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Q3 2018 U.S. Economic and Credit Trends Outlook - FAQ

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2 Cleveland Fed found that online lenders serve the overbanked and that these borrowers eventually ended up in more debt. This study was later pulled, likely to clarify how these datasets differed. One study suggested lenders were going after consumers with prime credit, similar to what we found, and one study indicated that they were in fact going after riskier borrowers. The difference is likely in the definitions of the loan types and lenders to include: what constitutes an online lender; what constitutes unsecured personal lending. There is no single right answer. One observation in the Cleveland Fed paper that is worth noting is that when consumers use consolidation loans for a better interest rate to get money off their credit cards, what frequently happens to borrowers is that they subsequently borrow more on their credit cards. While consolidation helps in the short term, over a longer period it may not improve their credit if they use that relief to increase their spending on other credit. That is a concern, but in general that is not a problem that the online lenders per se are causing. They offer an opportunity to reduce interest and consumers take advantage of it, unfortunately not always in a smart way. Question: What differentiates online lenders from the other types? Are they backed by bigger lenders, simply doing business online, or something else? How is that classified in this analysis? Answer: It is a mix. Some include lenders like LendingClub, SoFi, Prosper, Vouch and a number of others that started with online missions and focus. Some are backed by traditional bank or non-bank lenders that see an opportunity in a new space. Others again are lenders like The Home Depot Loans (a service of GreenSky) which offers unsecured loans but for specific purposes (in this case home upgrade projects). There is a mix of lenders, and it involves a fair amount of manual classification that certainly somebody else might look at differently. In general, what used to be called "peer-to-peer" lending and involved funding by other individual consumers is now termed "marketplace" lending, because as the big banks realized there was money in this, they backed their own online lenders. There are platforms like Marcus that are really backed by bigger lenders behind the scenes. There is no longer much peer-to- peer business. It is primarily driven by bigger lenders, some of which focus online exclusively, others with a broader focus. Question: Does the online lending include the peer-to-peer? Answer: It does include the ones discussed above, and also a number of others. Some lenders doing unsecured personal loans still don't report to us. The true peer-to-peer lenders that don't report to us would not be included, but some who used to be primarily peer-to-peer are now reporting to us. Most are no longer true peer-to-peer, but are actually backed by banks or larger companies. Question: Are you seeing HELOC applications increase or decrease year to date? Answer: HELOC originations are still down in terms of the share of housing finance and in fact originations are down 4.4% year-over-year following several years of slow gain. The credit standards on HELOCs are still very tight, and it remains a very prime product. We expect now with interest rates increasing that we will see more home equity lending in general. On the other hand, people may be wary about taking on a typically adjustable rate product when interest rates are expected to go up. So

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