SoFi to Sell Student Loans to Small Banks through Promontory

By Broughton, Kristin | American Banker, February 9, 2017 | Go to article overview

SoFi to Sell Student Loans to Small Banks through Promontory


Broughton, Kristin, American Banker


Byline: Kristin Broughton

SoFi, the online lender that caters to well-heeled millennials, has reached an agreement with Promontory Interfinancial Network to sell student loans to community and regional banks.

The partnership, which was to be announced Feb. 8, is designed to lighten small banks' due-diligence load -- and give SoFi an entrée with a new group of bank investors.

Promontory, a provider of deposit-placement services, has begun marketing SoFi loans to its member network, which includes nearly half of the nation's banks. Later this month the loans will be available on a marketplace Promontory operates.

Interested banks will receive a 40-page report that includes details on SoFi's underwriting and operating policies. They will also receive access to data on loan characteristics and origination trends.

In the partnership, Promontory, of Arlington, Va., acts as a conduit between two industry players that are often at odds. Through its student loan refinancing business, SoFi has staked a claim on a coveted clientele of high-earning, young professionals. The San Francisco startup has also accelerated its bid to look more like a bank, through its announcement last week that it had agreed to acquire the mobile banking startup Zenbanx.

Still, for community banks looking to diversify or grow their loan portfolios, buying SoFi student loans could be an attractive option, according to the companies. Over the past few months, Promontory has reached out to more than 100 banks about buying SoFi loans, and about a third have expressed interest, said Will Davis, Promontory's managing director for corporate development.

"Competing financial institutions work together all the time -- whether that's in syndicated loan groups, lending consortia, or underwriting stock and bond issuances -- when its mutually beneficial to do so," Davis said. "Our program that we're announcing allows our banks to share in SoFi's success" in refinancing federal student loans.

The first transactions are expected to take place within months, Davis said.

Under the agreement, SoFi will pay Promontory an undisclosed fee for each transaction, based on volume. Banks will face no additional charge for purchasing the loans through Promontory.

For SoFi, the partnership provides a new source of funding. The online lender funds its operations through a mix of securitizations and loan sales to institutional investors, including asset managers, private equity firms and large banks.

"For us, it's another way to diversify our funding mechanism, and to build more relationships," said Ashish Jain, senior vice president of capital solutions at SoFi.

Jain noted that compared to securitizations, loan sales are less sensitive to swings in the market.

Last year SoFi originated $8.1 billion in loans -- including $4.4 billion in student loans, according to a spokesman. …

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