In 2018, securitization provided an estimated $13.1 trillion in financing. Contrast that with the US $10.24 trillion issued at the end of the 2nd quarter of 2008, and we can see that the securitization market is back. However, the market, particularly the market participants, has seen a significant change during years that it took for the securitization market to recover from the financial crisis.
As many of us remember all too well, complex financial products created in the securitization market were at the heart of the great recession that brought global financial markets to a halt in 2008. While it took several years for the financial market to recover, and then a few more years for market participants to adjust to the new guard rails put in place by the Dodd Frank financial market reforms such as risk retention and enhanced data disclosure, by all measures it appears that Issuers are now moving full speed ahead into the capital markets with their pools of newly originated loans.
The resurgence of securitization is due in no small measure to the success of marketplace lenders. Not only were marketplace lenders able to step in to fill the credit void created when traditional banks were unable, or unwilling, to extend credit to a large number of borrowers, but technological innovation has allowed marketplace lenders to continue to gain credit market share traditionally held by banks. By embracing securitization as a means of accessing capital, marketplace lenders have breathed new life into a market that was on its knees just ten short years ago.
For a discussion of the importance of the securitization market, and the impact of the marketplace lender, listen to Colleen McDonald on Episode 47 of Sheppard Mullin’s new Nota Bene podcast.