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Post by stuartassetzcapital on Dec 31, 2017 15:27:11 GMT
Hi everyone.
We are evaluating the release of tranched loans. The reason for this relates to being able to better differentiate the investment offers that we make to investors between lower rate/ lower potential risk of loss and higher rate/ higher potential risk of loss. The same loan could offer both components to investors according to their risk / return objectives by splitting the loan into a lower risk/ lower return component and a higher risk/ higher return component.
To achieve this we are evaluating tranching loans. For example the first [50%] LTV of a loan might pay c 5.5% and may mainly reside in the Access accounts for example (as well as potentially on MLIA). The rest of the loan between [50%] and the [60-75%] typical total LTV of the loan would be offered on the MLIA principally although we would consider creating a specialist automated investment account for these second charge higher LTV tranches to avoid the manual lending workload (with no provision fund). The higher LTV tranches would be second charges effectively and rank behind the lower LTV tranche in a recovery. The higher LTV tranches could well pay [9%-12%] or so even though the underlying loan would be priced for the borrower much as we already do today.
Do people have an interest in this and does anyone have any feedback, questions or comments on this approach?
Many thanks in advance.
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SteveT
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Post by SteveT on Dec 31, 2017 15:40:21 GMT
Definitely interested, else my continued withdrawal from the MLIA (and therefore AC) appears inexorable. But security has to be very strong for me to lend on a second charge, even at 12%. Good quality residential property, maybe. Dubious commercial loans or speculative developments, no thanks.
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Post by stuartassetzcapital on Dec 31, 2017 16:11:23 GMT
Hi Stuart, will continue to run down my MLIA portfolio irrespective of whether Assetz decide to tranche their offerings or not; to put it bluntly your broadly evidenced decreasing rates policy sucks it's progressively throwing risk/reward way out of kilter and this ill conceived policy is most likely upsetting more than just me. Bye for now, J. Hi, thanks for your feedback. AltFi Data independently rank us as the highest (best) risk/reward ratio out of all the main platforms - AltFi Data. By this they mean the return on lending pa versus the loss rate pa. Or how many times gross interest covers annual losses. Would you be able to elaborate on how you see our risk return ratio declining for me ? Many thanks and Happy New Year.
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IFISAcava
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Post by IFISAcava on Dec 31, 2017 16:25:30 GMT
Hi everyone. We are evaluating the release of tranched loans. The reason for this relates to being able to better differentiate the investment offers that we make to investors between lower rate/ lower potential risk of loss and higher rate/ higher potential risk of loss. The same loan could offer both components to investors according to their risk / return objectives by splitting the loan into a lower risk/ lower return component and a higher risk/ higher return component. To achieve this we are evaluating tranching loans. For example the first [50%] LTV of a loan might pay c 5.5% and may mainly reside in the Access accounts for example (as well as potentially on MLIA). The rest of the loan between [50%] and the [60-75%] typical total LTV of the loan would be offered on the MLIA principally although we would consider creating a specialist automated investment account for these second charge higher LTV tranches to avoid the manual lending workload (with no provision fund). The higher LTV tranches would be second charges effectively and rank behind the lower LTV tranche in a recovery. The higher LTV tranches could well pay [9%-12%] or so even though the underlying loan would be priced for the borrower much as we already do today. Do people have an interest in this and does anyone have any feedback, questions or comments on this approach? Many thanks in advance. I think that would be a welcome move. Would the automated higher LTV MLIA without PF pay full rates i.e. it would be diversified but wouldn't take any extra charge?
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Post by stuartassetzcapital on Dec 31, 2017 16:40:18 GMT
Hi everyone. We are evaluating the release of tranched loans. The reason for this relates to being able to better differentiate the investment offers that we make to investors between lower rate/ lower potential risk of loss and higher rate/ higher potential risk of loss. The same loan could offer both components to investors according to their risk / return objectives by splitting the loan into a lower risk/ lower return component and a higher risk/ higher return component. To achieve this we are evaluating tranching loans. For example the first [50%] LTV of a loan might pay c 5.5% and may mainly reside in the Access accounts for example (as well as potentially on MLIA). The rest of the loan between [50%] and the [60-75%] typical total LTV of the loan would be offered on the MLIA principally although we would consider creating a specialist automated investment account for these second charge higher LTV tranches to avoid the manual lending workload (with no provision fund). The higher LTV tranches would be second charges effectively and rank behind the lower LTV tranche in a recovery. The higher LTV tranches could well pay [9%-12%] or so even though the underlying loan would be priced for the borrower much as we already do today. Do people have an interest in this and does anyone have any feedback, questions or comments on this approach? Many thanks in advance. I think that would be a welcome move. Would the automated higher LTV MLIA without PF pay full rates i.e. it would be diversified but wouldn't take any extra charge? Yes that is the likely plan.
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Post by charlata on Dec 31, 2017 16:40:45 GMT
Would interest on the first charge be senior to capital on the second charge?
I got suckered good and proper on MT where interest on a first charge ranks as a third charge, behind capital repayment on the second charge. I should have read that loan description more thoroughly, but expecting retail investors to calculate risk-adjusted returns on a loan tranche subsuming first and third charges strikes me as a level of complexity too far.
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Post by slumberingaccountant on Dec 31, 2017 16:46:11 GMT
subject to complexities ( as above) sounds like a useful idea. Lendinvest used to have many like this and i would often invest in both tranches, either 50/50 or 75/25 tilted towards the lower rate/LTV.
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Post by stuartassetzcapital on Dec 31, 2017 16:46:58 GMT
Would interest on the first charge be senior to capital on the second charge? I got suckered good and proper on MT where interest on a first charge ranks as a third charge, behind capital repayment on the second charge. I should have read that loan description more thoroughly, but expecting retail investors to calculate risk-adjusted returns on a loan tranche subsuming first and third charges strikes me as a level of complexity too far. Yes both interest and capital on the lower [50%] tranche would be senior to the higher LTV tranche. That’s industry standard ‘senior debt’. That other method sounds most peculiar and I can see why you think it complex. This higher LTV higher interest rate second charge tranche won’t be for everybody and we will restrict access to the second charge higher LTV loan tranches in all likelihood following a ‘test’ of understanding for individual investors.
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Post by jevans4949 on Dec 31, 2017 17:05:43 GMT
I may be interested in the lower-rate tranches if offered as part of the MLIA. In the event that the loan could not be repaid in full, would it be the intention to repay the lower tranches in full as soon as possible, and to make the higher rate tranches wait until the security could be liquidated and/or bankruptcy procedures completed?
For higher tranches I would probably need interest rates north of 20% to tempt me in.
PS: I would not wish to invest through an automated account.
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angrysaveruk
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Post by angrysaveruk on Jan 1, 2018 12:18:22 GMT
I think it is a good idea, although I think it is going to be hard to price fairly.
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tonyr
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Post by tonyr on Jan 1, 2018 12:28:50 GMT
Acutely aware that KISS (Keep It Simple St***d) is a good mantra to go by I can't help but think that Assetz are about to make their lending platform more complex than it needs to be... I strongly agree with KISS - putting everyone on the same footing is fair (as well as minimising the dev work). I wouldn't accept the lower tranche for just the same reasons I don't invest in any of the automatic accounts, the rate is too low for me. I wouldn't accept the upper tranche because the risk modelling is too complex. Specifically, how do I know that the levels were set reasonably between the funds AC benefits most from (the automatic ones) and the risky slice remaining? It strikes me that you need a substantial amount of data to answer this question, one that MLIA investors like myself aren't going to have. So we'd have to do it on trust, and I I do like the phrase "only the paranoid survive". But I do want AC to continue to innovate. So if you have the bandwidth to play, they go ahead and experiment and let your users tell you if they like it. You could find sets of pairs of similar loans and tranche one set and not the other and see what the uptake is. Do it on a small fraction of the incoming loans, listen to all the whinging and praise here and you've got a great chance to innovate and so stay ahead.
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agent69
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Post by agent69 on Jan 1, 2018 13:20:56 GMT
This system is already in operation on Thin Cats, albeit the rates were typically 10% / 14% (with the higher rate normally shifting quickest). My concern would be that if you take the 9 / 10% interest rate, you are getting a first charge interest rate for a second charge loan.
PS - Why are AC proposing this. It makes no difference to the borrower, so I assume it is intended to stop the flow of funds off platform due to reducing rates.
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Post by stuartassetzcapital on Jan 1, 2018 13:25:14 GMT
Acutely aware that KISS (Keep It Simple St***d) is a good mantra to go by I can't help but think that Assetz are about to make their lending platform more complex than it needs to be so would it not be easier all around if they were just prepared to raise rates rather than continually lowering them thereby making the higher risk tranche idea redundant? Currently the headline inflation rate in the UK is circa 3.1% and Assetz's lowest lending rate is 5% giving a 1.9% differential, the questions I'll ask are these: 'Are we being adequately rewarded for our commitment to the platform? Is the differential between the UK inflation rate and Assetz's lender rate become too narrow to justify risking our funds especially within the MLIA where no PF cover exists?' KISS, by keeping things simple could we not all move Assetz forward together? Risk/Reward stuartassetzcapital is not so much about laudable statistics But rather True Value, True Fairness, True Sense and True Equanimity. Hi everyone and magentaAbz and thanks for all the feedback so far. A couple of clarifications on the feedback above. Just raising lender and hence borrower rates within a competitive landscape will require moving into higher risk borrower loans at a time when economic indicators suggest we should be moving the other way - this approach we are suggesting is a finance industry standard and for clarity although it will allow some people to partake in higher returns on the current lower risk loans it is only intended that the higher return tranches are available to those who understand this structure - this higher LTV tranches is not intended for mass market in our view. And for those who want super modest LTVs (say 50% or less) then we can offer inflation beating gross returns and in a tax free ISA wrapper too. On the point re the 1.9% differential, in fact our average MLA (manual lending account) rate is around 8% not 5% so the current inflation premium available to investors is circa 4.9% pa gross, pre any losses. So we are proposing keeping it really simple and even safer for those who would like a simple and lower risk account whilst bringing back 10% type rates for those who understand the above industry standard structure (that we will explain in far more detail if we were to do it) and would like those rates again on our type of originated loans versus others available in the marketplace. I hope this helps and Happy New Year to you all !
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oldgrumpy
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Post by oldgrumpy on Jan 1, 2018 14:11:57 GMT
"...On the point re the 1.9% differential, in fact our average MLA (manual lending account) rate is around 8% not 5% so the current inflation premium available to investors is circa 4.9% pa gross, pre any losses... "
stuartassetzcapital
What is AC's (weighted) average MLA rate for loans launched (a) during the whole of 2017, and (b) of the period 1 July - 31 December 2017?
I prefer not to include remnants of previous years' higher rates to be included in figures given to illustrate the current proposals.
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ceejay
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Post by ceejay on Jan 1, 2018 14:12:12 GMT
Not sure why anyone would take such an exception to this suggestion. You can either take it up, or not.
Personally I'd probably be more interested in the higher rate tranche, though my per-loan limit would be lower than for standard loans. Depending on whether I like the look of the loan itself, of course.
Falling P2P interest rates seem to be an unavoidable fact of the market as it stands today: if you think otherwise, then exercise your right to move money around and see how many people follow.
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