Marketplace lender Social Finance may seek a larger initial public offering than initially planned, according to Chief Executive Mike Cagney.
SoFi, which has moved from peer-to-peer student loan refinancings into residential home loans, said in October that it was aiming for an IPO of $200 million to $250 million. During an interview Friday, Cagney said that SoFi executives are contemplating a larger target, but he declined to say how much more money they might try to raise.
Timing for the IPO will depend on how quickly they can expand mortgage lending, which will accelerate rapidly and spread to more states next year, Cagney said.
SoFi has several hundred million dollars in its origination pipeline. The San Francisco lender's current mortgage originations total just under $100 million, and it may seek to increase that figure by two-and-a-half to five times before going public, he said.
"We want to get our mortgage business to the same place as our student loan business, [and] then we will be ready to go," he said.
LendingClub, the largest marketplace lender of consumer loans, went public last week. The company, valued at $5.4 billion, raised $870 million.
Morgan Stanley, which led the LendingClub IPO, has labeled SoFi one of 25 startups with the potential for billion-dollar valuations — a status Cagney was keen to point out.
Cagney would not say what his own valuation would be for the company.
"The bankers are quite eager to talk about the public opportunity," Cagney said. "From our standpoint we want to make sure the infrastructure is in place and the business is mature enough for us to hit the market."
SoFi's mortgage product fits into an extremely niche market, because of the borrower demographic it is targeting. Many of its loans do not meet the Consumer Financial Protection Bureau's underwriting guidelines issued this year. Most residential home lenders currently have a low risk tolerance, and are unwilling to underwrite outside of those standards. However, lenders that are (SoFi included) operate in a small, but highly competitive market.
At least half of all SoFi's mortgages would be considered nonqualified mortgages, because the debt-to-income ratio exceeds the CFPB's 43% threshold.
SoFi is taking a barbell approach to its borrower profiles — lending to customers with low debt-to-income ratios and high ones, but not those in the middle. Loans to borrowers with low debt ratios carry rates as low as 2.75%, and borrowers with higher ratios pay as much as 4%. SoFi mortgages average around $1 million, and half of them are nonconforming. Loan applications typically close in 14 days.
Cagney described the investor interest for this riskier kind of loan as "voracious," adding that by the end of January he hopes to sell a first pool of nonqualified mortgages to one of several banks and asset managers currently bidding on the assets. The size of the pool is less than $100 million, he said. He was unwilling to give a more precise figure.
New Smartphone Mortgage
Next year SoFi will also launch a mobile-phone app that will extend potential borrowers unconditional commitments up to $1.8 million, without an up-front physical appraisal.
Applicants will be able to apply by submitting pictures of their pay stubs. The app will ask for photographic confirmation of each applicant's cash stream over the last six months.
The mobile application process is geared to attract urban millennials, who for years have been priced out of the market for home loans.