Bloomberg recently brought in the chairman and chief executive officer of online lending exchange, LendingTree.com (NASDAQ: TREE) to discuss the state of consumer lending in the US. The company was founded by CEO Douglas Lebda, as a free service to Americans looking for a loan. It provides free tools and other resources and caters to a wide spectrum of loans, including student loan, housing and auto loans as well as small business loans.
Lenders across the nation seem to be loosening their hold on credit to consumers, especially across the auto and home loan sectors. When asked if it were in fact true that lenders were loosening credits across multiple product lines, Lebda agreed.
Lenders loosening their credit box
Loosening of credits is not necessarily from large financial institutions like banks. Lebda notes the role of alternative lending platforms like the ones offered by him, in the new pattern of credits in the market. Startups, for instance, have taken a more direct route. Instead of taking balance sheet risks, they have started putting credits directly in consumer’s hands. Similarly, institutional investors have taken to putting capital directly to consumers since bond markets are not strong enough for them to take risks with.
The market is steadily moving towards increased shadow lending, Lebda noted. He referenced the operations of Prosper Lending Club as an example. Companies like Prosper take money directly from financial institutions and put it in the hands of consumers directly. This allows consumers receive lower rates and high interest credit cards. This type of lending is spread across the entire credit spectrum, Lebda added, resulting in institutions lending to more sub-prime consumers.
Direct consumer lending by startups and open exchanges do not pose the risk of creating another financial crunch or housing bubble. The industry owns about $13 trillion in outstanding housing debt. The volume of “shadow lending” is not large enough to create a bubble.
Home equity lines of credit to make a return
Home equity lines of credit are also making a comeback. Though slow, the return is steady and Lebda says, can turn out to be a good way of paying off other loans, provided consumers use them appropriately.
Even though the hike is only for consumers with high credit scores, Lebda believes that consumer lending is going to become stronger in the near future.