FREED ABS Trust 2021-3FP markets $ 230 million in asset-backed securities, under an arrangement secured by unsecured consumer loans from Freedom Financial Network, LLC, which operates through the intermediary of several entities.
One of these entities is Freedom Debt Relief, which negotiates on behalf of consumers to settle consumer debts with creditors. On average, FDR reduces debt on behalf of its clients by 45%, according to details on DBRS Morningstar ratings.
The current transaction will only include loans from the FreedomPlus loan program, which Freedom Financial Asset Management, LLC, (FFAM) markets to potential clients through partners and postal offers, according to DBRS. FreedomPlus offers consumer loans to prime and subprime borrowers, which it calls F + loans.
Cross River Bank (CRB) and MetaBank National Association are behind the loans in the transaction, according to DBRS.
In many states, market operators such as FFAM are not allowed to issue loans, so they rely on banking partnerships to create the loans. These banks are allowed to issue loans and export legal usury limits from their own states to customers outside their states, following a Supreme Court ruling in 1980.
FREED ABS Trust 2021-3FP includes several forms of credit enhancement, including a reserve fund amounting to approximately 1% of the pool balance at the due date; plus an overcollateralisation of 15% of the pool balance at the deadline; and subordination.
DBRS considered several aspects of the underlying loans in the portfolio in making its preliminary rating decision. All loans issued by CRB and MetaBank apply rates within their usury limits of 30.0% and 36.0%, respectively, for New Jersey and South Dakota, respectively.
Additionally, the loans have a weighted average APR of 20.0%, DBRS said. The pool excludes loans to borrowers in states where active legislation calls into question the export of state usury laws related to the real problems of lenders. Loans to borrowers in Colorado, West Virginia and Maine are excluded from the pool, as are loans to borrowers from the United States Court of Appeals for Circuit 2, which includes New York, Connecticut and the United States. Vermont, are also excluded, due to active legislation.
FFAM also operates with a loan sale agreement that requires FFAM to repurchase any loan that has a breach of declaration and guarantee that materially affects the interests of the buyer, DBRS said.
DBRS plans to assign an “AA” rating to the $ 113.8 million Class A Notes and the $ 52.8 million Class B Notes, as well as an “A” rating to the Class C Notes. of $ 26.4 million.