littleoldlady
Member of DD Central
Running down all platforms due to age
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Post by littleoldlady on Jan 25, 2018 12:18:45 GMT
Which platform, if any, do you think is closest to my ideal?
Asset backed
Max LTV of 70% based on realistic current valuation
Estimates loss rate and factors this into the rate offered to lenders. The margin between the borrowers rate and the lenders rate is split into two - the platform's profit margin and a provision fund to cover losses. Crucially the PF would be ring fenced for this purpose. If actual losses turn out as estimated then the PF is fully used up in making good capital returns. If less, then the lender's rate might be tweaked up or the PF allowed to grow. If losses exceed the capacity of the PF then lenders take a haircut and lenders rate is reduced.
Total transparency on all of this.
Similar to the old fashioned endowment insurance policy.
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Post by easteregg on Jan 25, 2018 12:40:19 GMT
While I supoport the idea of a provision fund it is a double edge sword. A provision fund had to be funded enough to ensure that it can cover all losses. That means it has to be funded by more money than necessary to cover any blips, which in turn means that lenders would reveive a lower return over time. If the provision fund runs into difficulties this can become an existential risk to the platform itself as lenders will lose confidence as they don't want to be caught when the fund runs out.
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littleoldlady
Member of DD Central
Running down all platforms due to age
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Post by littleoldlady on Jan 25, 2018 12:53:24 GMT
While I supoport the idea of a provision fund it is a double edge sword. A provision fund had to be funded enough to ensure that it can cover all losses. That means it has to be funded by more money than necessary to cover any blips, which in turn means that lenders would reveive a lower return over time. If the provision fund runs into difficulties this can become an existential risk to the platform itself as lenders will lose confidence as they don't want to be caught when the fund runs out. True, but exactly the same argument could be applied to a start up endowment policy, and these were popular savings vehicles for centuries.
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ceejay
Posts: 971 
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Post by ceejay on Jan 25, 2018 16:07:01 GMT
I'm also not sure about PFs.
I think they are relevant - essential, even - if you are dealing with "black box" lending. So, for example, I have some money in RS, which wouldn't work at all without its PF. Not the highest return, but it has a good place in a portfolio. Good for hands off, unsophisticated, lazy or busy investors.
On the other hand, I also have money in AB which is completely the opposite. Here, I think easteregg's argument applies: a PF would only complicate matters and reduce margins. Far better to be as open as possible about the loans and let us decide, managing risk by diligence and diversification. I think a PF in this case would just be a false sense of security - it would have to be huge to be able to fully cover potential losses, and even then couldn't be guaranteed.
Which brings us to AC, where the PF is much discussed. It doesn't apply to the MLIA, correctly in my view, as this is essentially the same as the AB model. The PF does, supposedly, apply to their packaged accounts, which are not so much black box as veiled box, but there is some doubt about how/when/if it will ever be used. For now, I'm voting with my wallet and keeping my cash out of AC's packaged accounts, partly because of this lack of clarity.
So, back to the OP ... no, I don't think you've described the ideal platform. Not unless you distinguish between black box (with PF) and white box (without).
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elliotn
Member of DD Central
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Post by elliotn on Jan 25, 2018 16:45:15 GMT
Which platform, if any, do you think is closest to my ideal? Asset backed Max LTV of 70% based on realistic current valuation Estimates loss rate and factors this into the rate offered to lenders. The margin between the borrowers rate and the lenders rate is split into two - the platform's profit margin and a provision fund to cover losses. Crucially the PF would be ring fenced for this purpose. If actual losses turn out as estimated then the PF is fully used up in making good capital returns. If less, then the lender's rate might be tweaked up or the PF allowed to grow. If losses exceed the capacity of the PF then lenders take a haircut and lenders rate is reduced. Total transparency on all of this. Similar to the old fashioned endowment insurance policy. Sounds like you'd like to hive off the secured part of RS. Even the (proportionately) shrinking consumer book is covered by incomes (and can be modelled more accurately), so perhaps your ideal would be RS backed with LW's loss of earnings insurance on the consumer side.
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p2pclive
Blockchain specialist
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Post by p2pclive on Jan 25, 2018 16:46:05 GMT
A provision fund only works if it's optional, opt-in etc. You get better returns if you don't, but more security if you do.
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shimself
Member of DD Central
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Post by shimself on Jan 25, 2018 19:41:41 GMT
I would also look for:
Co-investment by the platform (via sleight of hand apparently to mollify the FSA, cf Kuflink), skin in game
Public Q&A on the platform
72 hours for DD between launch and opening for investment
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