A Letter From the CEO of Stackfolio

By | Uncategorized | One Comment

Here at Stackfolio, we are tackling a BIG capital markets problem. We are taking the manual, inefficient, and humanbrokered loan trading market online. But why tackle this capital markets issue by building a technology company that partners with bankers? 

Visit Marketplace

At the start

It took a meeting in early 2015 with Bartow Morgan, the CEO of The Brand Banking Company (since merged with Renasant Bank) to discover and truly understand this massive, but inefficient market. Over 20,000 institutions participated in an almost $1 trillion annually transacted market, primarily OVER THE PHONE. This reality left bankers facing two major problems.

First, Bartow, like many bankers, faced a problem that almost every financial institution faces in some shape or another: liquidity. As he noted then, “For Brand, when we originate large numbers of loans in a given month, our machinery can stop if we don’t find proper exit liquidity on those loans.”

Second, the lack of efficiency in trading…

As engineers that grew up in the age of the internet, we were awestruck.

The market was almost 100% human brokered and operated as a limited circle of contacts that sourced liquidity by calling up bankers to trade. And the vehicle for these transactions was a phone and snail-mail. The most state of the art operation that we could find was sending a physical hard drive of loan docs via FedEx.

Our team knew there was no way that this market wouldn’t move online. So we got busy building. 

Visit Marketplace

What we built

In December of 2016, Stackfolio launched publicly to the market. The response was better than we could have hoped for. In just under a year, we had almost 500 institutions sign on to the Stackfolio platform, had almost $1 billion in listings, and were on our way to creating true liquidity. We raised a round of capital around this growth at the end of 2017 and started to ramp up as a company. We’re pretty proud of where we landed. 

Today, we have nearly 800 institutions from all 50 states and almost $3 billion of listings on our marketplace, with loans listed across every major asset category and across every geography.

 

“… $3 Billion of listings on our marketplace, nearly 800 institutions from all 50 states…”

 

That growth led to a problem; our favorite kind of problem. Our Marketplace product wasn’t keeping up with the growth. We were constantly getting support questions from our customers being overwhelmed with the number of listings they were seeing and that searching through them wasn’t easy. We were very grateful to have this problem, but we had to fix it. 

The team went back to the whiteboard because it didn’t view this as a simple matter of creating more filters or separating things into categories. Stackfolio is not an e-commerce platform for mugs not that that’s not a great business! We’re an online marketplace for very complicated financial asset transactions

There is a lot of nuance in the loan trading business with our customers facing unique challenges, such as qualifying credit underwriting guides, building unique investment strategies around borrower information, managing different investment timelines, and balancing regulatory requirements. Stackfolio has and continues to help financial institutions with these challenges. 

For example, many institutions come to the Marketplace to help meet Community Reinvestment Act (CRA) lending requirements. Many come to strategically fill gaps in their loan growth/origination goals. While others utilize Stackfolio to appease regulators when they hit liquidity constrains like their CRE/Cap thresholds. 

Our institutional buy side clients have their own unique struggles as well. There is massive pressure for asset class diversification, while at the same time they are being hit with fee compression from all sides. Stackfolio is helping solve for this.

Visit Marketplace

The New Marketplace

However, we just weren’t doing the best we could for our clients to be able to find and explore these opportunities.

So we’ve built a system for putting the right opportunities in front of the right institutions, at the right time. And we’ve understood that we have to combine a great Marketplace product, extremely integrated customer service, data, and an obsession on experience and speed

You can now find what you’re looking for on Stackfolio in seconds. We put the most important Stip criteria right at your fingertips. Every asset and demand is geographically qualified. The most important portfolio level information is not only available up front, but there is also no pay wall or sign up wall in front of it. The experience is completely optimized on all devices. 

 

“… there is also no pay wall or sign up wall in front of it.”

 

And we’re not going to stop there. We’re building tools to increase historical pricing transparency, a full suite of due diligence products, and a communication infrastructure that will make trading more and more seamless

As we continue our journey here at Stackfolio, I have only one request: please enjoy our new Marketplace and provide your feedback at the bottom right of every page of the product, to a real team member. 

Sincerely,

Pav(leen) Thukral

Founder/CEO @ Stackfolio

Visit Marketplace

Why HELOCs Should Be On Your Radar

By | Uncategorized | No Comments
In a market with rising home values, increasing interest rates, and homeowners reluctant to refinance or sell, many homeowners are turning to home equity lines of credit (HELOCs) to meet their financing needs.
So this means HELOCs should continue to be an attractive and growing loan product offered by originators.
Why are borrowers using HELOCs?
  1. Cheaper. HELOCs can be a cheaper alternative than other common forms of borrowing such as credit cards or unsecured personal loans.
  2. Versatile. HELOCs give borrowers a lot of options for how to use the funds. Whether it’s paying off credit cards or debts or making home improvements, they allow homeowners to borrow smart.
  3. Not The Same as it Used to be. Many recall a very different borrowing and lending structure of HELOCs from prior to the financial crisis of 2008. Today, however, lenders are far stricter in their underwriting. So borrowers today have much higher credit scores and borrow less of the available equity in their homes.

Why Should Residential Mortgage Owners Care?

As noted by Fort Schuyler Advisors, a look at recent Google trends showed an increase in HELOCs searches with the search index being the highest in five years. Couple this with a recent TD Bank which showed 35% of millennial customers willing to consider a HELOC product, there is clear segment of borrowers in the market that can help drive loan growth via HELOCs.
In addition, with the refinance mortgage market at a standstill, growing HELOCs origination can offset the drop in mortgage activity many originators have faced so far in 2018. 
Secondary Market Considerations
  1. Buying HELOCs
    There are many originators that do not have experience with HELOCs, but see the value in the product. So some have turned to buying HELOCs via loan trading.  Buying via an online marketplace for loan trading can be a very cost effective and time-saving solution.  This allows the buyer to avoid the costs of origination and the potential challenges of setting up and operating the underwriting process. In addition, it can be far easier to strategically target the loan growth by specified geography, credit box, size of the loan, etc. 
  2. Selling HELOCs
    On the other side of the spectrum, there are many originators of HELOCs that have kept the loan origination in their portfolio but are in need of liquidity. Selling via an online marketplace for loan trading has shown to be efficient and profitable solution. In a recent large HELOCs trade on Stackfolio, the seller was able to earn almost a 2% premium on the traded balance. This sale allowed the originator to book the non-interest income from the premium while freeing up capital and capacity for new origination and loan growth.
    Also, sellers also have the ability to retain their servicing during a loan sale. So while sellers benefit from the added liquidity, they do not lose their valuable customer relationships during the process.
Omar Esposito serves as the Chief Revenue Officer of Stackfolio. His experience stems from over 15 years of whole loan trading, banking, and balance sheet management experience. At Stackfolio, Omar focuses on executing the company’s go-to-market strategy, scaling and aligning all revenue-generating aspects of the business, and building long-lasting client relationships with financial institutions across the country.
Stackfolio is an online marketplace for loan trading and participations between financial institutions. Click here to visit the Stackfolio Marketplace.

The 3 Most Important Questions that Guide Whole Loan Trades

By | Uncategorized | No Comments
“Where do I even start?”
Deciding to begin whole loan trading in the secondary market is a huge leap for any institution. Not only are whole loan trades long and cumbersome — they’re also extremely complex and require a lot of forethought.
Even with 15 years of experience in the banking industry and after strategically advising hundreds of financial institutions on balance sheet management, I’ve found that educating financial institutions on how and when to execute a whole loan trade still requires a lot of time and consideration.
To guide my thinking, particularly for whole loan purchases, I always look to answer 3 main questions:
  1. What do I need to earn from this trade for it to make financial sense for my institution?
  2. What type of diversification do I need to achieve in my portfolio from this trade?
  3. How much risk am I looking to absorb?
Why these three? Each question gives me insight into not only the type of loans and transactions I should be looking at, but also the type of trading partner I’m looking to engage with and the level of complexity I can expect from this transaction. Here’s how I try to answer each question:
1. What do I need to earn from this trade for it to make financial sense?
More so than just looking at the expected yield from a trade, this question asks you to dig into the full monetary benefits a loan trade can bring. With so many institutions searching for loan growth in their communities, organic loan growth has become harder and more expensive to compete for. So, I would look to answer how much money will my bank or credit union save in origination costs from a whole loan trade. Will these loans bring me a larger opportunity to cross sell new borrowers from new markets? Also, how much in fees would I save in using an online loan trading platform over legacy brokers in the market?
2. What diversification do I need in my portfolio?
While this is often a regulatory concern and question, determining the type of loans that I want to acquire is often a larger strategic initiative. For example, do I need to do a loan trade to achieve our residential loan growth targets for the quarter? Will I be able meet my CRA loan target needs without a whole loan trade? Or do I need to buy a niche loan pool to reduce concentration in core parts of my loan portfolio?
Being able to answer these questions and knowing how to execute them efficiently is critical in engaging in a whole loan trade.
3. How much risk am I willing to absorb?
Like the answers around diversification, determining how much risk your institution is prepared to absorb is key when preparing to enter a whole loan trade. One key insight to get here is not just around what level of risk in the loan asset type, but the credit characteristics within those asset types as well. So are you only looking to acquire prime borrowers in unsecured consumer loans? Does a barbell distribution of risk work if it brings you the loan assets you need?
While there will be more questions asked during a whole loan trade and many more answers needed to complete one, answering the big three questions above will ensure your institution can begin its journey of trading in the secondary market with confidence.
Omar Esposito serves as the Chief Revenue Officer of Stackfolio. His experience stems from over 15 years of whole loan trading, banking, and balance sheet management experience. At Stackfolio, Omar focuses on executing the company’s go-to-market strategy, scaling and aligning all revenue-generating aspects of the business, and building long-lasting client relationships with financial institutions across the country.
Stackfolio is an online marketplace for loan trading and participations between financial institutions. Click here to visit the Stackfolio Marketplace.