Observations from Concord Servicing’s President, Shaun O’Neill:
The recent conference hosted by the Structured Finance Association painted a positive picture of consumer lending near-term, in sectors ranging from auto and home improvement to solar and energy efficiency. Consumer financing in the asset-backed securities market is benefitting from high demand and strong performance. The solar and energy efficiency industries among strong beneficiaries, in part because of high interest in and focus on Environmental, Social, and Governance (ESG) issues spotlighted at the conference.
There’s strong emphasis on solar and energy efficiency in commercial markets as well as residential consumer lending. Both residential and commercial/small business lending present cost-effective and scalable backup servicing opportunities, along with primary and sub-servicing options.
As lending continues to ramp up, the need for bullet-proof, reliable loan servicing at all levels must be in place to ensure the best possible portfolio performance. Factors impacting that performance include borrower satisfaction, effective and efficient collections protocols, and complete compliance and data security protecting both asset owners/originators and borrowers.
Rating agency, investor, and investment banker confidence in a loan servicer is crucial. Reliable, responsive, and long-trusted loan servicers will provide peace of mind and convey a sense of comfort that the job will be done in a fully professional, competent, and knowledgeable way.
Weathering climate challenges (as reported by DBRS Morningstar*) will lead to continuing strong performance and profitability in the renewable energy, energy efficiency, and home improvement sectors.
A Kroll Bond Rating Agency (KBRA) report about the conference released via Business Wire states: “The mood among conference participants seemed upbeat as record new issue supply, strong investor demand, and sound credit fundamentals have placed the structured finance markets on solid footing well into 2022. Based on our discussions with issuers across each of the structured finance sectors, activity in primary markets is showing no signs of cooling off. We expect new issue supply to remain elevated through Q4 and well into 2022 as issuers take advantage of the current low interest rate environment to lock in attractive pricing.”
ESG captured a lot of attention and interest at the conference. With many home improvement, renewable energy, and energy efficiency bright spots emerging in financial arenas are challenges—especially climate-centric ones—that need to be addressed to realize full potential.
*DBRS Morningstar published an article entitled “DBRS Morningstar’s Takeaway from SFVegas 2021: Measuring Climate Risk in Securitizations Is a Critical but Complicated Task.” Writer Caitlin Veno points out: “Ultimately, climate risk falls into two categories, according to Neil Hohmann, Managing Director, Head of Structured Products at Brown Brothers Hariman. The first is physical risk, which is tied to events (e.g., wind storms and flooding) and chronic risk (e.g., sea levels rising). The second is transition risk, which includes regulatory components and macroeconomic components as well as legal, policy, and technology changes. Of the two, Hohmann believes transition risk will have the biggest impact on issuers and collateral pools.”
The article adds, “Assessing climate risk for securitizations presents challenges that the industry will need to address. One major hurdle is the gap in information between what the issuers provide and what investors and others want to know…’The bulk of the work is that the climate risk scoring firms are at one place and our industry, in terms of credit risk, speaks a different language,’ said [Eknath Belbase at Andrew Davidson & Co.], ‘And those models basically need to talk to each other. That’s where we’re focused at least for the next year.’”