SoFi defends mortgage standards, denies Fast Company allegations

Claims appraisal-free mortgages never left beta testing

SoFi, also known as Social Finance, adamantly said it doesn’t shy from criticism, stepping up to defend itself amid the recent negative news coverage on the company’s alleged toxic workplace environment.

Included in Fast Company’s coverage of the fintech company is a bold claim that “in the first round of SoFi mortgages, some homes lacked appraisals.”

[The implication of the accusation, if true, is outlined in a HousingWire blog here.]

The article came on the heels of SoFi's CEO and co-founder, Mike Cagney, stepping down earlier this week as the company is dealing with claims that the company fired a former employee for reporting sexual harassment allegations to his superiors. 

With the Consumer Financial Protection Bureau keeping a close on the industry, there’s a lot of pressure to get lending done the right way. Therefore, to say the company originated mortgages without appraisals, and to even nonchalantly throw out there in today’s tough regulatory mortgage market, was certain to get HousingWire's attention. 

The article in Fast Company by Ainsley Harris only stated, “in the first round of SoFi mortgages, some homes lacked appraisals.” 

SoFi, however, in a response to HousingWire, gave more context around the claim, which isn’t a surprise given that if the claim was true it would be even more bad business for SoFi.

According to a SoFi spokesperson:

In late 2014, we tested a simplified version of our home mortgage product that used paystubs for income verification and did not require home appraisal. The test did not proceed into a launched product, and we launched our mortgage product with requirements for full income verification and home appraisal, which is still the case today. All of these mortgages met the ability-to-repay standards promulgated by Dodd-Frank and none of these pilot mortgages were ever sold to investors, and we continue to hold those loans on our balance sheet.

The San Francisco-based peer-to-peer lender got its start in student lending and moved into mortgage lending in late 2014, which is around the same time as the explanation listed above.

The bold claim is interesting given the reputation SoFi has worked so hard to build.

Since it was able to capitalize on the borrower pool it already had, SoFi managed to quickly grow its mortgages business by marketing primarily to early career professionals who possess a graduate education from elite universities and a high discretionary income. SoFi refers to this client base as high earners not rich yet or “HENRY.”

Looking at the details of SoFi’s first ever residential mortgage-backed security transaction in December 2016 helps give a better perspective on the health of the company’s mortgages.

Fitch Ratings’ presale report stated that the collateral attributes of the pool are among the strongest of those securitized and rated by Fitch.

The pool had a weighted average FICO score of 777 and an original combined loan-to-value ratio of 56.5%. For added perspective, the average Millennial has a FICO score of 695, and only a little more than 20% of Millennials have a credit score of 720 or higher, with only 40% of the total population even having a credit score of 720 or higher.

Needless to say, the pool of loans stays true to what SoFi is known for, an elite group of borrowers, usually deemed as “great” in its ad campaigns, with strong credit.

While this article gives more context around the bold claim, as outlined in this blog, from Fast Company, it does not focus on the other claims on SoFi's toxic work environment. For more info from SoFi on that, check here

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