Another loan failure due to second charge problems

Welcome Baldpate!

My idea is to try and equalise the terms from when a loan proceeds normally and when it has to be cancelled at no fault of the bidders.
When an auction closes, interest becomes due 30 days after the closure irrespective of whether the negotiations are still proceeding or not. As the borrower has to pay out even before he has got his loan in the case of protracted discussions there is a real incentive for him to get off the pot!
However if the negotiations fail, other than the borrower not getting his money and losing fees paid to rebs etc there is no such imperative and we bidders lose out,


The borrower this time was B********* C*** a care provider and the loan number was 233545.

I've yet to discover a record of cancelled loans - I'd be interested to know where it is located.

hth

LW

I agree OldGrumpy!
However I suspect the issue is that some of the "stick in the mud" institutions ie the 1st charge holders are reluctant to give undertakings that they will do something in the future (ie accept a second charge) conditional on something else happening (ie sufficient bids are obtained).
This is why I've suggested a bond needs to be paid over to REBS to compensate bidders as an alternative to having every last t crossed and i dotted which might not be possible.


ANYONE AWAKE AT REBS  and care to comment?

LW

WooHoo - I've learned something new about the muddy pool that is REBS website! - Thank you BP


LW

Hi All,

As my first post on here of the New Year, may I wish you all a happy and prosperous 2015. 

I understand your frustration in the event of loan failures during the completion process and as such we have built our processes in such a way so as to avoid failures at this late stage as far as possible. However, as markdirac points out sometimes the failures cannot be avoided, as experienced in the most recent case and one other previous loan.

As lenders will be aware, securing a legal charge on property generally takes longer to put in place than other types of security. In an attempt to reduce this time, we begin the process prior to the loan being listed on the marketplace. Shortening the process is in the best interest of both the lenders and the borrowers as well as ourselves. When a loan application with property security progresses in the underwriting processes to a point where it is likely to be listed, we formally request the permission of the 1st Lender to register the 2nd charge. By this point, the Borrower has already been requested to have this conversation with their bank manager or relevant authority and confirm verbal permission. In the majority of circumstances the verbal permission is followed by the formal permission and the process is then able to progress smoothly to completion by the time the loan has been funded.

Generally 1st lenders take between 7-14 days (at best) to respond to a formal request for permission, if we waited until this permission was received to list a new application, it would significantly increase our application turnaround time and consequentially the time in which it takes borrowers to receive funding. Quick turn around, and access to finance is one of the hallmarks of peer to business lending, distinguishing it from the traditional methods of business finance and is one of the factors that makes the prospect attractive to business owners. 

We constantly review our internal process so as to avoid any situations where Lender's funds are tied up unnecessarily. As mentioned above, thus far the completion process on secured loans has only faltered twice due to permission being denied, with the most recent delay in permission being denied, likely to have been affected due to the Festive Period.

In investigating this loan so as to respond to the forum, I can confirm that the formal letter to the mortgage provider was sent on the 11th December, the loan auction completed on the 24th December and a response from the 1st lender only received on the 7th January. The borrower requested a review of the decision by the 1st lender, however the decision was not revoked and as such the loan was cancelled. 

ladywhitenap, thank you for your suggestions as to how we may be able to address the inconvenience and cost / time spent on loans as described above. We have considered charging an application fee or bond to borrowers to address such situations, however believed this to be both a barrier to borrowers applying, especially given that they would be putting the money up on the reliability of the banks word and other unforeseeable circumstances. We do always ask the borrower to consider compensating the lenders for their support, in anticipation of them reapplying  and needing their support again at a later stage. One borrower has agreed to compensate the lenders for the month's lost interest, once their new loan has successfully completed (this is currently being undertaken, and payment should be processed in the near future). This being said, I have noted your suggestions and these points will be reconsidered at our next planning meeting, scheduled for the end of the month.

I hope I have been able to shed some more light on our current processes and reasoning behind them and that it is evident that we are consciously trying to maintain a balance between efficiency and lender / borrower best interests. 

I hope you have a good evening. 

Though comprehensive the answer is not very encouraging. I support the suggestion that a bond should be taken to compensate a possible failure. FK have a robust approach - loans go live and can be re-sold 1-2 hours after the auction ends . Which means that all paperwork and legals are sorted beforehand. The problem is even greater with RS because auctions take longer.And if RS is keen on listening to suggestions - here is one: To speed the process, auctions end 3 days after filling 100%. An e-mail to all lenders to let them know about actions coming to end is enough

The problem with a bond spyrogyra is who would pay for it. For it to be a meaningful amount spread across hundred of lenders, I believe we're talking about an unreasonable cost. We feel we can't charge the borrower as the will to make it work is there on their part, but the decision is taken by a third party out of our control. Plus our lenders demand that we take this sort of security! The variance in speed and decision making at the bank or 1st charge holder is frustrating for us as we would really like to get them closed off and available for trading ASAP.

We have taken the decision not to release funds and commence trading until everything is signed off though to avoid a time-consuming and inconvenient unravelling of accounts should something go wrong after that point and the loan need to be cancelled, which we believe to be in the best interests of lenders.