Alternative lending has been a saving grace for many borrowers that had nowhere else to turn when the credit market dried up in the wake of the 2008 housing bubble collapse. For borrowers, alternative finance became the only option when banks tightened lending standards. But have alternatives simply moved subprime risk to a new conduit? Let’s dig into the question.
Subprime loans and risky borrowers: A recipe for disaster
During the housing bubble, the number of subprime mortgage loans being originated in the U.S. exploded. Many loans were made to risky borrowers with FICO scores below 620, while “Alt-A” loans -- those made to borrowers with good credit scores but poor employment history -- also ballooned. Often, these loans had unfavorable terms, like 2/28 hybrid mortgages, which have low fixed interest rates for two years before costs increase dramatically. The stats are staggering. The subprime mortgage loan market grew from $65 billion in 1995 to $625 billion by 2005. As of March 2008, the subprime market was estimated to be 11.8% of the total mortgage loan market -- a recipe for disaster.
The bubble had to burst
When the mortgage bubble burst, many of the world’s largest lenders found themselves fighting to survive at all costs. Between 2007 and 2009, real estate values in the U.S. dropped by $6 trillion. The world’s 100 biggest financial institutions wrote off over $370 billion in subprime-related losses. Part of this struggle to remain solvent included a drastic reduction in lending. Not only could subprime borrowers no longer get loans, many borrowers with solid credit were left out in the cold as well.
The alternative finance revolution: A better way?
In the aftermath, alternative lenders like LendingClub and Prosper recognized the huge opportunity the crisis created and quickly established a sizable new market. LendingClub alone reports it has now issued over $13.4 billion in alternative loans. Notably, leading alternative lenders are taking steps to make sure their platforms avoid the dangers of pre-crisis subprime lenders faced. Many members of the industry have higher lending standards than subprime mortgage lenders did before the housing bubble. LendingClub, for example, requires a minimum FICO score of 660 for its borrowers and Prosper requires a FICO score of at least 640 -- both fall above the 620 threshold that classifies a borrower as subprime. This duo also doesn’t issue deceptive or irresponsible terms seen in subprime mortgages, such as the aforementioned 2/28 hybrids; all of LendingClub’s and Prosper’s personal loans have fixed rates and equal payments over time. Of note, Avant does have less stringent credit requirements than other players in the space. The startup offers what it calls near-prime loans to borrowers not quite prime, but not as risky as their subprime peers. Understanding borrower risk and assigning appropriate interest rates isn’t the only advantage alternative lenders have in their corner, though: They’re also using more advanced underwriting models than those used by traditional banks. Upstart, which advertises “data-driven” personal loans, is just one example of a company using an income-prediction algorithm that takes profession, college, major, standardized test scores, grades, projected inflation and more into account.
A higher standard
America’s mortgage lending market certainly wasn’t always as wildly irresponsible as it became during the height of the housing bubble. Lending standards gradually loosened over time right under the nose of regulators. This underscores a key reality: As the explosive growth in marketplace lending continues, governments will need to monitor the practices of the industry’s leading players. For now, though, it’s clear the space is holding itself to a much higher standard than subprime mortgage lenders did almost a decade ago.
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NEW YORK, NY, March 15, 2022 -- Even Financial ("Even"), the category-leading embedded finance marketplace and independently managed subsidiary of MoneyLion, Inc. (NYSE: ML), has announced a new partnership with Tally, a leading financial automation company, to include the company's low-interest credit offerings on its platform.
"Tally has built a powerful tech-enabled system to help people solve one of the biggest financial problems today: paying off credit card debt," said Phill Rosen, Founder and CEO of Even. "We're thrilled to welcome Tally's line of credit offerings to Even's unparalleled network of financial services providers."
Tally is designed to help its members pay off their debt faster and save them money on interest and late fees. Members can lower their monthly payment with Tally's lower-interest line of credit, if eligible. Typically, at least a 580 FICO score is needed. Tally's system is customized to save people as much money as possible.
"Americans today owe nearly $1 trillion in credit card debt. We know from our research that many want to pay down their debt but struggle to get started. That's where Tally comes in," said Jason Huynh, VP of Credit, Analytics & Operations at Tally. "Our system combines financial automation with a low-interest line of credit to give people the help they need to get on track to pay off their credit card debt for good. We're thrilled that our partnership with Even will allow Tally to help even more people."
The launch of Tally on the Even platform enables consumers to get matched with Tally's custom, low-interest line of credit accounts of up to $25,000 in just a few minutes. After getting matched, eligible consumers complete the process through the Tally app. There are no out-of-pocket costs.
Tally is the latest partner to join the Even marketplace, a growing network of over 400 financial services partners and 500 channel partners covering a breadth of financial services including loans, credit cards, mortgages, savings, and insurance products. Even's marketplace technology enables any company to add financial products to its business, with full compliance and security, at scale.
About Even Financial
Even digitally connects and matches consumers with real-time, personalized financial product recommendations from banks, insurance carriers, and fintech companies on mobile apps, websites, and other digital touchpoints through its marketplace technology. Even's infrastructure leverages machine learning and advanced data science to solve a significant pain point in financial services customer acquisition, seamlessly bridging financial services providers (such as SoFi) and channel partners (such as TransUnion) via its industry-leading API and embedded finance marketplaces. Even enables any company to add financial products to its business, with full compliance and security at scale. Even was named one of "America's Best Startup Employers'' by Forbes for 2021 and was named to the 2021 Deloitte Technology Fast 500, which recognizes the fastest growing tech companies in the world. Learn more at www.evenfinancial.com.
Tally is a consumer financial tech company pioneering full-service financial automation to help people save money, pay down their debt and reach their goals sooner. Founded in 2015, the company built the first fully automated debt manager to help put billions of dollars back in people's pockets. In 2021, Tally was named to Fast Company's Most Innovative Companies list and to Quartz's Best Companies for Remote Workers. Previously, Tally made Forbes' Next Billion Dollar Startup list, Forbes' Fintech 50 list, and the app won Real Simple's Smart Money award. Learn more at meettally.com.
NEW YORK, NY, April 19, 2022 -- Even Financial (“Even”), the category-leading embedded finance marketplace and independent subsidiary of MoneyLion, Inc. (NYSE: ML), has announced it has now facilitated over $5 billion in consumer credit, as of March 2022. Leveraging machine learning and advanced data science, Even solves a significant pain point in financial services customer acquisition by seamlessly bridging financial service providers and channel partners via its industry-leading API and embedded finance marketplaces.
“Surpassing $5 billion in consumer credit facilitated through our marketplace is an enormous achievement for Even as we continue to help build the future of finance technology,” said Phill Rosen, Founder and Chief Executive Officer. “Access to credit has long been a challenge for many hard-working Americans, and we are dedicated to alleviating this issue by providing consumers personalized financial services offers that meet their needs, when they need it most. Reaching the $5 billion milestone reaffirms that our mission is driving significant value for both consumers and our partners."
Even has grown its embedded finance marketplace offerings beyond loans to cover a breadth of additional financial services including credit cards, mortgages, savings, and insurance products. Within loans, Even offers the largest network of premium, connected loan providers - across a wide array of products including unsecured personal loans, secured personal loans, line of credit, student loan refinancing, and auto loan refinancing. Leading financial services providers, such as LendingClub and SoFi, partner with Even to reach qualified consumers searching for loans, benefiting from Even’s unparalleled network and native integrations.
The company has continued its rapid growth trajectory in 2022, growing its network to include over 400 financial services partners and 500 channel partners. Even's marketplace technology enables any company to add financial products to its business, with full compliance and security at scale. Earlier this year, Even announced the close of its acquisition by MoneyLion, the award-winning digital financial platform, which will continue to advance their combined efforts of providing financial access and advice to hard working Americans.
About Even Financial
Even digitally connects and matches consumers with real-time, personalized financial product recommendations from banks, insurance carriers, and fintech companies on mobile apps, websites, and other digital touchpoints through its marketplace technology. Even's infrastructure leverages machine learning and advanced data science to solve a significant pain point in financial services customer acquisition, seamlessly bridging financial services providers (such as SoFi) and channel partners (such as TransUnion) via its industry-leading API and embedded finance marketplaces. Even enables any company to add financial products to its business, with full compliance and security at scale. Even was named one of "America's Best Startup Employers'' by Forbes for 2022 and was named to the 2021 Deloitte Technology Fast 500, which recognizes the fastest growing tech companies in the world. Learn more at evenfinancial.com.