®
Understanding & Succeeding in the
Loan Participation Marketplace
Confidential. Patent Pending. LoanStreet is a registered trademark of LoanStreet Inc.
Management Team
Ian Lampl, CEO
• Deputy Chief Counsel, Office of Financial Stability – TARP
Secretary’s Honor Award for Exemplary Public Service during the Financial Crisis
• Corporate & Litigation Attorney at Cravath, Swaine & Moore LLP
• JD, honors, University of Chicago Law School
• BSE, cum laude, Electrical Engineering, Princeton University
Confidential. Patent Pending. LoanStreet is a registered trademark of LoanStreet Inc.
2
NCUA Requirements
Primary Regulation
• Section 701.22 (“Loan Participations”) governs loan participations by
credit unions for both the originating lender and purchaser.
http://goo.gl/66YHmy.
Examination Manual
• Examiner’s Guide (“Participation Loans”) on pages 10A-34, 35.
http://goo.gl/LWZKlu.
• NCUA Letter to Credit Unions 08-CU-26
• Supervisory Letter & Exam Questionnaire. https://goo.gl/aQQzAI
Confidential. Patent Pending. LoanStreet is a registered trademark of LoanStreet Inc.
3
Regulatory Structure
• FCUs cannot raise outside equity capital but can sell loans if over
concentrated or capital constrained
• FCUs can only originate member loans but can lend to another CU’s
members
• FCUs must have a participation policy but that policy can allow purchases
of all loan types
• FCUs must have written participation agreement but those agreements
can be standardized
Confidential. Patent Pending. LoanStreet is a registered trademark of LoanStreet Inc.
4
Scaled participations benefit everyone
Loan Growth
Loan-to-Share Ratio
100%
14%
12%
10%
8%
6%
4%
2%
0%
80%
60%
40%
20%
0%
Q3 2013
<$10M
Q3 2014
$10M< & <$100M
Q3 2015
Q3 2016
$100M< & <$500M
$500M<
Q1 2013
<$10M
Source: NCUA Source: NCUA
•
•
•
Cost of funds / Average Assets
0.6
0.5
0.4
Q1 2014
$10M< & <$100M
Q3 2015
Q3 2016
$100M< & <$500M
$500M<
Large CUs growing with higher capital costs
Smaller CUs have significant excess liquidity
Scalable solution benefits everyone
 Maximize lending capacity
0.3
0.2
 Risk diversification for both parties
0.1
 Better RoE for both parties
0
<$10M
$10M< &
<$50M
$50M< &
<$100M
$100M< &
<$500M
$500M &
<$1,000M
$1,000M<
Source: NCUA
Confidential. Patent Pending. LoanStreet is a registered trademark of LoanStreet Inc.
5
Historic Loan Participation Practices
Voice based matching
•
•
•
•
Calling your network
Consultants
Investment Advisors
Brokers
Manual Processing
• Patchwork technology
• Reliance on many FTEs
• High error rate
Bespoke Agreements
• Individually negotiated
• Additional expense
• Time consuming
Individual Payments
• Time consuming
Intensely manual & economically wasteful process
Confidential. Patent Pending. LoanStreet is a registered trademark of LoanStreet Inc.
6
Cores & modules are inaccurate & can’t scale
Fail to track, account for, or apply loan participation waterfall
Fail to provide account receivable & payable detail,
especially for cash vs non-cash changes in principal
Example Core
Shortfalls
Fail to provide CECL compliant framework for buyers
Fail to support standardized agreements, resulting in
increased costs, compliance and execution risk
Fail to scale with participation growth, requiring significant
manual interventions, creating compounding human-errors
Confidential. Patent Pending. LoanStreet is a registered trademark of LoanStreet Inc.
7
Results of Historic Manual Practices
• Loan participations avoided as much as possible
• Upside gains wasted
• Smaller purchasers boxed-out of market
• Not a real and reliable source of liquidity
Confidential. Patent Pending. LoanStreet is a registered trademark of LoanStreet Inc.
8
is a standardized & automated
loan participation solution
Expand Investor Base
Single Screen –
Full Reporting Suite
Confidential. Patent Pending. LoanStreet is a registered trademark of LoanStreet Inc.
Control Access
No Headcount Increase
9
Intuitive interface makes management simple
LOANFILE







Syndicate
Access
Payments
Message Board
Notifications
Details
Dataroom
Confidential. Patent Pending. LoanStreet is a registered trademark of LoanStreet Inc.
10
Key Benefits of LoanStreet
Calculate &
Apply Waterfall
Accurately
CECL Compliant
Architecture
• Track/account for cash &
non-cash changes in
principal at loan level
• Clearly presented AP &
AR for each loan
• Automate all monthly
reporting
Automated
Reporting &
Payments
Confidential. Patent Pending. LoanStreet is a registered trademark of LoanStreet Inc.
• Single point of contact –
all reports & payment
distribution
• Cost efficient platform to
reach new partners with
standardized agreements
• Detailed portfolio & loan
level reporting over life of
loan
• Review historical record
with 24/7 access to all
loan file details
• Monthly reconciliation
detects any errors
Scalable
• Increase capital access
without increasing
workload
11
Deal Sheets – Cover Page
Prepared for all deals on LoanStreet to summarize key deal attributes
Identifies loan type & available principal
Provides pricing & servicing fee retained by the seller
Shows estimated yield to the buyer (based on WAL, Price,
Servicing, WAC)
WAC (gross / net): weighted average coupon or interest
rate on all loans in pool
WA (term & credit score): weighted average term and credit
score
WAL: weighted average life
Additional relevant details about the pool
Confidential. Patent Pending. LoanStreet is a registered trademark of LoanStreet Inc.
12
Deal Sheets – Data Analysis
Graphical distribution of loans in pool by:
•
•
•
•
Interest
Credit Score
LTV
DTI (if available)
•
•
Original term
Remaining term
Confidential. Patent Pending. LoanStreet is a registered trademark of LoanStreet Inc.
13
Reporting – Portfolio Summary Reports
Summary status of all loans
managed on LoanStreet in
aggregate, by seller & by pool
Reports show:
•
•
•
•
Confidential. Patent Pending. LoanStreet is a registered trademark of LoanStreet Inc.
Performance status
Defaults
Collateral breakdown
Principal held
14
Reporting – Portfolio Loan Level Reports
Loan Level Portfolio Reports provide a detailed picture of each loan managed on LoanStreet
Review loans individually, by seller, by pool or in
aggregate
With complete details for each loan, buyers can
review holdings by credit band, collateral condition,
performance status or other criteria
Confidential. Patent Pending. LoanStreet is a registered trademark of LoanStreet Inc.
15
Reporting – Distribution Summary Reports
Distribution Summary
Reports show distributions
during the period in
aggregate, by seller & by
pool
Reports include suggested
journal entries for all
distributions
Confidential. Patent Pending. LoanStreet is a registered trademark of LoanStreet Inc.
16
Reporting – Loan Level Distribution Reports
Loan Level Distribution Reports provide a detailed analysis of cash flows for all loans managed on
LoanStreet
Review cash flow by seller, by pool or in
aggregate
Loan level detail includes the full payment
waterfall for all principal, interest and fees
received during the period for each loan
Confidential. Patent Pending. LoanStreet is a registered trademark of LoanStreet Inc.
17
For more information
®
[email protected] | www.loan-street.com
Confidential. Patent Pending. LoanStreet is a registered trademark of LoanStreet Inc.
18
Appendix A – Glossary of Terms
ABS (Absolute Prepayment Speed): a prepayment
model that calculates prepayments on a loan as a
monthly percentage of the original loan balance. This
model is commonly used for auto, truck and
recreational vehicle loans.
Coupon or Rate: the interest rate on the loan paid by
the borrower.
CPR (Constant Prepayment Rate): a prepayment
model that calculates prepayments as a percentage of
the current loan balance. This model is commonly
used for real estate loans and student loans.
DTI Ratio: generally the ratio of the monthly payment
obligation (from either the applicable loan obligation or
all known obligations) over the borrower’s monthly
gross income.
Gross WAC: the WAC before deducting the Servicing
Spread charged by the originating lender.
LTV Ratio: generally the ratio of the original loan
balance over the original collateral value. LTV can
also be expressed as current balance over the most
recent collateral value.
Net WAC: the WAC after deducting the Servicing
Spread charged by the originating lender.
Prepayment Model: an algorithm used to determine
the rate at which a loan or pool of loans will prepay or
repay prior to the maturity date.
Price or Premium: the cost as a percentage over (or
under) par value of the loans to be purchased. For
example, a price or premium of 101 means that for
every $100 of principal purchased the buyer must pay
$101.
Servicing Retained: means that the originating lender
continues to service the loan, including collection of
payments.
Servicing Spread or Servicing: the fee charged by
the originating lender for servicing the loan. Servicing
is typically paid by reducing the Coupon passed on to
the participation purchaser (the Net WAC). For
example, a 25 basis point Servicing Spread for a pool
with 3% Gross WAC means the buyer receives 2.75%
Net WAC and the seller keeps the remaining 0.25%.
Weighted Average (WA): is the average of some set
of values calculated by giving more weight to certain
values based on some attribute of the data set. For
example, loan pools typically weight averages by
principal outstanding.
WAC: the Weighted Average Coupon for all loans in
the pool, determined by reference to the weight of the
current principal balance of each loan in the pool as a
percentage of the total principal.
Weighted Average Life or WAL: an estimate of the
time it will take for half of all principal in the loan pool
to be repaid or prepaid determined by reference to the
applicable Prepayment Model.
Yield: is the value of the expected cash flows to be
received over the WAL based on the Net WAC and the
Price.
Term: the period of time from the loan’s origination
date to maturity date.
Confidential. Patent Pending. LoanStreet is a registered trademark of LoanStreet Inc.
19
Appendix B – Sample Deal Sheet
Confidential. Patent Pending. LoanStreet is a registered trademark of LoanStreet Inc.
20