DBRS Morningstar released a commentary, “DBRS Morningstar’s Marketplace Lending Unsecured Consumer Loan ABS Sector Outlook—Negative Amid Coronavirus,” which highlights how the ongoing Coronavirus Disease (COVID-19) pandemic has adversely affected the marketplace lending unsecured consumer loan sector.
With the closure of many nonessential businesses across the U.S., jobless claims have exceeded 26 million over the last five weeks ended April 18, 2020. We expect obligor credit deterioration, particularly for weaker credit obligors, as performance on unsecured consumer loans is highly correlated with the unemployment rate.
Key highlights in the commentary include:
(1) Marketplace lenders that focus on super-prime borrowers are less likely to experience a surge in losses while lenders that focus on higher-risk segments, including debt settlement and near-prime loans, are more likely to experience increased losses.
(2) The Coronavirus Aid, Relief, and Economic Security Act will likely provide short-term relief to borrowers in this segment; however, we expect an increase in overall lifetime loss as a result of the economic disruption.
(3) Marketplace lenders maintain the ability to offer relief via hardship forbearances whereby borrowers affected by the coronavirus can postpone payments.
The commentary is available at www.dbrsmorningstar.com.
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