Post by david42 on Mar 18, 2016 14:46:13 GMT
I quote some useful comments from Kylie (a representative of Rebuilding Society). They were originally on an internal forum about a specific loan M***** K*** W***, but Kylie asked that discussions on such topics be held on this more open forum.
... it seems to me that you hold concerns about the enforceability of PGI, the costs involved, the borrower’s ability to pay the premiums when in financial distress, Rebs’ ability to monitor the payments and its ability and standing in a situation where PGI pays out.
Enforceability:
You correctly point out that PGI is to date, yet to pay out. This being said, this does not mean that it will never pay out. As mentioned above, the terms of PGI are very specific and require the borrowers to be fully open and transparent and willing to admit they are in difficulty when they are. However, if the terms are followed correctly, there is no reason why PGI wouldn’t pay out.
Arguably, PGI Cover would like to pay out on a case to prove their model, the longer the model goes unproven, the more faith in the product may potentially be lost.
The product is designed to find a middle ground between satisfying the lenders’ interest as well as protecting the guarantor from the potentially serious consequences of legal enforcement and bankruptcy. For a guarantor mindful of the consequences of not paying the premiums where they are experiencing difficulties, who understands the effects of bankruptcy, the motivation to pay the premiums will be high.
Furthermore, PGI is not meant to be a distinct form of security, rather, it is meant to act as a further ‘safety net’ to support existing security. It allows the borrower to quickly repay hostile creditors whilst the insurer either helps the business turn around or recovers the funds from the assets supporting the PG. PGI cannot be taken where a PG is the only security offered, as it requires additional security over the assets of the limited company by way of charge, mortgage or debenture for the PGI to be valid.
You mention that many P2P platforms do not use PGI, this may be true (I am not aware of who does and does not use it), but any inference that they do not use it because of any uncertainty about the enforceability of the insurance is misplaced. All P2P platforms have very different business models and lending models, allowing a greater choice for investors. Many P2P platforms do not require PG’s, this does not mean that they do not place any value in a PG.
Cost:
The cost of PGI is roughly 3% of the amount of the PG insured, and is annually renewable.
The costs are a not an insignificant portion of a loan, however, this being said, many guarantors are likely to favourably weigh up the cost of the premiums against the costs and consequences of recovery action and bankruptcy.
We have offered to hold the premiums for borrowers so as to be able to make the payments for them when due, however this is not seen as an attractive option to borrowers who are already paying interest on the funds of 16%.
REBS: Monitoring and Assignment
We make every effort to monitor the continued performance of a business, the health of the business and the payment of premiums. However, this task is ultimately reactive and reliant on either third party monitoring or information received from the borrower, with neither allowing us ‘on the pulse’ information. That being said, we are continually improving our monitoring and working towards closer engagement with borrowers.
You questioned whether we were arranging a formal assignment of the policy. In answer to your question, yes: and this assignment will be included in all future PGI loans, including M*****. This will allow Rebs to be the direct beneficiary of any pay out, improving Rebs’ ability to recover the funds quickly for our lenders and also improving our ability to monitor the borrower, subject of course to relevant data protection laws.
You also made mention of platform risk and the enforceability/validity of the security and PGI should Rebs fail. You are correct to highlight Platform Risk as an element that lenders should take into account. All regulated platforms are required to have a Living Will arrangement in place to facilitate the payments to lenders in the event of the platform failing. Platforms must make financial provisions to allow the inheriting Partner to adequately facilitate the wind down of their loan book in such a situation.
In Summary:
- Additional security over the assets of M***** will be in place to legitimise the PGI throughout the term of the loan
- Rebs will request monthly financial statements from the borrower
- An assignment will be placed in this and all future PGI loans allowing Rebs to be the direct beneficiary of any pay-out
Finally, may I suggest that this thread is misplaced here on this discussion board pertaining to M*****. This thread is more of a general discussion and debate about the virtues of PGI, rather than the borrower’s application. We ask that in future, such discussions should please be held on more open discussion forum, such as p2pindependent forum, which are better suited to facilitate such discussions.
Enforceability:
You correctly point out that PGI is to date, yet to pay out. This being said, this does not mean that it will never pay out. As mentioned above, the terms of PGI are very specific and require the borrowers to be fully open and transparent and willing to admit they are in difficulty when they are. However, if the terms are followed correctly, there is no reason why PGI wouldn’t pay out.
Arguably, PGI Cover would like to pay out on a case to prove their model, the longer the model goes unproven, the more faith in the product may potentially be lost.
The product is designed to find a middle ground between satisfying the lenders’ interest as well as protecting the guarantor from the potentially serious consequences of legal enforcement and bankruptcy. For a guarantor mindful of the consequences of not paying the premiums where they are experiencing difficulties, who understands the effects of bankruptcy, the motivation to pay the premiums will be high.
Furthermore, PGI is not meant to be a distinct form of security, rather, it is meant to act as a further ‘safety net’ to support existing security. It allows the borrower to quickly repay hostile creditors whilst the insurer either helps the business turn around or recovers the funds from the assets supporting the PG. PGI cannot be taken where a PG is the only security offered, as it requires additional security over the assets of the limited company by way of charge, mortgage or debenture for the PGI to be valid.
You mention that many P2P platforms do not use PGI, this may be true (I am not aware of who does and does not use it), but any inference that they do not use it because of any uncertainty about the enforceability of the insurance is misplaced. All P2P platforms have very different business models and lending models, allowing a greater choice for investors. Many P2P platforms do not require PG’s, this does not mean that they do not place any value in a PG.
Cost:
The cost of PGI is roughly 3% of the amount of the PG insured, and is annually renewable.
The costs are a not an insignificant portion of a loan, however, this being said, many guarantors are likely to favourably weigh up the cost of the premiums against the costs and consequences of recovery action and bankruptcy.
We have offered to hold the premiums for borrowers so as to be able to make the payments for them when due, however this is not seen as an attractive option to borrowers who are already paying interest on the funds of 16%.
REBS: Monitoring and Assignment
We make every effort to monitor the continued performance of a business, the health of the business and the payment of premiums. However, this task is ultimately reactive and reliant on either third party monitoring or information received from the borrower, with neither allowing us ‘on the pulse’ information. That being said, we are continually improving our monitoring and working towards closer engagement with borrowers.
You questioned whether we were arranging a formal assignment of the policy. In answer to your question, yes: and this assignment will be included in all future PGI loans, including M*****. This will allow Rebs to be the direct beneficiary of any pay out, improving Rebs’ ability to recover the funds quickly for our lenders and also improving our ability to monitor the borrower, subject of course to relevant data protection laws.
You also made mention of platform risk and the enforceability/validity of the security and PGI should Rebs fail. You are correct to highlight Platform Risk as an element that lenders should take into account. All regulated platforms are required to have a Living Will arrangement in place to facilitate the payments to lenders in the event of the platform failing. Platforms must make financial provisions to allow the inheriting Partner to adequately facilitate the wind down of their loan book in such a situation.
In Summary:
- Additional security over the assets of M***** will be in place to legitimise the PGI throughout the term of the loan
- Rebs will request monthly financial statements from the borrower
- An assignment will be placed in this and all future PGI loans allowing Rebs to be the direct beneficiary of any pay-out
Finally, may I suggest that this thread is misplaced here on this discussion board pertaining to M*****. This thread is more of a general discussion and debate about the virtues of PGI, rather than the borrower’s application. We ask that in future, such discussions should please be held on more open discussion forum, such as p2pindependent forum, which are better suited to facilitate such discussions.
