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Post by solicitorious on Sept 26, 2015 20:44:17 GMT
 Graph of rolling 12 month loan initiation (£000s) rolling 6 month for comparison. Attachment Deleted
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beechside
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Post by beechside on Sept 26, 2015 22:30:42 GMT
Interesting stats. The issue here is new business strain. The cost of acquisition, legals, DD, surveys and administration for every new case, as well as the increasing IT costs are not met up front by an admin fee but by revenue over the term of the loan (the slice that SS take from charging 18% but only paying 12%). By the time a 6-month loan has paid for itself there are 2 more loans sucking away at revenue. Then there are the concessions to underwriters, special deals and commission to brokers/agents.
In many situations, this would be the classic bubble, ready to pop and destroy itself. Why is this different? It would be interesting to hear the views of SS as well as other business-minded people on this forum. There are assets, of course - many of them substantial under mortgage but I'm not convinced that this model is a long-term one. P2P Lending is definitely going to survive but I worry about sustainability of early adopters.
Then there are loans like PBL53. It's been active for a month but not drawn down. Does this mean it's cost SS £38k in interest payments without anything coming in from the borrowers? Big ouch...
Having said all of that, I think SS are brilliant at what they do. Simple proposition (no auction complexity), asset-backed securities, secondary market, provision fund, excellent customer service and a growing market means that I don't see a high risk at the moment. Some would say I'm over-committed in SS but liquidity, informed choice and an apparent determination to improve systems gives me great confidence in the platform.
Please tell me I'm not being foolish ;o)
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SteveT
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Post by SteveT on Sept 27, 2015 6:58:49 GMT
You're overlooking the upfront loan arrangement fees and the fact that the interest is deducted from the gross loan at the outset. See p2pindependentforum.com/post/47776/thread for explanation from SS themselves. |
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beechside
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Post by beechside on Sept 27, 2015 10:48:19 GMT
Thanks Stevet. I didn't know that. Certainly that makes a huge difference. My background is life insurance where new biz strain limited growth if we were to stay within actuarial liquidity targets.
So, in the new structure, does the 12% that will go to investors all get put into a trust, in effect acting as an additional reserve on early default? If so then that would make me want to sell out of loans over, say, 6 months old...
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mikes1531
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Post by mikes1531 on Sept 27, 2015 13:55:51 GMT
So, in the new structure, does the 12% that will go to investors all get put into a trust, in effect acting as an additional reserve on early default? If so then that would make me want to sell out of loans over, say, 6 months old... AIUI, it will depend on the terms of the loan agreement. But if they include the common one month minimum term for a 12-month loan then, even if the whole 12 months' worth of interest is withheld at the beginning, once the minimum term has elapsed any remaining interest paid in advance is officially still the borrower's money. As such, it probably ought to be sitting in SS's client account rather than the trust account which probably is just for the benefit of the SS lenders. If the loan is repaid early, say at eight months, then the interest set aside for the remaining four months should go back to the borrower. It's not clear to me what would happen if the borrower were to default. Actually, I'd expect an early default to be very unlikely. Because the interest was retained at drawdown, SS can continue to pay monthly interest to lenders for the whole year. Since there's nothing more for the borrower to pay they can't really default, can they? If for some reason the loan was declared to be an early default, SS's route to recover their/our capital is by repossessing and selling the security. Even if the sale proceeds turn out to be inadequate, and there's still some upfront interest available because the sale completed before the year was up, I'm not sure SS are the first in the queue for that prepaid, but not needed, interest. I'd expect that to be considered as the borrower's asset and it would have to be apportioned among all the borrower's unsettled debts, including what still is owed to SS. Please note: That's just my understanding, and I've no proper experience in this field other than as an investor. So I'm not an expert, this isn't advice, etc., etc. PS. The example quoted in the posting referenced by SteveT is very interesting. The borrower takes out a one-year loan that's nominally £1M. They actually receive £780k. When they repay the loan, they have to pay £1.02M including the exit fee. 1.02/0.78 = 1.308, so I think that means the borrower's APR is 30.8%. Wow!
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