What happened Shares of Upstart Holdings (NASDAQ: UPST) plunged 37.3% in June, according to data provided by S&P Global Market Intelligence. During the month, special regulatory waivers for the company were terminated at its own request. And some analysts think this could be a near-term drag on revenue, perhaps contributing to its underperformance in June. So what To briefly summarize, Upstart partners with banks and credit unions to provide credit based on factors beyond a person's credit score. Borrowers can come to Upstart directly or through a partner's channels. On June 8, the Consumer Financial Protection Bureau terminated Upstart's no-action letter, something that was requested by Upstart. This had protected the company from charges related to violating fair lending laws. However, its special regulatory treatment limited its ability to make changes to its artificial-intelligence (AI) algorithm. According to The Fly, Wedbush analyst David Chiaverini thinks this is a negative development for Upstart's loan originations. Basically, the request to terminate its no-action letter indicates that Upstart wants to make changes to its algorithm. And if it's making changes, this could potentially result in fewer approvals. This possibility is why Chiaverini kept his $15 price target for Upstart stock -- 55% additional downside for a stock that's already down more than 90% from its all-time high. Chiaverini's bearish sentiment is echoed by many investors and it's why Upstart stock was down big in June. UPST data by YCharts Now what Changes to Upstart's algorithm could narrow the amount of loan approvals as a percentage of total requests. However, the company can overcome this by widening the top of its funnel, something it accomplished in June. During the month, Mascoma Bank, MIDFLORIDA Credit Union, and Firelands Federal Credit Union all expanded their existing business relationship with Upstart. These three financial institutions have almost $10 billion in assets between them, showing these are big deals. Upstart ended the first quarter of 2022 with 57 bank and credit union partners, up substantially from the 18 partners it had in the first quarter of 2021. And having more partners has led to more revenue. Q1 revenue was up 156% year over year. To be clear, Upstart is working through problems that spooked the market. In Q1, default rates on loans originated through Upstart continued spiking higher. Management says that default rates are reverting to normal, and the lower default rates in 2021 were the result of government stimulus. While the explanation is reasonable, Upstart wound up holding more loans on its books than it previously intended, suggesting institutional-investor appetite for its loans is drying up. The higher default rates likely play a part in this. For Upstart shareholders, the hope is that tweaks to the AI algorithm will result in better default rates. If that happens, then this could be an attractive investment, especially if overall loan volume continues growing with its growing base of partners. 10 stocks we like better than Upstart Holdings, Inc.When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* They just revealed what they believe are the ten best stocks for investors to buy right now... and Upstart Holdings, Inc. wasn't one of them! That's right -- they think these 10 stocks are even better buys. See the 10 stocks *Stock Advisor returns as of June 2, 2022 Jon Quast has positions in Upstart Holdings, Inc. The Motley Fool has positions in and recommends Upstart Holdings, Inc. The Motley Fool has a disclosure policy.Source