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Jon's avatar

"How does high origination volume justify a fair value increase? How can higher coupon rates (assuming the new loans in 1Q23) increase the fair value of its entire loan portfolio? I have no good answers to both questions."

FMV is a balance sheet item. All else being equal, if the rate of originations is outpacing the rate of loan sales(or pay downs) then the FMV of the loan portfolio increases. A loan originated at a higher coupon makes a greater contribution to the FMV(relative to principal) than a loan with a lower coupon. Both of these circumstances describe what is happening at SoFi.

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Jon's avatar

"There is a lot to unpack from this vague explanation and the full examination is beyond the scope of this article. I just want to highlight that "assumed a wider implied spread than current deal..." best captures its optimistic and wishful thinking with regard to its approach to model the declining discount rate."

Not sure how you went wrong here, but somehow you have inverted the logic of the statement you are quoting. While it is full of financial jargon, it is not vague. It is concise and crystal clear. A "wider" spread is a larger spread. A larger spread means a higher discount rate. A higher discount rate means the FMV of the book is discounted more. This is a conservative characterization (not an "optimistic" one).

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