Buyback rights and Interest Rate Option

mopcku

Posts: 95

Likes: 25

Buyback rights and Interest Rate Option Feb 3, 2017 12:01:17 GMT 0risk likes this

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Post by mopcku on Feb 3, 2017 12:01:17 GMT

Dear Friends

I have my new (hope interesting) discussion topic.

I looked again in the ASSIGNMENT AGREEMENTS and unfortunately I think found an embedded option in the interest of the originators.
I am speaking about their Buyback rights.
I think as soon the Interest Rates they can achieve fell they can (and probably will) buyback our loans and refinance them on lower rates.
Originally I thought it is not so easy possible but what I found for example in the CREDITSTAR ASSIGNMENT AGREEMENT was

10. Buyback and re-transfer of the Claim
....
10.2. If provided in the Basic Terms and Conditions, the Loan Originator shall be obliged to unilaterally exercise its buyback
obligations if the Borrower delays the payments arising from the Loan Agreement by more than 60 (sixty) days. The Loan
Originator has the right, but not an obligation to unilaterally exercise its buyback rights in any of the following events:
10.2.1. if the Borrowers delays the payments arising from the Loan Agreement;
(6/8)
10.2.2. the Assignee has fully or partially recalled the authorization included in the Agreement or the Terms and Conditions of
the Portal User;
10.2.3. pursuant to the Terms and Conditions of the Portal User Mintos has limited the Assignee’s rights to use the Portal;
10.2.4. in the event of early termination of the Agreement;
10.2.5. at the sole discretion of the Loan Originator.

What do you think? Do you see this also like me? Are we really short an interest rate option here?

Thanks for your thoughts
Mopcku

extremis

Posts: 179

Likes: 58

Buyback rights and Interest Rate Option Feb 3, 2017 13:15:39 GMT

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Post by extremis on Feb 3, 2017 13:15:39 GMT

Yes, they can do it and they will (maybe already have) possibly do it to benefit from the declining interest rates. However, i don't think it is a major issue for personal loan originators (like Creditstar) since personal loans are mostly ultra short term. Also, personal loans have high default rates, so originators will exercise their buyback obligations anyway. It would make more sense for mortgage loans (or maybe car loans) to profit from reduced interest rates since these are usually long term. I remember, in the beginning there were Hipocredit loans with 18-19% interest rates and 10+ years duration. If such loans are bought back and re-issued with a couple of years paying history will easily get filled at much lower rates. (Hope loan originators will never ever read this thread).

thep2pinvestor
Member of DD Central

Posts: 54

Likes: 7

Buyback rights and Interest Rate Option Feb 5, 2017 18:11:57 GMT p2pmaster and clandestino52 like this

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Post by thep2pinvestor on Feb 5, 2017 18:11:57 GMT

Thanks mopku for bringing this up. Very careful reading of the contract(s) !

My view is that, we as investors must not be overly alarmed by this. It shows that the issuers have well structured their contracts to protect themselves. It allows them to increase their margins which is in our interest if we benefit from payback guarantees.

On the other hand, when being reimbursed, we are free to either reinvest or not. We can also withdraw our money.

BUT one point is important ! If there is such a clause in the contract, we should NEVER buy these types of loans on the secondary market and with a premium ! In this case we might incur (heavy) losses.