The online lender SoFi Technologies recorded a sharp increase in quarterly personal loan originations, as record consumer demand offset weakness in its home loan and student loan businesses.
The San Francisco company made more than $2 billion in personal loans between January and March, a 151% increase from the $805.7 million it originated in the year-ago quarter. CEO Anthony Noto said he expects demand to keep strengthening given rising interest rates, which may prompt people to move credit card loans and other variable-rate debt into fixed-rate personal loans.
“Our product is really conducive to doing that, and we capture that demand,” Noto said Tuesday during the company’s first-quarter earnings call.
The higher demand for personal loans mirrored what other consumer lenders reported during the first quarter.
At LendingClub, another San Francisco-based digital lender, unsecured personal loans rose to nearly $2.1 billion in the first quarter. That was up sharply from $147 million in the year-ago quarter, when the company was starting to refocus on growing its customer base after tightening its lending spigot earlier in the pandemic.
And while personal loan balances fell by 1% at Discover Financial Services due to strong repayment activity by customers, originations for new loans rose by “strong double digits,” executives said during a recent earnings call.
At SoFi, the jump in personal loans contrasted with the trend in home loan originations, which shrank by 58% year-over-year to $312.4 million.
Noto attributed the decline partly to “growing pains” associated with moving to a new outside fulfillment partner — after SoFi’s earlier partner encountered issues last year that weighed down its ability to meet loan demand.
That switch came on top of the “additional challenge” of SoFi shifting its focus to home-purchase loans following the refinance boom that peaked last year.
SoFi has not “stepped on the gas pedal” in home lending because it wants to ensure that it first successfully clears its existing backlog, Noto said.
“There are definitely challenges there, and we underperformed in the quarter,” Noto said. “I'm confident the team has the right plan and will work its way out throughout the course of the year.”
During the first quarter, student loan originations dipped slightly to $983.8 million, down 2% from $1 billion a year earlier, as demand continued to be
President Biden is reportedly considering writing off at least $10,000 per borrower, though the relief may be targeted based on income and may therefore shut out many SoFi customers. SoFi’s student loan borrowers have a weighted average income of $170,000.
Noto said he expects Biden to extend the moratorium for the remainder of the year. He also predicted that forgiveness of up to $10,000 “would be great for our business.”
“There's a cohort of people that have been waiting and waiting and waiting for student loan forgiveness, and they have not refinanced,” Noto said. Some higher-income individuals who could be SoFi customers are also among those holding off on refinancing until the Biden administration makes a decision, in hopes that the administration’s moves will be widespread rather than targeted based on income.
Loan forgiveness would reduce the amount of student debt available for private lenders like SoFi to refinance. But Noto said a decision from the Biden administration would still trigger a large wave of refinancing because there’s “nothing to wait for anymore.”
He gave as an example a potential SoFi customer with $70,000 in loans, who would be able to refinance the $60,000 that did not get forgiven.
“The number of people that will be refinancing will be magnitudes greater than it was in the past,” Noto said. “Because there’s really no reason to wait any longer, especially with rates going up and when there's likely not going to be a second wave of forgiveness.”
SoFi reported a net loss of $110.4 million during the first quarter, an improvement from the $177.6 million net loss it recorded a year earlier.
