For years, SoFi, the online mortgage lender, marketed to an elite group of borrowers usually deemed as “great” in its ad campaigns, but could the company finally be starting to rethink its strategy in order to growth in the current tight lending environment?
Let’s pause right here though to put to rest any crazy train your brain is going down.
SoFi loosening its credit standards is not a repeat of the financial crisis. It’s not a call to arms for the industry on how the banks are starting to be filled with corruption and greedily deceive borrowers out of their money only to grow their own pocketbooks. Again.
For one, SoFi isn’t a bank. Its platform heavily rides on the idea of “Don’t bank.”
And a Millennial with a 780 FICO score and income of $180,000 is a far cry from loose lending, which is what SoFi said is its target borrower was back 2014 when it jumped into mortgages.
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.
That’s not a giant pool for SoFi.
The San Francisco-based peer-to-peer lender that got its start in the student loan arena stresses that it wants everyone to become a member, but not everyone will qualify.
While SoFi recently decided to no longer use FICO scores when evaluating applicants, it does have a target borrower—Henrys, “High earners not rich yet,” a recent article in the Wall Street Journal by Peter Rudegeair stated, but this could finally start to change.
According to the article, “SoFi is considering lending to prime borrowers with slightly lower but still good credit scores.”
“With [LendingClub] and others lending less and moving rates higher, there is a tremendous opportunity to expand,” according to the SoFi corporate presentation from June.
A spokesman for SoFi said in a statement that the company is “always looking at how to better help great people achieve success with their money, career and relationships, but we don’t have anything to announce at the moment.”
This is a big deal given that SoFi has long focused and highlighted its high requirements to join.
The bank’s Super Bowl 2016 commercial tells the story best, seen here.
SoFi, at the time the commercial aired, proudly admitted that it’s not for everyone, but said that it was still hoping to reach the largest possible audience with its first big TV ad.
"Not everyone qualifies for our products, so we didn't want to say, 'Hey everyone come in here and get a loan,'" said Joanne Bradford, chief operating officer of SoFi, in an interview with Adweek.
Shortly after the commercial aired, SoFi said in an interview with HousingWire that 2016 is a pivotal year for the company.
"We’re expanding beyond lending to help financially responsible people reach their money, career and relationship goals,” Ciarallo said.
And in light of the new WSJ article, this could possibly include expanding its credit requirements, which is welcomed news for borrowers in today’s tight lending environment.
SoFi’s definition of “slightly lower” is not known, but even dropping from 780 to 740 doesn’t get anywhere close to the idea of crazy loose lending standards. But it will help expand the credit box for Millennial borrowers that have good credit but struggle to get a loan.
But before SoFi gets too eager, the online lending business as a whole is at the top of U.S. regulator’s watch list as of late.
Back in June, the New York Department of Financial Services, the state’s financial regulator, launched a probe into the lending actives of more than two dozen online lenders, according to a report from Reuters.
And according to a previous Reuters report, the NYDFS began looking into online lenders as a result of the issues surrounding Lending Club, which is currently under investigation by the Department of Justice as well as the NYDFS over the activities that led to the departure of Lending Club’s CEO.
While it’s unknown if SoFi received a letter from the NYDFS, it doesn’t change that regulators have an eye on online lenders.
SoFi, however, appears to be doing alright. The WSJ also explained that SoFi hopes to raise about $500 million in equity to fund new growth initiatives among mass-market borrowers and international markets.
Now, as for whether this equity infusion will eventually trickle into expanding SoFi's mortgage credit box, we’ll have to wait and see. A lot of Millennials, who do actually want to buy homes, would be appreciative.