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Post by westonkevRS on Apr 15, 2014 7:30:22 GMT
Here is the formal response from RateSetter co-founder and Chief Operating Officer Peter Behrens;
"I wanted to take the opportunity to explain what happened yesterday, there are two issues at play which will explain why this happened:
1) How the Lender Return was calculated until lunchtime Sunday 13th April
The RateSetter market sets the Base Rate which is the rate agreed between the Lender and the Borrower. Then the market deducts 10% which is the RateSetter Lender Fee. In order to make that rate an Annual Equivalent Rate (AER) the calculation has to assume that any repayments are then reinvested at the same rate. So, your order should have consisted of these 3 elements:
• Base Rate: 6.28%
• Actual Rate: 5.66% (6.28% x 90%)
• Lender Return: 5.8% (assuming the compound effect)
2) Yesterday’s IT Change
Sunday, we changed our system to remove the Lender Fee because this is now something that we will not be charging our lenders moving forwards. The consequence of this is that the Market recalculated the orders in the 5 year market and the computer rounded things slightly differently and came to an Actual Rate of 5.65%, this 0.01% has changed the Lender Return from 5.8% to 5.7%.
We are very sorry for any confusion caused but all Lender Returns have been returned to where they should be today.
Peter Behrens
COO "
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Post by westonkevRS on Apr 15, 2014 7:34:06 GMT
And in preparation for any questions or confusion, when Peter says "will not be charging our lenders moving forwards", in my mind the lender has never really been charged anything. The rate lenders choose is the rate they get; it's simply that the contract reported "base rate" is 10% higher, and deducted back to the expected rate; 5.8% in this example.
This + and - 10% charge between lender rate and "base rate" is no longer relevant; if it ever was. But removing the terminology or classification has simplified things in our view and hence the change.
Kevin.
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mikeb
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Post by mikeb on Apr 16, 2014 17:28:37 GMT
Here is the formal response from RateSetter co-founder and Chief Operating Officer Peter Behrens; Glad this was posted on here, as a lender "affected by" this bug, I've had nothing from RateSetter directly to explain it -- what happened to the email directly to customers?
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Post by westonkevRS on Apr 16, 2014 17:56:28 GMT
Hey mikeb,
It was decided not to send a wider email because there was no financial impact on anybody. The returns have remained identical, the "bug" or impact was only in terms of on screen reporting between Saturday and the Sunday.
Not downplaying any concerns from lenders, but a wider email to 99% of lenders who wouldn't have been looking at the screens would have caused more confusion. The email went to those who actively called or emailed to question or complain. We didn't want to make a mountain out of a mole hill....
Apologies of my earlier post before a full plan of action had been chosen gave the wrong impression. But hopefully the COO forum response was sufficient for those misled by me.
Kevin.
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mikes1531
Member of DD Central
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Post by mikes1531 on Apr 16, 2014 20:27:39 GMT
And in preparation for any questions or confusion, when Peter says " will not be charging our lenders moving forwards", in my mind the lender has never really been charged anything. The rate lenders choose is the rate they get; it's simply that the contract reported " base rate" is 10% higher, and deducted back to the expected rate; 5.8% in this example. When I first read Peter's comment about no longer charging lenders I thought it would mean better rates for either borrowers or lenders. Since it was not presented as such -- and Kevin has said subsequently that "there was no financial impact on anybody" -- is it fair to presume that the change really has had no effect on borrowers or lenders? And that all that's really happened is that the spread between rates to borrowers and rates to lenders, which used to be called a lender's fee, is still there but not referred to?
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Post by westonkevRS on Apr 17, 2014 7:12:33 GMT
Mikes, that's about it, yes. No change for lenders or borrowers, just a rename or rebrand of the "spread". It's still referred to, but named "service charge" with the implication that it is charged to borrower rather than lender. But this is moot, other than the lender just has a single gross and net, and less confusion.
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pikestaff
Member of DD Central
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Post by pikestaff on Apr 17, 2014 10:22:27 GMT
Here is the formal response from RateSetter co-founder and Chief Operating Officer Peter Behrens; " I wanted to take the opportunity to explain what happened yesterday, there are two issues at play which will explain why this happened:
1) How the Lender Return was calculated until lunchtime Sunday 13th April
The RateSetter market sets the Base Rate which is the rate agreed between the Lender and the Borrower. Then the market deducts 10% which is the RateSetter Lender Fee. In order to make that rate an Annual Equivalent Rate (AER) the calculation has to assume that any repayments are then reinvested at the same rate. So, your order should have consisted of these 3 elements:
• Base Rate: 6.28% • Actual Rate: 5.66% (6.28% x 90%) • Lender Return: 5.8% (assuming the compound effect)
2) Yesterday’s IT Change
Sunday, we changed our system to remove the Lender Fee because this is now something that we will not be charging our lenders moving forwards. The consequence of this is that the Market recalculated the orders in the 5 year market and the computer rounded things slightly differently and came to an Actual Rate of 5.65%, this 0.01% has changed the Lender Return from 5.8% to 5.7%.
We are very sorry for any confusion caused but all Lender Returns have been returned to where they should be today.
Peter Behrens COO" There is something very odd with the roundings here. In the example, I assume the true monthly rate received by lenders, both before and after the change, is 6.28%*90%/12 = 5.652%/12. This corresponds to an AER (compounding monthly) of 5.801%. This may not be exactly how RS do it, perhaps they compound daily, and/or perhaps the true AER for lenders is actually 5.800% and the stated rate to borrowers is very slightly less than 6.28%. I don't know or care very much, it's not a big deal. But: - it's very hard to understand why the system would ever have rounded up 6.28%*90% to 5.66% (which when compounded monthly would give 5.809%). - its equally hard to understand why rounding down the result to 5.65% would lead to the system displaying a Lender Return of 5.7%, when compounding 5.65% monthly actually gives 5.799%. Be that as it may, I have learnt something I should have known already, which is that rates on RS appear to be true AERs and thus not quite comparable to those on AC, FC or TC where I think the monthly interest is 1/12 the stated rates (net of fees in the case of FC) and thus the AERs are slighly higher than the stated rates. Please correct me if I am wrong...
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Post by mfaxford on Apr 17, 2014 12:40:30 GMT
2) Yesterday’s IT Change
Sunday, we changed our system to remove the Lender Fee because this is now something that we will not be charging our lenders moving forwards. The consequence of this is that the Market recalculated the orders in the 5 year market and the computer rounded things slightly differently and came to an Actual Rate of 5.65%, this 0.01% has changed the Lender Return from 5.8% to 5.7%. As someone that works in the IT sector I'd have to say that making changes on a Sunday is generally bad practice as there's usually no one monitoring incomming calls/emails in case something unexpected happens (as was the case with this change). In my experience the prefered time for such changes would normally be during the standard working week or early morning so that the changes are made before the start of the standard working day. If changes are going to take a long time requiring them to be done on a weekend then informing the users who could be affected should be done in advance and ideally incomming emails/calls should be checked to ensure nothing unexpected has happened. I hope RS will be looking as to why this change was made on a Sunday and what can be done to improve the change processes for future changes like this.
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