risk creating an investor pool bearish on investing in marketplace assets, which will kill liquidity and raise rates for the rest of us.”

Disclosure: The author holds no position I the stocks mentioned.

Latest Ratings for LC

DateFirmActionFromTo
Mar 2021Credit SuisseMaintainsNeutral
Nov 2020UBSMaintainsNeutral
Nov 2020Credit SuisseMaintainsNeutral

View More Analyst Ratings for LC
View the Latest Analyst Ratings

 

Related Articles (TREE + LC)

View Comments and Join the Discussion!

Posted-In: BEAR STEARNS MBSAnalyst Color Forex Markets Analyst Ratings Media Trading Ideas Best of Benzinga

Latest Ratings

StockFirmActionPT
MABarclaysMaintains402.0
ETRMorgan StanleyMaintains119.0
NEWTCompass PointUpgrades30.0
ALHCB of A SecuritiesInitiates Coverage On29.0
BWAYNorthland Capital MarketsInitiates Coverage On15.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
SPAC
Everything you need to know about the latest SPAC news.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com