Towards a new financial market
In the not too distant future loans, personal and small business, will be securitized and sold in an electronic marketplace in much the same way as shares are bought and sold on the NASDAQ today.
Loans can be securitized by collecting a minimum of 29 loans into a “micro portfolio” containing a diversified group of loans randomized by geography, demographics and credit scores. In this way if one or more loans in the portfolio go into default, the majority of loans will not and can make up the loss. The default risk of the portfolio is also factored into the rate of interest being paid for the investable security.
Securitized Loan Obligations
The security will be called an SLO or “Securitized Loan Obligation” and will be able to be bought and sold on an exchange in the same way as bonds or stocks are bought and sold today. Each SLO will carry an interest rate derived from the interest rates of the underlying loans.
The interest rates for SLOs being derived from personal and small business loans, will generally carry a higher interest rates than either bonds or money markets and without the volatility of stocks and shares.
Over time, Securitized Loan Obligations will become a completely new marketplace where investors wanting higher returns with minimal risk will go to SLOs for their investments.