Hi SQH
I completely agree with your statement. It has happened on other loans as well. ReBS don't seem to be able to control what the borrower does the so called security !
However my question is a very simple one, we were told we would be getting approx 40% recovery after the borrower made a full and final settlement.
Yet when the 'bad debt' was posted to our accounts it shows a 13.7% recovery. I just want to know why this is ?
I raised this point back in December
www.rebuildingsociety.com/applications/application-422/ My question:
"Michael,
Would you please provide a complete breakdown of the money lent to H*l*o* Developments.
Your latest update states that 50.12% of the capital loaned has been categorised as bad debt. Based on this figure, I calculate that monies returned to my account equate to 13.32% of the capital loaned. Please advise what has happened to the other 36%, are we to understand that this is the sum retained by ReBS as reimbursement of costs incurred? Please advise what was the total amount retained by ReBS.
Please also advise your definition of ‘capital loaned’, does this include accrued interest since the last payment back in March?
Brian
PS: I note the bad debt is shown under ‘deductions’, I assume this to be because the original bad debt/default box has been re-classified to distort the full impact of non payments."
Michael's response:
"Hi Brian,
Thank you for your question.
The 50.12% breaks down as follows.
Total funds loaned to Holroy were £35000, total funds received back were £22676.39.
Usually, ReBS recovers the legal fees and recovery costs from the debtor. However in this instance ReBS has paid all legal and court fees on behalf of the lenders. As a result, 100% of all monies received from Holroy have been distributed to lenders.
Capital loaned refers to just capital- i.e. no interest or accrued interest.
The 13.32% quoted in your question assumed that no capital had been received through the life of the loan. Looking at a purely capital basis, there was roughly 50% bad debt, 50% recovered.
The original box combined Defaults and Bad Debt, which meant that some lenders mistakenly interpreted Defaults to be the same as Bad Debt. We have now separated this into Bad Debts and Deductions.
The Loss is sustained when the loan becomes a Bad Debt, but while it is in default, we may continue to process some repayments (as and when received) and we will follow up on legal enforcement of the debt. It does not distort non payments, the bad debt figures do negatively impact on the returns because we begin to adjust for the probable loss. So for example if you have £100 on a loan that goes into default and we set the probability of recovery to 40% then we will account for a £60 loss. But if the probability then improves / deteriorates (as we learn more about the probable enforcement outcome) then the loss will also be adjusted. So if the 40% becomes 50% then the £60 loss becomes £50.
I hope this answers your question. Should you wish to discuss your particular amount received and overall net loss/gain, please email support@rebuildingsociety.com"
In short, the difference between the 13.7% I received and the 40% ReBS say I received is due to the 'capital paid out previously during the lifetime of the loan'.
IMHO, ReBS misrepresented the facts when stating there had been a 40% 'recovery'.