SteveT
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Post by SteveT on Mar 23, 2016 11:13:20 GMT
An unforeseen problem has emerged with the recently-changed FS loan renewals process (triggered by new FCA rules), which Nigel has gone away this morning to think about how best to address.
The FS email announcing the change in process a couple of weeks ago concluded with the statement "Once the new loan has been funded it will be activated and the old loan closed - paying out interest to all investors and returning capital to those who chose not to roll-over their investment". However, this is NOT correct as things stand, or at least it is highly misleading.
What is actually happening is that the old loan is "Frozen" from the date the borrower pays up 6 months interest and no further interest accrues to the original lenders, even if it then takes an extended period for the renewal loan to fill and activate. This despite the original lenders' capital still being "at risk" (ie. if the renewal doesn't fill and the loan has to be defaulted, and the borrower can't repay, the original lenders are the ones still on the hook).
The "Microsculptures 3rd loan - Renewal" auction is the first one to highlight this, which is still not filled despite the original loan being "Frozen" back on 11th March. Effectively, until / unless corrected, a new lender in the renewal loan will accrue interest back-dated to 11th March, whilst an existing lender choosing not to renew will receive no interest for the period from 11th March to whenever the renewal eventually activates. Only renewing lenders are unaffected, as their interest accrual will be continuous.
Hopefully this can be solved simply enough, even if non-renewing lenders must wait a further 6 months to receive the extra interest for however many days a renewal auction takes to fill (before their capital is returned).
However, until it is, I'm making no further FS investments because every FS loan currently carries the risk of a potential "interest void period" at the end if it is renewed.
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huxs
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Post by huxs on Mar 23, 2016 11:43:31 GMT
hmmm, Let me start by saying I have a lot of faith in FS, while I have only been investing on FS for the past 12 mths they have always seemed to me to be moving in the right direction.
Saying that, and not wanting to cover old ground, I see all of their recent problems with insufficient demand (which this renewal problem is a consequence of) is down to the fact that their original model for pawn items (Interest paid only at end of term) does not scale. From this approach we get the Tax issue on the SM and therefore the lack of liquidity (as only non-tax payers or mad people will buy). This therefore means any investments in FS loans are effectively locked in for the full term and open to renewal issues as we are seeing now.
I might be totally wrong and even if I am right my investment pot is never going to be large enough to really change the liquidity but from what I see if FS start including Interest in the loan amount upfront and hold it to be paid out monthly then this will greatly increase the attractiveness of FS and tempt more investors to invest more money in new loans knowing that the ability to sell on the SM and diversify latter is a valid option.
I am very interested in lending more on the property loans that are currently available and in the pipeline but the lack of SM liquidity is a big turn-off compared to other platforms.
Just re-read my above and I have totally covered old ground so sorry for that  but if FS provide comments I promise I will not raise this point again.
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Post by fundingsecure on Mar 23, 2016 11:53:33 GMT
Stevet,
as per our discussion we have reviewed the position regarding the effective dates for loan renewals.
As I mentioned this was not an issue that we had anticipated - as most renewals occur within one or two days. In the case of this particular loan there has been a slight delay in funding the new loan - which is now standing at 84% funded.
Having discussed the issue internally I can confirm that the previous loan will be closed on the date the new loan is activated. Interest will therefore be paid up to that date on the old loan. The new loan will accrue interest from the date it is activated.
Hopefully this clarifies the position.
FundingSecure
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SteveT
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Post by SteveT on Mar 23, 2016 11:56:47 GMT
Stevet, as per our discussion we have reviewed the position regarding the effective dates for loan renewals. As I mentioned this was not an issue that we had anticipated - as most renewals occur within one or two days. In the case of this particular loan there has been a slight delay in funding the new loan - which is now standing at 84% funded. Having discussed the issue internally I can confirm that the previous loan will be closed on the date the new loan is activated. Interest will therefore be paid up to that date on the old loan. The new loan will accrue interest from the date it is activated. Hopefully this clarifies the position. FundingSecure Excellent. Many thanks, Nigel, for solving this so quickly.
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Post by bluechip on Mar 23, 2016 12:50:46 GMT
FS - just to be clear is this going to be the case for all loans or is the microsculptures loan the only one you are paying interest on during the reinvestment period?
I appreciate you hadn't considered the potential problem, but personally I have many loans coming up for renewal shortly, several of which I will not be renewing and would like some clarity as there are a lot of platforms with loans coming to market which may make filling loans take longer than usual and I don't like the idea of my money being tied up doing nothing for me (especially as this wasn't the original deal).
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Post by profunder on Mar 23, 2016 21:02:12 GMT
Stevet, as per our discussion we have reviewed the position regarding the effective dates for loan renewals. As I mentioned this was not an issue that we had anticipated - as most renewals occur within one or two days. In the case of this particular loan there has been a slight delay in funding the new loan - which is now standing at 84% funded. Having discussed the issue internally I can confirm that the previous loan will be closed on the date the new loan is activated. Interest will therefore be paid up to that date on the old loan. The new loan will accrue interest from the date it is activated. Hopefully this clarifies the position. FundingSecure i don't like this, so if I invest in a renewal I no longer know when I will start earning interest. The issue being is that if loans are not funded within a fixed time period they should be cancelled, but obviously not possible for a rollover. I would personally prefer if the loan remained open for 7 days or until fully funded. If not fully funded then orders from the previous loan get forced to roll over where required and can sell on the secondary market. Interest paid from the date the new loan activated as per your current suggestion.
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SteveT
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Post by SteveT on Mar 23, 2016 22:02:29 GMT
I would personally prefer if the loan remained open for 7 days or until fully funded. If not fully funded then orders from the previous loan get forced to roll over where required and can sell on the secondary market. Interest paid from the date the new loan activated as per your current suggestion. That would never wash with the FCA. A renewal is a new loan, distinct from the original loan, not an extension. A platform could not forcibly invest lenders into a new loan without their express consent.
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Post by profunder on Mar 24, 2016 12:29:55 GMT
Ok, then should default the original loan and cancel the new loan request.
You can't have a loan offer on the platform indefinitely.
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SteveT
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Post by SteveT on Mar 24, 2016 12:33:59 GMT
Ok, then should default the original loan and cancel the new loan request. You can't have a loan offer on the platform indefinitely. No argument there. But that's no different from a new loan auction that doesn't fill. Eventually it must either be underwritten (to fill it) or cancelled.
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SteveT
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Post by SteveT on Apr 7, 2016 13:16:55 GMT
Looking at the recent renewal of the 1st charge Italian Books loan, which took 4 days for the renewal to fill completely, it appears that lenders in the old loan were paid interest through to 4th April but lenders in the new loan are still accruing interest from 31st March (ie. the original "old loan" end date and published "new loan" start date). I presume FS must be funding these extra days of "cross-over interest" from their own resources. If so, many thanks to fundingsecure for opting to treat both sets of lenders well (effectively rewarding those that rolled over their stakes with 4 days extra interest). |
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but if FS provide comments I promise I will not raise this point again.
