It's gotten a lot harder to borrow money from the raft offintech firms looking to bring online lending into themainstream.

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Besieged by a wave of defaults after several years of rapidgrowth, the biggest online-lending platforms have been forced bybond investors to tighten underwriting standards. Social Finance,Prosper, LendingClub and Avant now demand higher average creditscores and offer shorter maturities to boost the quality of loansthey repackage into asset-backed securities.

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The shift in the $30 billion market comes after a swarm ofborrower defaults in the past three years rattled ABS investors. Italso marks a coming of age of sorts for the fintech startups thatoffered cut-rate loans to build a customer base. Now, with ratesrising and a potential economic slowdown looming, the move towardhigher-quality from the push for quantity has taken on addedurgency.

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“They all had a pretty tough time and took losses a lot morethan expected,” said Henry Song, a portfolio manager at DiamondHill Capital Management Inc., a Columbus, Ohio-based investmentfirm that invests in online-lending securitizations and manages $23billion. “Some dropped certain grades and the mentality of grabbingmarket share to be profitable has shifted.”

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Fintech startups have sprouted up in recent years to targetyounger borrowers who are more comfortable applying for loansonline and who have been underserved by traditional banks. The group,which tends to specialize in student and personal loans forcash-strapped millennials, hasn't been without growing pains. Manylenders have high default rates even as unemployment levels fall tomultidecade lows.

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“Yields were going down, a lot of that was due to competition.They were lowering rates just to stay competitive with each other,”Bill Kassul, a principal at Ranger Capital Group in Dallas, said inan interview, adding that his firm used to invest in online-lendingABS, but backed away because the returns became less attractive,given the risk.

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Online-lending platforms have responded to higher default ratesand increased write-offs by raising interest rates, rejectingconsumers with lower credit scores and shifting toward shorter-termloans, according to Kroll Bond Rating Agency.

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“We have seen many of the platforms tightening theirunderwriting or essentially eliminating certain segments,” saidRosemary Kelley, a senior managing director at Kroll, in aninterview. “They are changing certain criteria in order to moveup-tier somewhat in terms of the credit that they're taking.”

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The number of ABS issued by online lenders that saw performancetriggers activated by missed payments declined last year, even astotal loan losses rose, Kroll said in a recent report. That signalsan increase in overall quality in the securities.

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For instance, San Francisco-based Prosper, the third-largestonline-lending platform, said its loans in the first quarter wereless risky compared to those issued in the same time frame lastyear.

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According to Kroll, the weighted average of FICO credit scoresof Prosper's loans packaged in ABS increased to 717 in a March 2018deal from 704 in a sale two years earlier.

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“Defaults in the general unsecured consumer credit market (whichincludes marketplace loans) have been on the rise,” Prosper said ina emailed statement. “Prosper has been watching this trend andtightening credit since 2017, and we expect credit tightening tocontinue in 2018.”

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The second-largest lender, SoFi, increased the weighted averageof its FICO credit scores to 744 in a sale earlier this year from732 in a deal at the start of last year. The company declined tocomment.

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Bonds sold last week showed the safer structures are paying off.Avant, the fourth-largest online-lending platform, increased thesize of its sale by about $60 million and saw spreads narrow to 70basis points in its top shelf of debt from 80 basis points in aprevious deal in April. That came after the firm cut the averageduration of the loans to 36 months in a deal this month from 43months two years ago.

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LendingClub, the largest of the group though a relative newcomerto the ABS sector, has also responded by eliminating the riskiestborrowers in its loan offerings.

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“Investors are changing their behavior on the margin and tendingto gravitate toward higher quality, lower risk grades,” JessieSzymanski, chief of staff to LendingClub's capital officer, said ina phone interview.

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The expansion of online lending has led directly to an expansionof securitization as companies become more dependent on it forrevenue. The sector is expected to increase the amount of loans itturns into securities by 29% from a year earlier to $18 billionthis year, according to New York-based research firm PeerIQ.

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Some investors still aren't convinced.

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Tracy Chen, a Philadelphia-based portfolio manager at BrandywineGlobal Investment Management, said her firm doesn't invest inmarketplace lending because there is not enough data on thesector.

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“This market hasn't gone through a credit crisis so it's hard tofind conviction of how it will perform,” Chen said.

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