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Post by solicitorious on Mar 3, 2015 14:52:17 GMT
After incurring a potential serious loss on another platform, I have quickly got up to speed on the risks of lending.  There are high risks in lending to entities which are not backed in full by hard assets. Hopefully that doesn't apply to SS, but I mention it anyhow. There are also risks in lending to entities which are not backed in full by 1st Charges on those hard assets. 2nd Charges are usually inferior security, and therefore riskier. Checking my SS loans I find most are backed by 1st Charges. With a couple of exceptions. Loans #22 and #23 just say "Legal Charge" in the Loan particulars pdf. We need that clarifying please. I would recommend SS to state in summary and with clarity on the loan tab page the type of charges applying to each loan. Which brings me to loan #6. This IS only backed by a 2nd Charge. Now, it is for every lender to evaluate their own risks but, to assist, the following numbers may be helpful. LTV0: 43.9% LTV50: 51.6% LTV90: 57.7% Edit: I should add that the PF will improve these figures, and will get round to calculating that sometime... I would recommend lenders checking all loans for any other unusual or unclear charges I may have missed. |
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mikes1531
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Post by mikes1531 on Mar 3, 2015 15:36:38 GMT
In the past, AFAIK, SS always have indicated when their loan was subject to a prior charge. With PBL006, they have made the point on the Description & Documents tab, saying "Please be aware that there is an existing first charge on this bridging loan so the overall LTV is actually 59% LTV."Inasmuch as the PBL022 and PBL023 loans show LTVs of 70% and 67%, ISTM that it would be quite unusual for those to be second charges, so I have presumed those were first charges. It would, of course, be so much better if investors didn't have to presume such important things, so I would second solicitorious's request that savingstream make the situation perfectly clear on its website and in its loan particulars. |
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ilmoro
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Post by ilmoro on Mar 3, 2015 15:47:55 GMT
PBL 4a & b also have issues as stated LTV doesnt take into account that the security applies to both loans,I believe
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mikes1531
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Post by mikes1531 on Mar 3, 2015 15:53:40 GMT
PBL 4a & b also have issues as stated LTV doesnt take into account that the security applies to both loans,I believe I can't remember whether PBL004a has priority, or whether both loans have equal priority.
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ilmoro
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Post by ilmoro on Mar 3, 2015 16:03:15 GMT
PBL 4a & b also have issues as stated LTV doesnt take into account that security applies to both loans,I believe I can't remember whether PBL004a has priority, or whether both loans have equal priority. Joint 1st charge. Effectively 2 tranches of same loan but loan info on site is misleading as 4a still shows original details & 4b shows security which includes property that 4a is secured on. 4b docs give actual LTV across both loans
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Post by solicitorious on Mar 5, 2015 15:05:34 GMT
LTV0: 43.9% LTV50: 51.6% LTV90: 57.7% Edit: I should add that the PF will improve these figures, and will get round to calculating that sometime... As promised, I have re-evaluated #6 in light of the provision fund, and am happy to report. LTV0: n/a (investment can't fall to zero, by virtue of the existence of the provision fund. Applies to all current SS loans) LTV50: 0% LTV90: 47.5% Of course, always bear in mind that there is only one provision fund - and there are 28 loans... I will shortly make available a spreadsheet detailing the figures for all loans.
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mikes1531
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Post by mikes1531 on Mar 5, 2015 18:28:03 GMT
I will shortly make available a spreadsheet detailing the figures for all loans. : I look forward to seeing that. It will be a useful tool. Did you ever receive clarity from savingstream regarding whether there were any prior charges on the PBL022 and PBL023 properties? If not, try raising the question via a direct email, as they're usuallly better at responding to direct questions than to issues raised on the forum. Speaking of which, I don't believe they've ever acknowledged the need to update the 'Stress Test' results at the bottom of their Provision Fund page whenever the amount in the PF changes or if they make a new 'largest' loan. Perhaps they need to be poked about that as well. (Which I've now done.)
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Post by solicitorious on Mar 5, 2015 18:49:56 GMT
No, I have not done that, and don't really have the time. I'll calculate and post the analyses, someone else can do the running and fetching... I think it's called "division of labour". How is that unedifying tussle going on elsewhere, btw? |
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ilmoro
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Post by ilmoro on Mar 5, 2015 18:57:36 GMT
How is that unedifying tussle going on elsewhere, btw? Please apply Fight Club rules 
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ianj
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Post by ianj on Mar 5, 2015 19:02:08 GMT
solicitoriousAs there may well be investors in SS who have not been following your endeavours re security value on AC, might I suggest you provide an explanation of what is meant by LTV0, LTV50 & LTV90.
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Post by solicitorious on Mar 6, 2015 15:05:38 GMT
I was only vaguely familiar with the terms until someone on another thread explained them to me.
As I understand it, they essentially answer the question:
To what proportion of its initial value would the underlying security have to fall to, for you to be left with x% of your investment? Costs of administration and sale of the asset are factored in. LTV90, for example, is the figure to be left with 90% [i.e. to lose 10%]. LTV50 would equate to losing half, and LTV0 would equate to losing everything...
Sometimes the answers are not intuitively obvious, especially in the case of 2nd Charges, or a combination of different charges.
Example:
Suppose you saw two property loans of £700k both with the same headline LTVs of 70%...
However, after drilling down into the detail of the actual security, you discover that Loan A was secured by a £700k 1st Charge on a £1m property, while loan B was secured by a 2nd Charge of £1.3m on £2m property that had a prior (1st Charge) of £700k. Which is the safer bet?
Let's do the numbers.
Loan A
LTV90: 63%
LTV50: 35%
LTV0: 0%
Loan B
LTV90: 66.5%
LTV50: 52.5%
LTV0: 35%
So, which is the riskier? Pretty obviously Loan B, because the relevant thresholds for loss are higher than for Loan A. In other words the value of the security would not have to fall as much, for you to sustain the same loss. Note also that a total loss is impossible with Loan A, whereas it is possible (although perhaps unlikely) with Loan B.
One may decide that the differences between these particular loans are not terribly much to worry about. However... these are mild examples, and it is not until you perform the calculations that you can know for certain what the figures are. You may discover something much scarier, such as a LTV0 of 64%, or something...
Of course, these numbers are just one aspect of risk. Loan A, despite looking safer, might in fact be 100 times more likely to fail than Loan B, and its security more likely to fall through the various LTV thresholds. Such analysis is beyond the scope of this discussion.
But it would seem prudent to have these numbers at one's disposal when evaluating the overall risks of lending.
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Post by davee39 on Mar 6, 2015 16:06:54 GMT
I am not making any specific comment on SS but it may come as a surprise to many that property can fall in value. Certainly the tendency of platforms to move towards 'asset' backed property loans, and the rush of cash attracted to them, is an indicator that not everyone does their homework. I have felt obliged to diversify slightly into this asset class due to drying up of alternatives and maxing out at RS and Zopa so I appreciate the efforts of those posters who analyse these loans.
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mikes1531
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Post by mikes1531 on Mar 6, 2015 16:57:36 GMT
I am not making any specific comment on SS but it may come as a surprise to many that property can fall in value. I suspect the reason for such surprise is probably that many people do not realise the huge difference in sale results between a patient seller who waits for the right buyer to come along and an impatient seller -- a receiver or administrator, perhaps -- who just wants to sell the property and wrap up the job so that they can move on to the next job, and probably will sell to the first person who comes along and expresses any interest in the property at all.
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Post by solicitorious on Mar 9, 2015 17:34:53 GMT
a picture paints a thousand words.... PBL006 without PF  PBL006 with PF |
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mikes1531
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Post by mikes1531 on Mar 9, 2015 21:49:00 GMT
a picture paints a thousand words.... PBL006 without PF... PBL006 with PF... A very good illustration of the immense value of the PF -- at least for the first default.
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