spiral
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Post by spiral on Sept 27, 2016 15:09:10 GMT
But, paying back too many loans that would get back on time just depletes the PF and annoys lenders. And had the same effect as the PF being used to invest in loans.
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markr
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Post by markr on Sept 27, 2016 15:25:55 GMT
But, paying back too many loans that would get back on time just depletes the PF and annoys lenders. And had the same effect as the PF being used to invest in loans. But only pre-loved, slightly wrinkled ones that teetered over the abyss. A bit like Autobiddy on Fruity Comestibles, really. Maybe FC should start calling Autobiddies "Provision Funders"
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Post by westonkevRS on Sept 27, 2016 17:53:17 GMT
Showing my lack of knowledge here, are loans for mobile phones a very big market segment? I'd assumed that most phones were supplied "free" (or at least heavily discounted) on a two or more year contract. People are starting to realise that buying a mobile on 24 month contract with a restricted use blocked phone isn't always the best option. Many people are turning to simply buying an unblocked any-SIM mobile outright, I certainly did for my wife with a Google Nexus. But for RateSetter the £ amount is marginal, because the loan value is small. And for a variety of reasons (that I can't explain here) the risk to our lenders is significantly mitigated. However it does give us access to a lot of customers, for example we've written more mobile phone loans than all of the other loans put together by volume (# not £). And these tend to be younger thin file type customers that we have learnt a lot about. And the banks are reluctant to engage with, so for us this is a valuable customer dataset... Kevin.
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Post by propman on Sept 28, 2016 9:00:02 GMT
But, paying back too many loans that would get back on time just depletes the PF and annoys lenders. And had the same effect as the PF being used to invest in loans. This is what it is there for! The alternative would be for the PF to fund interest payments onn the deferred payments and so require a greater funding!
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adrianc
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Post by adrianc on Sept 28, 2016 9:26:17 GMT
Showing my lack of knowledge here, are loans for mobile phones a very big market segment? I'd assumed that most phones were supplied "free" (or at least heavily discounted) on a two or more year contract. People are starting to realise that buying a mobile on 24 month contract with a restricted use blocked phone isn't always the best option. Many people are turning to simply buying an unblocked any-SIM mobile outright, I certainly did for my wife with a Google Nexus. But for RateSetter the £ amount is marginal, because the loan value is small. And for a variety of reasons (that I can't explain here) the risk to our lenders is significantly mitigated. However it does give us access to a lot of customers, for example we've written more mobile phone loans than all of the other loans put together by volume (# not £). And these tend to be younger thin file type customers that we have learnt a lot about. And the banks are reluctant to engage with, so for us this is a valuable customer dataset... Strikes me this is exactly the sort of slightly innovative lending that P2P should be doing.
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Post by propman on Sept 28, 2016 11:17:24 GMT
This is absolutely true. Any missed payments is covered by the PF on that date, i.e. the lenders get every payment on exactly the date they expect. They just don't realise it came from the PF rather than the lender. The distressed assets owned by the Provision Fund are actually greater now than the cash value reported. This is a large unseen asset, although obviously not a clean asset. However it already generates around £100k per month in collections payments that go to the PF, and we may perform a debt sale shortly to generate more payments. This all goes back to the fund. It is worth noting that theese assets are not all bad defaults, it includes many loans on new payment terms (where we expect to obtain all the cash) and deceased. Kevin. slightly concerned with the possibility of a sale. The PF has a long term need for cash, but is generating little income from its cash. I would expect any sale to heavily discount the expected income to reflect the overheads of recovery of the banks & a substantial cost of funds that will mean that the receipt from (possibly partially) performing loan sales will be less than the value of the income stream foregone. I would hate RS to do this merely for the optics of being able to record an increased cash fund in PF. Much better that a second contingent amount is recognized for the current expected value of loan repayments on loans with arranged repayments.
As I understood it the original ("Trust") PF was held for investors with 20% of the expected surplus repayable to lenders each year. It seems (from the accounts) that the company treats these payments as its fees for agreeing to purchase loans in arrears. Have I misunderstood this or has there been a fundamental change?
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jlend
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Post by jlend on Sept 28, 2016 14:55:08 GMT
This is absolutely true. Any missed payments is covered by the PF on that date, i.e. the lenders get every payment on exactly the date they expect. They just don't realise it came from the PF rather than the lender. The distressed assets owned by the Provision Fund are actually greater now than the cash value reported. This is a large unseen asset, although obviously not a clean asset. However it already generates around £100k per month in collections payments that go to the PF, and we may perform a debt sale shortly to generate more payments. This all goes back to the fund. It is worth noting that theese assets are not all bad defaults, it includes many loans on new payment terms (where we expect to obtain all the cash) and deceased. Kevin. slightly concerned with the possibility of a sale. The PF has a long term need for cash, but is generating little income from its cash. I would expect any sale to heavily discount the expected income to reflect the overheads of recovery of the banks & a substantial cost of funds that will mean that the receipt from (possibly partially) performing loan sales will be less than the value of the income stream foregone. I would hate RS to do this merely for the optics of being able to record an increased cash fund in PF. Much better that a second contingent amount is recognized for the current expected value of loan repayments on loans with arranged repayments.
As I understood it the original ("Trust") PF was held for investors with 20% of the expected surplus repayable to lenders each year. It seems (from the accounts) that the company treats these payments as its fees for agreeing to purchase loans in arrears. Have I misunderstood this or has there been a fundamental change?
Ratesetter use to formally assess for expected surplus around this time of year every year. I use to drop them an email every September asking for an update. I have just dropped them an email for this year to see if they have done the assessment
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Post by westonkevRS on Sept 28, 2016 18:41:21 GMT
Ratesetter use to formally assess for expected surplus around this time of year every year. I use to drop them an email every September asking for an update. I have just dropped them an email for this year to see if they have done the assessment The surplus calculation was only relevant for " the trust", and yes every year a short email was distributed to confirm that there was not a sufficient surplus to distribute. This was performed by the trustees, which I think was Peter Behrens and Rhydian Lewis (also the co-founders). Now "the trust" is receiving no new contributions either up-front or on older loans with lifetime payments. The "trust" is being used to pay down bad debts lcciring now across the entire portfolio. Therefore in all probability no monies will ever be returned to lenders. Therein lies one of the issues with the original concept of returning funds. Which lenders, which loans, which period, equitable or depending on your loan book, etc. A quagmire. The new Provision Fund structure and legal status as a Ltd company wholly owned by RMM Ltd means there will not be a distribution to lenders. Kevin.
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Post by westonkevRS on Sept 28, 2016 18:49:55 GMT
Kevin. slightly concerned with the possibility of a sale. The PF has a long term need for cash, but is generating little income from its cash. I would expect any sale to heavily discount the expected income to reflect the overheads of recovery of the banks & a substantial cost of funds that will mean that the receipt from (possibly partially) performing loan sales will be less than the value of the income stream foregone. I would hate RS to do this merely for the optics of being able to record an increased cash fund in PF. Much better that a second contingent amount is recognized for the current expected value of loan repayments on loans with arranged repayments.
Personally I partly agree with you. Banks often perform debt sale because the accountants have fully written off any bad debt, and a debt sale allows them to miraculously claim fortuitous recovery as profit, and book an instant gain. The Provision Fund doesn't need to do this, it has time. However not everyone agrees with me. Some would rather book an instant certain uplift for the Provision Fund today, foregoing longer term uncertain claims. One in the hand is worth, blah blah. That said, it isn't the entire bad debt book being sold. It's a small "lost cause" segment that has run its course and no monies have been recoverable. We are not selling debt that is making payments or expected to. So your point is valid, but less so knowing the specific of the marginal segment of loan statuses we are selling... Remember this all benefits the Provision Fund, RateSetter gains nothing except reputation through a bigger Provision Fund Kevin.
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jonah
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Post by jonah on Sept 28, 2016 19:06:42 GMT
Kevin... any view of the rough order of magnitude of any sale, e.g. 10%, 30% etc? I would understand if this is confidential info, but just trying to get a handle on how much RS deems to be unrecoverable.
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Post by propman on Sept 29, 2016 7:35:07 GMT
Ratesetter use to formally assess for expected surplus around this time of year every year. I use to drop them an email every September asking for an update. I have just dropped them an email for this year to see if they have done the assessment The surplus calculation was only relevant for " the trust", and yes every year a short email was distributed to confirm that there was not a sufficient surplus to distribute. This was performed by the trustees, which I think was Peter Behrens and Rhydian Lewis (also the co-founders). Now "the trust" is receiving no new contributions either up-front or on older loans with lifetime payments. The "trust" is being used to pay down bad debts lcciring now across the entire portfolio. Therefore in all probability no monies will ever be returned to lenders. Therein lies one of the issues with the original concept of returning funds. Which lenders, which loans, which period, equitable or depending on your loan book, etc. A quagmire. The new Provision Fund structure and legal status as a Ltd company wholly owned by RMM Ltd means there will not be a distribution to lenders. Kevin. Apologies for taking pot shots at the messenger, but I take this as an admission that the changes that introduced the company "to increase the certainty of payout" IIRC fundamentally changed who the money is beneficially owned by. I realise that in practice RS would reduce the credit charge to borrowers if there was a significant excess in the PF and so payouts were always unlikely, but I do think the communication was fundamentally misleading.
- PM
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Post by graham34 on Sept 29, 2016 10:00:56 GMT
This seems have become quite detailed on the Financial technicalities. The way I see it is that it is a provision fund and not a guarantee fund. As such there is little point in it building up too much coverage as that basically adds to costs too much (including less return for lenders?).
I would have though a fund that aims to cover debts say every 9 out of 10 years is acceptable to a "been there done that investor", but I can see that from a marketing and reputation standpoint, plus the impact on those new to investing, it is something Ratesetter will do all they can to avoid.
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Post by westonkevRS on Sept 29, 2016 12:58:47 GMT
Kevin... any view of the rough order of magnitude of any sale, e.g. 10%, 30% etc? I would understand if this is confidential info, but just trying to get a handle on how much RS deems to be unrecoverable. I honestly don't know. I'll have a guess at around 20% of Provision Fund assets (or less). Most are making some payments, even if they are only token ones with a view to rehabilitating at a later date when their lives improve.
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jlend
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Post by jlend on Sept 30, 2016 5:53:01 GMT
Kevin... any view of the rough order of magnitude of any sale, e.g. 10%, 30% etc? I would understand if this is confidential info, but just trying to get a handle on how much RS deems to be unrecoverable. I honestly don't know. I'll have a guess at around 20% of Provision Fund assets (or less). Most are making some payments, even if they are only token ones with a view to rehabilitating at a later date when their lives improve. Very good point. Easy to forget there are people behind these loans who struggle to pay them for a variety of reasons. P2P although not a charity should there for the benefit of both lenders and borrowers
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Post by propman on Sept 30, 2016 7:48:03 GMT
Kevin... any view of the rough order of magnitude of any sale, e.g. 10%, 30% etc? I would understand if this is confidential info, but just trying to get a handle on how much RS deems to be unrecoverable. I honestly don't know. I'll have a guess at around 20% of Provision Fund assets (or less). Most are making some payments, even if they are only token ones with a view to rehabilitating at a later date when their lives improve. Very interesting as that is not Zopas experience. There a significant proportion of defaults don't pay anything, with some paying varying amounts after faced with or suffering CCJs and a smaller proportion making regular payments below the amount due.
Kev, is it the loans sold that are mainly paying smaller amounts or the total portfolio of loans held by the provision fund? My original comment holds as I suspect that these have a higher value to PF than to a third party due to lower discount rates. In fact the only ways that I can see this could provide value to the PF is if the purchaser has a lower cost base for chasing the debts (which is pretty damning on RS as it is the efficient operations that provide the ability of P2P to disrupt the banks at all), or they will squeeze defaulters harder than RS is prepared to. The latter either means that RS have not been getting best value from bad debt recovery or a callous attitude to those in real need.
Finally, I would be interested to know whether the sale involves funds held in the Trust. If it does, RMM has a fiduciary duty to the investors who would have the right to demand details and a review by the Court of Protection, so I hope that they have a cast iron case!
- PM
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