bob76
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Post by bob76 on Mar 5, 2016 16:25:40 GMT
It would seem that the true security of the loans available on FS only relies on the quality of the valuation done.
They had a loan against a Nexus car defaulting, and then realised that the car had a fault, and therefore was not worth what was expected. Since the loan was only worth a few thousands, FS covered the difference, but they won't do so if the shortfall was tens or hundreds of thousands.
How do we know that valuation is done properly and is reliable, specifically on the very large loans?
Do they have multiple valuations done?
Limiting the loans to a LTV of 70% does not mean much is valuation is not reliable
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webwiz
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Post by webwiz on Mar 5, 2016 16:34:49 GMT
Ideally instead of paying for a valuation they would buy a 'put' option, ie a contractual right to sell it at a fixed price. The problem with this is that either the cost of the option would be very high or the valuation would be very low. It still might be possible to do it, with some assets, but at a much lower rate of interest. With a high rate we as lenders have to accept that there is risk in our investments, and one of those risks is that the asset cannot be sold at the valuation figure. The best way to cater for risks is probably diversification so that the extra interest earned on loans that do not default covers the losses on those that do.
Edit: of course diversification increases the probability that you will get some defaults.
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bob76
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Post by bob76 on Mar 5, 2016 16:40:26 GMT
The best way to cater for risks is probably diversification so that the extra interest earned on loans that do not default covers the losses on those that do. I agree about diversification. I believe I am actually fairly well diversified within FS, and across platforms. However, it's a bit worrying that they got valuation wrong on a car, which didn't achieve 70% of its valuation when sold. Cars would seem to be fairly easy to value, and get second opinions. So what about assets more difficult to value? If valuation is not reliable, then the full platform becomes unreliable, in term of understanding actual risks.
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duck
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Post by duck on Mar 5, 2016 16:58:03 GMT
It would seem that the true security of the loans available on FS only relies on the quality of the valuation done. ..... Have to agree with you bob76. With the Poole loan some local knowledge spilled onto the forum which was helpful (I also knew the location although I'm not that local) Take todays loan in Bath with a valuation of £950K, I am local to that one and I can say that is a very realistic valuation. Property around here is still some of the most expensive in the country, a 2/3 bed semi with a bit of garden but in need of modernisation (strip out/rewire/re-plumb/redecorate) will make 350-400K and will sell in 1-2 weeks. Obviously I don't have inside knowledge of the loan (can't quite work out where the house is) but from my point of view there is nothing wrong with that valuation.
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merlin
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Post by merlin on Mar 5, 2016 19:13:50 GMT
As has already been pointed out in this thread valuations are often very subjective and occasionally overtly or covertly caveated to boot. Some P2P sites vaunt the fact that their valuations are by RICS certified practitioners but even this doesn't guarantee accuracy. Time is also an important function with valuations and the older they become the less accurate they are likely to be.
An even more important factor IMHO is that of the type of security being offered on the asset. If the loan carries a first legal charge against the asset that is about as good as it gets and a second legal charge also has some weight. However if you are stuck with a promissory note of some sort like a directors guarantee it may well not be worth the paper it is written on.
There's lots to look out for in this game and don't be surprised if you discover more!
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mikes1531
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Post by mikes1531 on Mar 6, 2016 17:56:39 GMT
Another factor to consider is the commonness/uniqueness of the security. If it's a popular car and there are lots of them for sale, then the valuer has a lot they can compare with and the result is probably reasonably reliable. Some jewellery could fall in this category or, if it's gold, could be valued based on its scrap value. Similarly with 'ordinary' houses, or possibly with commercial property that is let on long-ish leases.
Where valuations become a lot more subjective is when the item is unique and there are very few recent sales to compare with. That's when I get nervous about valuations, and particularly if the loan is going to be secured by a second charge.
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merlin
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Post by merlin on Mar 7, 2016 9:49:20 GMT
On the subject of suspect valuations, there is a good example by a different provider. This loan was for student accommodation originally valued at £2.75m in February 2014. The loan amount was £1.96m which was drawn down in September 2014. Subsequently the loan went pear shaped and receivers were put in. The property has now been put on the market for £1.8m, almost a million less than the original valuation. Inevitably there will be selling costs and other fees to be met which will lower the money available from the sale further.
If you enter the P2P market you should be prepared for the occasional failure and inevitable loss as this is the nature of the business. However we are to a large extent reliant on the information provided by the vendor of the loan.
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oldgrumpy
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Post by oldgrumpy on Mar 7, 2016 10:20:03 GMT
It would seem that the true security of the loans available on FS only relies on the quality of the valuation done. ..... .... I don't have inside knowledge of the loan (can't quite work out where the house is) but from my point of view there is nothing wrong with that valuation. Just in case you haven't found it yet, it's named on the valuation. Next to the school in Kelston Road.
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duck
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Post by duck on Mar 7, 2016 13:22:25 GMT
.... I don't have inside knowledge of the loan (can't quite work out where the house is) but from my point of view there is nothing wrong with that valuation. Just in case you haven't found it yet, it's named on the valuation. Next to the school in Kelston Road. Yes that info wasn't available when I looked ..... I know the property by sight ..... and since it is only a 10 minute walk from me I may be taking a 'walk past' later. Depends if I can get my packing done, due to be in France tomorrow morning!
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Post by mrclondon on Mar 7, 2016 17:14:26 GMT
The current Liverpool loan illustrates two other problems.
The valuation is dated 22nd October 2015 and states (para 9) "We have not been provided with evidence of registration of the premises as a House in Multiple Occupation (HMO) which will be a requirement for its operation and therefore we assume issue of such registration and recommend confirmation thereof."
At the date of the valuation building work was still being undertaken. We do not have any independent evidence that it has been completed, nor do we have any independent evidence that a HMO certificate has been obtained. Given the configuration of bedsits and shared kitchens, without a HMO certificate the building will be worth a fraction of the quoted value.
fundingsecure (and quite a few other p2p platforms as well) are treating potential lenders as amateurs who are prepared to make investment decisions based on incomplete information. Their legal due diligence should be covering these points, and it wouldn't take much effort to publish a letter from FS's legal advisers stating the DD points they have considered and verified.
I'm not going to contribute funds to a loan such as this on the basis of an out of date valuation, and ambiguity on important legal due diligence matters.
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mikes1531
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Post by mikes1531 on Mar 7, 2016 19:38:29 GMT
fundingsecure (and quite a few other p2p platforms as well) are treating potential lenders as amateurs who are prepared to make investment decisions based on incomplete information. Their legal due diligence should be covering these points, and it wouldn't take much effort to publish a letter from FS's legal advisers stating the DD points they have considered and verified.
I'm not going to contribute funds to a loan such as this on the basis of an out of date valuation, and ambiguity on important legal due diligence matters. might have been able to get away with this when any loan they offered was funded in a matter of minutes. Now that they're struggling to funds loans -- having to offer significant bonuses and pay for underwriting -- they really need to provide their potential investors with more info. I expect that the net result, in terms of fewer bonuses and less underwriting required, would be positive for them.
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