SoFi’s Deal with Promontory Interfinancial Network May Open Up Market for Student Loan Refinancing
Online powerhouse lender SoFi has inked a deal with Promontory Interfinancial Network LLC that will make it easier for regional and community banks to buy SoFi’s student loans.
The deal aims to ease the long and tedious due-diligence burden required to purchase loans. Instead of the banks, Promontory Financial Group, which is part of IBM, will do much of the legwork for those interested in adding SoFi’s student loans to their portfolios. Promontory will give the banks access to reports on SoFi’s underwriting, operations, and systems as well as information and analysis on the loan purchases and risks tied to those loans.
“Promontory Financial Group did the work to simplify the due diligence process for banks, adding levels of review individual institutions could not perform on their own,” said Mark Jacobsen, President and CEO of Promontory Interfinancial Network.
On the other side, SoFi will benefit from new investors and a more diversified funding base. Large banks have been buyers of SoFi loans for years, but now, small and mid-sized banks will be able to tap into its packaged student loans, too.
Promontory represents nearly half of all U.S. FDIC-insured banks, and SoFi has refinanced more than $5 billion in student loans. SoFi also was the first company to refinance federal and private student loans together in 2011.
Refinanced loans are especially appealing to investors as SoFi, along with other lenders, typically have strict eligibility requirements. Approved borrowers usually have solid repayment history on all student loans, above-average credit scores, and well-paying jobs. Refinanced student loans are unlike new federal student loans because of these requirements. Any student going to an eligible college or university is eligible for a new federal student loan - though only around 57 percent of applicants are approved for refinancing. The strict vetting process of SoFi and other refinance lenders assure investors that the loans they are purchasing are likely to be repaid.
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