A recent Bank of America Merrill Lynch report is fueling concerns over ABS sustainability in a recession, reports Global Capital. Several online lenders that claim to serve prime or near-prime borrowers are reporting cumulative net losses near those of traditional subprime lenders, or even subprime auto lenders.
When customers feel the effects of a recession, the way they prioritize debt payments is questionable.
“With marketplace lending, we just don’t understand where it might fall in the priority of the borrower,” said Senior Portfolio Jake Remley of Income Research + Management. “Presumably, the borrower’s gotten a car loan, a mortgage, a credit card, and now they are getting a [marketplace lending] term loan. The reasons to get a term loan, someone buying a boat, for example, usually makes it likely to be the last on the list to pay off.”
