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Post by wiseclerk on Jun 8, 2016 19:32:08 GMT
Today I noticed some very old (from 2014) Hippocredit mortgage loans become available at the primary market. While welcome - I snatched up some with my remaining cash that carried >16% interest, I was puzzeled. Furthermore that led to the own share of the loan originator to fall below 5% which was previously always the share held by the loan originator (skin in the game). Example loan: www.mintos.com/en/12647-01I wondered whether that was an error and inquired and got a very speedy reply after hours (thx very much): |
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Post by wiseclerk on Jun 8, 2016 19:53:01 GMT
I checked, actually the statement is not correct as an official Mintos presentation slide says "Loan originators have skin in the game - they are required to keep 5% of each loan in their books"Source www.youtube.com/watch?v=XENODmm34mY at 08:50 |
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Post by saraph on Jun 8, 2016 22:15:43 GMT
How often do you see new loans with rate this high? Are they still happening or we can only expect them with events such as this one?
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Post by kissmyjazz on Jun 9, 2016 1:02:45 GMT
Martins himself had confirmed the 5% requirement on this forum as recently as in March.
This decision is also rather curious because not only it erodes the investor confidence, but also makes little business sense, 16% annualised ROI with little risk are very solid numbers for any lender, so why would they want to give that income away? Raising the capital for further expansion should not be a problem, as Mintos is growing fast and Hipocredit is one of the more popular lenders on the marketplace.
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Post by martins on Jun 9, 2016 8:17:05 GMT
Hipocredit will continue to have skin in the game, but instead of keeping 5% in each of the loan we have allowed them to reduce the share they hold in each loan to 2%. One way to think about skin in the game is through the light of capital requirements for banks. In general, banks will have to hold less capital for less risky loans (e.g., mortgage loans) and more capital for more risky loans (e.g., small business loans, unsecured loans). That’s how we see it also developing on our marketplace. All loan originators on our marketplace are required to keep skin in the game. At the time of webinar we indeed required every loan originator to keep 5% skin in the game; however, we have not said that it will always and forever be 5% for everyone. To reiterate we strongly believe in the skin in the game and will continue to require each loan originator to keep certain share of the loans on their balance sheet to align interests with investors. However, we also think that skin in the game should be differentiated for each loan originator based on the risk of underlying loans and loan originators themselves. About the question kissmyjazz raised. Hipocredit business model is loan origination, not lending from their own balance sheet. |
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Post by kissmyjazz on Jun 9, 2016 8:39:44 GMT
Martin, when you yourself write that "will retain at least 5% of every loan on their books" it means will retain in the future. So how I am supposed to interpret anything you say here from now on? Unless you say: "I promise it will be so always and forever" at the end of each sentence, what would your normal sentence mean? How is trust possible in such situations. What would be the next thing that Mintos will tell that they have never promised or guaranteed?
I still also do not understand why Hipocredit asked Mintos to lower their skin in the game. Those loans are profitable and Hipocredit has no problems funding the origination of new loans on the marketplace. You also said that "Hipocredit business model is loan origination, not lending from their own balance sheet." They would have to keep those 2% on their own balance sheet though, so what does it matter if it is 2% or 5% that they need to keep on their books? We all know how securitisation and not keeping mortgages on the books of originators was an important factor in the last major US economic crisis.
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Post by martins on Jun 9, 2016 9:14:53 GMT
kissmyjazz sorry if any of my previous posts has been confusing and affected your trust in Mintos. We have always strived for a clear communication and will continue to do so also in the future. The reduction in the skin in the game will allow for Hipocredit to increase loan origination volume since they are pre-funding every loan and it requires working capital. While we understand that investors might question that skin in the game was changed for Hipocredit loans where investors had already invested in, we also took into consideration that by reducing skin in the game from 5% to 2% it will make about EUR 75 thousand of loans available for investors to invest in. Most of the loans have had a stream of successful payments and a relatively higher interest rate and we believe that, if anything, investors would appreciate the opportunity to invest in such seasoned loans.
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Post by yoica on Jun 9, 2016 13:15:51 GMT
I believe this step wasn't objectively taken by Mintos, because if memory serves me correctly Hippocredit used to part of Mintos? The companies were split, but there are still part of the same group.
Meaning that by lowering the skin for Hippocredit they're basically saying we don't have to apply Mintos rules to our own sister/subsidiary company.
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Post by kissmyjazz on Jun 9, 2016 13:27:49 GMT
All this commotion is to give out additional 75 000 Euros in loans. What is the loan origination fee at Hipocredit? I guess something like 2-3% at most. Hipocredit wants to make quick 2 000 Euros and thought it is enough money to test the investors' confidence. This is simply not how businesses that want to last for a long time should behave.
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Post by littleinvestor on Jun 9, 2016 20:49:49 GMT
This is indeed a bad signal to investors. At least make sure as a company you communicate these matters. If you want to scare investors away, this is exactly what you need to do: change the rules of the game without prior communication to your clients. Twino is also a good one in doing that. Communication, communication, communication dear Martins !
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Post by extremis on Jun 9, 2016 23:00:18 GMT
I don't like it either; that makes Hipocredit (a Mintos group company) look like they are desperate for money. Even worse, this happens at the very same time that Mintos Refer-a-friend and affiliate programs are started. Is it possible that Mintos group is in some kind of financial difficulty? How else all this rush for investors' money could be explained? I was ready to invest more on Mintos, but now i think i should better wait and see how it gets along.
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Post by kissmyjazz on Jun 11, 2016 7:12:22 GMT
The main danger with the reduced "skin in the game" the loan underwriting standards will seriously deteriorate. If the loan origination fee is say 2% and the "skin in the game" is now also 2%, then Hipocredit is already break even after loan origination and can shovel all kinds of bullcrap to investors. It seems already becoming the case, as such loans are underwritten and sold off: www.mintos.com/en/90493-01 LTV68%, loan purpose is debt restructuring, interest rate is obvioulsy too low for the risk class of the loan, borrower is late on the first repayment already. Mintos team, how your 'high' standards square off with such underwriting practices? |
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m203
Member of DD Central
Posts: 54 
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Post by m203 on Jun 11, 2016 10:22:31 GMT
So what are your thoughts here, stop investing in Mintos? What other platforms should one look at? Or just stop with hippocredit loans?
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yacop
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Post by yacop on Jun 11, 2016 10:36:34 GMT
They need to grow (at all costs).
I see the early stages of the same behaviour as Bondora did, promising that all is in investor's interest.
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Post by martins on Jun 11, 2016 10:45:18 GMT
The loans are underwritten by the respective loan originator, not Mintos. What concerns Hipocredit they have not changed their underwriting policy. Hipocredit continue to follow the same policy they have been following to date that includes verifying income of each borrower, strict limits on debt to income ratio as regulated by law in Latvia, and limits on LTV based on geography and liquidity. The main danger with the reduced "skin in the game" the loan underwriting standards will seriously deteriorate. If the loan origination fee is say 2% and the "skin in the game" is now also 2%, then Hipocredit is already break even after loan origination and can shovel all kinds of bullcrap to investors. It seems already becoming the case, as such loans are underwritten and sold off: www.mintos.com/en/90493-01 LTV68%, loan purpose is debt restructuring, interest rate is obvioulsy too low for the risk class of the loan, borrower is late on the first repayment already. Mintos team, how your 'high' standards square off with such underwriting practices? |
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