Real World Problems Are Disrupting SoFi’s Turnaround Efforts

SoFi Technologies (NASDAQ:SOFI) remains in a slump. Even as some meme and speculative stocks have come back to life over the past two weeks, SOFI stock has barely shown a pulse.

SoFi billboard seen at night.
Source: Tada Images /

SoFi shares are still trading around the $10/share level where the former special purpose acquisition company (SPAC) started off from. That’s way down from the $24.95 peak reached last year, and only up marginally from the 52-week low of $7.74.

SoFi’s slide is likely explainable due to its lackluster momentum in its core lines of business. While the company has an inspiring pitch in its investor presentations, the actual financial reality generated by the company to date has been less impressive. Analysts are taking note of that fact, with one analyst duo giving SOFI stock a big downgrade last week.

Morgan Stanley Slashes SOFI Stock Outlook

Morgan Stanley (NYSE:MS) analysts Betsy Graseck and Jeffrey Adelson recently trimmed their price target for SOFI stock from $18 to just $10 per share. They also cut the stock from an “Overweight” to an “Equalweight” rating.

The primary reason leading to this move is the extension of the student loan moratorium. Following the onset of the Covid-19 pandemic, the Trump Administration put in place a temporary moratorium on the collection of student loan repayments. This measure has been extended several times by the subsequent Biden Administration.

In theory, the pause in student loan payments was supposed to end on May 1st. However, many Senators including Majority Leader Chuck Schumer and the influential Elizabeth Warren are pushing for the moratorium to be extended through the end of the year. This is in part to have more time to consider additional options, such as debt cancellation for low-income borrowers. In addition, the Federal Reserve warned that many borrowers would struggle to repay their student loans if the ban is lifted in May.

Viewing this political backdrop, Morgan Stanley’s analysts concluded that the student loan freeze will likely remain in effect through 2023. That will be bad for SoFi’s earnings, since it originally built its business model around providing and refinancing student loans. The moratorium is a big drag on business. In particular, borrowers have little motivation to refinance a loan that they don’t currently owe payments on.

Mortgage Business: Slow-Going Into a Fading Market

Morgan Stanley also noted concern around the slower-than-expected ramping up of SoFi’s home mortgage business. In theory, SoFi was well-positioned to add a robust mortgage platform to its existing offerings. With the housing market on fire since late 2020, it was an ideal moment for SoFi to make a splash.

However, it seems, by the time SoFi is up to speed with mortgages, it might be too late. The average rate on a 30-year fixed home mortgage has shot up from 3.3% to 4.95% over the past year. Just over the past week, 30-year mortgage rates surged from 4.6% to 4.95%. This is going to have a crushing impact on the demand for new home mortgages going forward.

The market for new home sales slow, to be sure. It will also be a massive blow to the refinancing side of the business. As rates rocket past the 5% level, we’re starting to reach mortgage rates rarely seen since 2007. Up here, there are relatively few outstanding mortgages where people could get a more favorable interest rate by refinancing. Long story short, by the time SoFi gets its business going in the home lending space, the demand for the product may have already decreased dramatically.

SOFI Stock Verdict

Spend too much time on social media reading imaginative bullish theses and you might think SoFi is a leading fintech innovator. The more you drill down into the actual business, however, the less you’ll find to like. Look past the buzzwords, and there’s a lot of typical bank operations, that is to say, low margin highly-competitive types of lending.

At the core of the business, there’s a student lending operation which stuck in neutral until the loan moratorium ends. And there’s the push into mortgage lending. That is one of the most competitive businesses in the country, and one that faces a difficult year as interest rates spiral higher.

It’s great that SoFi has all these plans around cryptocurrency and whatnot. But the bank hasn’t actually figured out how to make a consistent operating profit in its primary lines of business, such as student lending, yet. Meantime, with industry conditions set to be difficult through at least 2023, things look set to go from bad to worse for SOFI stock.

On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Ian Bezek has written more than 1,000 articles for and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.

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