Cross River Bank to Securitize $100 Million of Marketplace Loans
Cross River Bank, a major player in the marketplace lending space, expects to securitize $100 million of these loans later this year, Bank Innovation has learned.
Cross River will be among the first lenders to do so, and the securitization will add valuable liquidity to the marketplace lending sector.
Citibank announced last week it will sell some $377 million of Prosper loans. Nonlender Eaglewood Capital Management issued some $175 million in marketplace loan securities in 2014.
Teaneck, N.J.-based Cross River Bank, a de novo bank established in 2008, was an early player in the marketplace or P2P lending sector. It was the first bank to join GreenSky Credit’s home improvement loan program through retailer Home Depot. “We were attractive because we were just out of de novo and had a fresh balance sheet,” said Cross River President & CEO Gilles Gade. Cross River is no longer part of the GreenSky program, which now includes 16 banks loaning $1 billion a year, according to Gade.
From home improvement loans the bank moved to marketplace loans, establishing relationships with Lending Club and “just about every new entrant in marketplace lending.” A total of 14 lenders have been signed up, four more are coming live soon, and more are in Cross River’s pipeline, Gade said.
The bank is doing some $2 billion in marketplace loans a year.
The deep involvement in marketplace lending led the bank to consider securitizing the loans through a special purpose vehicle, Gade said. The securitization will be $100 million, underwritten by Deutsche Bank.
In a story that echoes the tale of CBW Bank in Weir, Kan., Cross River is innovating from a solid compliance foundation. “We start with compliance and protect the platform,” Gade said. “Then we build technology around it and our own APIs.”
Given the growth of marketplace loans, more securitizations can surely be expected, but being “alternative” — marketplace loans are originated almost entirely online, with nonstandard underwriting — marketplace securitizations carry an extra quotient of risk, and can be harder to rate. In regards to the upcoming securitization of Prosper loans, Moody’s said, “There is no way to determine how much or whether Prosper verified any of the information provided by the borrowers on the loans.”
Gade speaks about compliance in a manner very similar to CBW CEO Suresh Ramamurthi — without rancor, as if one were discussing the weather. But more than that, both banks focus on the relationship with regulators — “You see the same guys time after time,” Gade said. “They get to know the bank backward and forward.”
Entering the securitization space will bring the bank into further contact with regulators, but Gade is not concerned. He estimated he spends 20% of his time dealing with compliance, a number that does not seem to trouble him.
