rogerthat
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Post by rogerthat on Jun 26, 2018 9:33:08 GMT
Well done SteveT what a complete nonsense..and yes...I have some in 1st tranches AND in 3rd tranches
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r00lish67
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Post by r00lish67 on Jun 26, 2018 9:38:12 GMT
Well, I'd obviously not be happy, but I'd have to measure that against my level of hacked-offedness if I was sitting in the 3rd facility and the 1st facility was renewed before mine and then it all went wrong. From that position, I'd be saying "well, those guys already had one renewal, a bundle of interest, and a chance to exit in November - I should have had that chance back in December, and yet those guys now get another bite of the cherry first with their loans only a month late whilst mine are four months late and I'm yet to see one renewal or a penny of interest as of yet, and now never will". ...answer: I still think I'm in the chronological camp, despite the fact that I almost never take up lower facilities in practice. You might well be hacked off, but it's the inevitable consequence of lending with 3rd-ranking priority that, if the loan falls into arrears or defaults fully, 1st-ranking lenders get first call on available funds ahead of lower ranking lenders. To extend the thought experiment, imagine the different ranking facilities came from different lenders (rather than all from FS). Do you really think the 1st-ranking lender would be letting a 3rd-ranking lender benefit from any available funds first? It's a nonsense. I am enjoying these thought experiments (honestly!). I think that last question might reveal why we're on a different page. The way you word it ("any available funds first") suggests to me that we're talking about an impaired loan. In which case, I totally agree, why should a lower facility holder get paid any interest there is to be had, in advance of the senior lender? Nonsense indeed. However, in FS terms, I think this loan is still considered performant. So why wouldn't all lenders, no matter from which institution, continue to be paid as and when they're due? So, sorry if I'm slow on cottoning on, but perhaps what could be considered wrong here is that FS are rolling over loans in a BAU orderly fashion, without sufficient consideration of the fact that the loans are already well over term and at a significantly higher risk of not filling or the borrower running out of funds entirely prior to all of the renewals being completed. If that's it, then this to me is a symptom of the problem that FS have allowed to creep in over the last 6-9 months. It's my perception that FS loans were typically renewed promptly (or detailed explanations given) on or shortly after term. Nowadays, they may not update a loan after term for a whole month, and then just say "yeah, borrower reckons he'll refinance in a couple of months" whilst conveniently disregarding lender's financial interest in the loan being renewed. So, the concept of 6 month bullet loans has become a bit of a farce. So, do you regard this loan in BAU performing territory, or as effectively non-performing due to how long it's taken for interest to arrive?
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r00lish67
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Post by r00lish67 on Jun 26, 2018 9:41:23 GMT
Well done SteveT what a complete nonsense..and yes...I have some in 1st tranches AND in 3rd tranches Looks like FS can't decide for sure either though "We have therefore decided to postpone this renewal whilst we consider this question." IMV, and I'm still happy to be persuaded, it boils down to whether this loan is considered performing or not. If there is any question in fundingsecure's mind as to whether the borrower has enough money to renew all facilities, then it should be first facility first. Otherwise, chronological. Btw, I don't have a penny in any facility of this loan.
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sqh
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Post by sqh on Jun 26, 2018 9:45:35 GMT
The loan isn't in formal default so my understanding is that the borrower makes the decision on which tranche to renew. It's certainly true that the borrower can repay any tranche early, regardless of priority, it's happened with the Italian Books and I questioned it at the time.
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r00lish67
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Post by r00lish67 on Jun 26, 2018 9:49:31 GMT
They have now pulled 3rd facility 1st tranche , thanks for nothing somebody who contacted FS about the order of renewal. This would have been an exit for me, now they may well renew another tranche that I am not in Well, you did 'like' Steve's post asking for it be changed, so you can't complain too much!
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SteveT
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Post by SteveT on Jun 26, 2018 9:49:36 GMT
So, do you regard this loan in BAU performing territory, or as effectively non-performing due to how long it's taken for interest to arrive? There is currently £1.65m that is well overdue for repayment, £1m of it with 1st-ranking priority and £650k with 3rd / 4th ranking priority. Additional funds now appear to have been raised by borrowing yet more money against the same security at 5th ranking priority. In total, £3.25m has been raised against a piece of land with no extant planning consent, but the LTV is based on a VR that assumes that consent will eventually be granted. I think the facts speak for themselves.
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rogerthat
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Post by rogerthat on Jun 26, 2018 10:01:05 GMT
Well done SteveT what a complete nonsense..and yes...I have some in 1st tranches AND in 3rd tranches Looks like FS can't decide for sure either though "We have therefore decided to postpone this renewal whilst we consider this question." IMV, and I'm still happy to be persuaded, it boils down to whether this loan is considered performing or not. If there is any question in fundingsecure's mind as to whether the borrower has enough money to renew all facilities, then it should be first facility first. Otherwise, chronological. Btw, I don't have a penny in any facility of this loan. Roolers old chap..you're previous post in part identifies why we are in this ridiculous situation..FS's inability to manage their loan book in a timely manner which is resulting in a log jam of overdue loans (the state of FS's loan book currently is frightening) but surely you can see that the very principle of lending and any subsequent level of risk attached, is at stake here. What is the point of seniority in a loan structure, if when funds arise, lower ranking tranches are settled first ?
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r00lish67
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Post by r00lish67 on Jun 26, 2018 10:05:05 GMT
So, do you regard this loan in BAU performing territory, or as effectively non-performing due to how long it's taken for interest to arrive? There is currently £1.65m that is well overdue for repayment, £1m of it with 1st-ranking priority and £650k with 3rd / 4th ranking priority. Additional funds now appear to have been raised by borrowing yet more money against the same security at 5th ranking priority. In total, £3.25m has been raised against a piece of land with no extant planning consent, but the LTV is based on a VR that assumes that consent will eventually be granted. I think the facts speak for themselves. Well, quite. I suppose the problem again is that FS have a loan (and many other loans) which is in the 'twilight zone' - It's over term, has never paid lenders interest and so hasn't stopped paying them interest either. If we use the old P2PFA NPL standard of 45 days overdue, then you could certainly consider this loan as 'troubled'. Of course, it wouldn't be troubled if FS had applied an initial term of significantly greater than 6 months. It's a deficiency of their model as applied to property lending. So, yes, I agree then - in this instance it probably should be 1st facility first, but it doesn't appear to be the black and white decision that it really should be IMV.
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r00lish67
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Post by r00lish67 on Jun 26, 2018 10:06:33 GMT
Looks like FS can't decide for sure either though "We have therefore decided to postpone this renewal whilst we consider this question." IMV, and I'm still happy to be persuaded, it boils down to whether this loan is considered performing or not. If there is any question in fundingsecure's mind as to whether the borrower has enough money to renew all facilities, then it should be first facility first. Otherwise, chronological. Btw, I don't have a penny in any facility of this loan. Roolers old chap..you're previous post in part identifies why we are in this ridiculous situation..FS's inability to manage their loan book in a timely manner which is resulting in a log jam of overdue loans (the state of FS's loan book currently is frightening) but surely you can see that the very principle of lending and any subsequent level of risk attached, is at stake here. What is the point of seniority in a loan structure, if when funds arise, lower ranking tranches are settled first ? For troubled loans, absolutely agree - However, FS have never attributed any notification as to this loan being non-performing, which I think is the issue here.
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SteveT
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Post by SteveT on Jun 26, 2018 10:06:56 GMT
The loan isn't in formal default so my understanding is that the borrower makes the decision on which tranche to renew. It's certainly true that the borrower can repay any tranche early, regardless of priority, it's happened with the Italian Books and I questioned it at the time. When a borrower is meeting the contractual terms under which they've borrowed then there can be no argument if they repay a junior loan or tranche first; indeed, it's logical for them to clear higher cost borrowings first. However, once they breach the terms of their borrowing (and the overdue tranches here are certainly in technical default even if FS remains confident in the borrower's ability to repay in due course) then they should only be repaid in ranking priority order. A renewal is, in practice, repayment in full of the existing loan and creation of a new replacement loan (new loan number, new contractual term, occasionally a new rate of interest, certainly a new list of lenders depending on who exits and who renews).
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r00lish67
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Post by r00lish67 on Jun 26, 2018 10:09:43 GMT
The loan isn't in formal default so my understanding is that the borrower makes the decision on which tranche to renew. It's certainly true that the borrower can repay any tranche early, regardless of priority, it's happened with the Italian Books and I questioned it at the time. When a borrower is meeting the contractual terms under which they've borrowed then there can be no argument if they repay a junior loan or tranche first; indeed, it's logical for them to clear higher cost borrowings first. However, once they breach the terms of their borrowing (and the overdue tranches here are certainly in technical default even if FS remains confident in the borrower's ability to repay in due course) then they should only be repaid in ranking priority order. A renewal is, in practice, repayment in full of the existing loan and creation of a new replacement loan (new loan number, new contractual term, occasionally a new rate of interest, certainly an new list of lenders depending on who exits and who renews). Agree with this. But FS agreeing would make a huge amount of their loanbook technically non-performing instead of 'awaiting renewal', so I wonder if they will they agree too.
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james21
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Post by james21 on Jun 26, 2018 10:10:14 GMT
They have now pulled 3rd facility 1st tranche , thanks for nothing somebody who contacted FS about the order of renewal. This would have been an exit for me, now they may well renew another tranche that I am not in Well, you did 'like' Steve's post asking for it be changed, so you can't complain too much! Some will win, some lose depending which tranche you are in, goes will all tranche loans!
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r00lish67
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Post by r00lish67 on Jun 26, 2018 10:20:11 GMT
I think the only options to resolve this properly are:
1) Renew/redeem/mark as unredeemed all individual loans promptly on their end date.
Unredeemed loans that form part of a facility or multiple facilities of loans then need to be considered in senior facility first terms in terms of interest payments/eventual renewal/recovery.
But in reality, that would be a sledgehammer to crack a walnut and would give FS a huge headache. They'd have to suspend loads of loans on the SM for starters, and would lose all control of when to pump in renewals.
2) Change their model to provide appropriate end dates for loans which they know are going to take longer than 6 months to complete. That in itself would cause lots of problems - however it would stop them having to renew loans all of the time. Would probably require 'normal' monthly interest payments too instead of bullet.
Agh. I'm glad I'm not FS. I suspect the answer will have to be - continue to fudge through as appropriate!
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SteveT
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Post by SteveT on Jun 26, 2018 10:28:16 GMT
This case is rather self-inflicted since the recent 5th-ranking loan could presumably have been raised quite some time ago (the VR hasn't changed, AIUI) and certainly before the four 1st-tranking tranches all fell overdue too. Once they did, there became no realistic option but to follow the ranking priority.
I don't think there's a fundamental need to change the FS lending model. Instead, the lesson should be to anticipate such problems once multiple tranches (with different priorities) get close to becoming overdue, and to react faster in getting renewals underway (obtaining interest from the borrower and/or raising further funds against the asset)
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SteveT
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Post by SteveT on Jun 26, 2018 10:40:03 GMT
.. but surely you can see that the very principle of lending and any subsequent level of risk attached, is at stake here. What is the point of seniority in a loan structure, if when funds arise, lower ranking tranches are settled first ?Yup, that's the issue in a nutshell.
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