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Post by dan1 on Oct 30, 2018 14:55:22 GMT
Discounting would kill MT. They're struggling to fund new loans as it is. If investors have the choice of buying discounted SM parts or new loans at par, the new loans just wouldn't fill. I’d argue the exact opposite. The only way to breathe life into the moribund MT SM, giving lenders the confidence to invest in new loans without being locked in to term, is to allow market demand determine the correct price for a loan as it moves towards (and even beyond) its term. Insisting that Par is the correct price for, say, a 12 months loan with just 1 month remaining before repayment is financially nonsensical. I think that both of these points of view have merit. Jeepers is right in that MT would struggle to fill loans with investors preferring to wait until that same loan is available at a discount a few days later. Just look at AC and ABL where they rely heavily on underwriters to fill the bigger loans before offloading them on the SM within hours at a discount (regular punters effectively taking some of the margin offered to the underwriters). But equally, why invest in a loan that you may wish to de-risk at a later date but find that your stuck with, and no-one in their right mind will buy at par nearing maturity as SteveT says. I'm not sure what the answer is but I'm sure that MT would of thought through restricting sales at anything other than par for <x> weeks, if they don't want to ramp up the underwriter route.
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SteveT
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Post by SteveT on Oct 30, 2018 15:02:27 GMT
You’re right that platforms that become reliant on underwriters to fill loans, paying them additional margin that’s not available to normal lenders, invite immediate discounting which, in turn, invites lenders to wait until such discounts become available.
But the obvious way to avoid this is to not get sucked into paying extra to underwriters in the first place. Offer suitably sized loans at fair rates for the risk so that they fill naturally.
Why a normal lender would invest in a new loan and then discount it within days / weeks is beyond me.
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bg
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Post by bg on Oct 30, 2018 15:29:16 GMT
You’re right that platforms that become reliant on underwriters to fill loans, paying them additional margin that’s not available to normal lenders, invite immediate discounting which, in turn, invites lenders to wait until such discounts become available. But the obvious way to avoid this is to not get sucked into paying extra to underwriters in the first place. Offer suitably sized loans at fair rates for the risk so that they fill naturally. Why a normal lender would invest in a new loan and then discount it within days / weeks is beyond me. But that isn't the main reason platforms use underwriters. The main reason is to allow fast drawdown of the loan. Take AC as the obvious example. Retail investors can't invest in any loan until it has drawn. Loans are initially fully funded by a combination of underwriting and platform funds. It is not question of investors choosing to wait until loans are drawn so they can potentially buy at a discount, they have no choice but to wait. As you rightly say if underwriting is not used then no lender is going to buy a loan just to discount it immediately. If underwriters are used then normal lenders may get the bonus an effective cashback. Whats the downside? Anyone who thinks AC's model doesn't work. They have funded around £15m of new loans this month. Is that a model that is broken?
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r00lish67
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Post by r00lish67 on Oct 30, 2018 15:34:56 GMT
Having what I'd term a 'proper' functioning SM isn't a panacea to solve all of MT's woes, but IMV it certainly strengthens the platform rather than weakens it.
I wavered slightly over whether to vote for premiums and discounts or just discounting, but decided upon premiums and discounts. Reasons being:
1) When some very good news appears e.g. a specified LTV lowers dramatically for whatever reason, it would be useful to still have a market for those loans rather than being snapped up by bots or those with fast fingers.
2) If MT recovers some momentum, then it's conceivable that we could end up with new lenders having very little to buy. Premiums encourage that to be facilitated.
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GeorgeT
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Post by GeorgeT on Oct 30, 2018 15:43:18 GMT
Quality loans fill (or are only attracted to platforms offering lower interest rates). Poor quality, high LTV and questionable Borrowers make 12% insufficient for the risks involved. Changing the SM does not change this. IMHO MT should reposition themselves to offer higher quality loans in the 8-10% range, rather than attempting to copy others. I agree fully. High class 12% loans have become as rare as unicorns. They stopped existing once the SMs stalled and you could no longer play pass the parcel. Part of the blame I would attribute to L who were the big dominant aggressive player in the market and who made 12% the big selling point. This rather forced other platforms to also try and match them at 12% and this lead to a worsening of the quality of the loans and investors being presented with dubious quality loans simply because it was felt that you had to be able to offer 12% because it was all rate driven in the market. Now that the demand is not there and folks are saddled with defaults they are realising that 12% is not the holy grail and in fact 12% is an indicator of crazy risk. I would contend that the investors' mindset has moved sideways to the left on the graph and that 8 to 9% will soon be the new 12%. I would hope that if the sensible investor has adjusted his expectations such that he is prepared to accept 8 or 9% return in exchange for a quality loan, that could reinvigorate the P2P sector and I would suggest that is the way to go. I think the mere offering of 12% these days is enough to scare a lot of people away because it just screams a high-risk LY type of loan and rings alarm bells in their heads even before they have read the small print and carried out their own due diligence. At 12% you are now almost looking for the skeletons rather than stumbling upon them by chance. I think a quality 9% proposition could arouse more interest than a suspect looking 12%er.
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SteveT
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Post by SteveT on Oct 30, 2018 16:19:08 GMT
I’d argue the exact opposite. The only way to breathe life into the moribund MT SM, giving lenders the confidence to invest in new loans without being locked in to term, is to allow market demand determine the correct price for a loan as it moves towards (and even beyond) its term. Insisting that Par is the correct price for, say, a 12 months loan with just 1 month remaining before repayment is financially nonsensical. The problem with discount is the knock on effect on everybody else. The loan may be a good one but the seller needs the cash and sells at a discount, this effectively devalues everybody else's investment. I think it would be better to only allow discounting on distressed loans, to reflect the fact they're actually worth less. If it’s a good loan and offered at a discount, it won’t hang around very long. Just look at the AC secondary market. Aside from underwriting-led short term selling-on of really big new loans (a recent phenomenon discussed above), discounted parts in “good loans” are rather rare and get bought up very quickly. The fact that the OPTION exists to sell at a discount, if needed, engenders lender trust in the wider market.
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copacetic
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Post by copacetic on Oct 30, 2018 16:24:34 GMT
Good job MT, nice to see a platform with their finger on the pulse. Personally I'm all for discounts on the SM. There are some loans like Wandsworth that I'm confident with the security that I'd be happy to be 'stuck' in for a year or 2 or pick up some extra at a discount. There are also others I'd quite happily knock off a few percent and allow someone with a bigger risk appetite the opportunity to make a profit (or loss) out of. With regards to the effect this will have on filling new loans I think the popular loans will fill even faster as people take their bid limit to dump later at a profit (if premiums are allowed) and the unpopular ones will struggle to fill even more as people hold off to pick up at a discount later on the SM. That said this isn't necessarily a bad thing because the unpopular loans not filling might indicate the expected return is too low due to security overvaluation or a dodgy borrower background.
I'll also admit that I'm guilty of being in the SM sale queue for no other reason than there is a queue to allow for some potential future liquidity (and also still a little bit of transferring some loans to my ISA) contributing to the SM stagnation.
Edit: The loan may be a good one but the seller needs the cash and sells at a discount, this effectively devalues everybody else's investment. It reduces the market price of your investment if you were to sell at that moment. Hold onto it until term though and you'll still get 100% capital + interest if it's a good loan. And if the perception is that it's not a good loan then that's the reason it will be on the SM at a discount.
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robski
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Post by robski on Oct 30, 2018 16:29:40 GMT
Personally I prefer par.
Discounting and in effect que jumping means you can plan to sell a loan and if poof some new info arrives you can end up with fastest fingers discounting etc.
But, I understand some people like the thought of being able to derisk later on.
But but, if your going to discount then I believe you should allow the market to work in both directions and as such I voted for both discount and premium.
Some loans are rare as hens teeth and that pretty much indicates that the current interest is low compared to the perceived risk, why would you not allow someone luckily holding that to not be able to ask for a little extra.
Not every loan goes up in risk as time passes, some with staged repayments in theory become lower risk as LTV drops, so these should be allowed to increase in value with a premium.
It will change the SM thats for sure, but my gut feel is it will make little real diff to the solvency of it. My suspicion is that all you will get is people constantly que jumping vs others who try to sell at par only.
Quite how the mechanics would work I am interested by. Its it whole 1% each time, or completely variable, to how many decimal points etc.
IMHO it raises far more chance of bots benefiting people vs non bots.
How will this function in regards suspended (currently from SM) and default loans?
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dovap
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Post by dovap on Oct 30, 2018 16:40:31 GMT
ah lovely a bit of lippy for the pig
So if 'discounting only' is the new panacea - can something bought at a discount only ever be discounted further or will it be open to some spivery at a later date ?
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bg
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Post by bg on Oct 30, 2018 17:27:25 GMT
The problem with discount is the knock on effect on everybody else. The loan may be a good one but the seller needs the cash and sells at a discount, this effectively devalues everybody else's investment. I think it would be better to only allow discounting on distressed loans, to reflect the fact they're actually worth less. What you mean like a true market where the price moves depending on supply and demand? It's akin to saying the stock market or used car market should be fixed price as someone might decide to sell something I own, decreasing the value of own investment. Just because something is forced to trade at a fixed level doesn't mean it's worth that amount. A non-distressed loan can also be worth less than par......pity the poor suckers who have bought some of the  I have sold at par (including Birkenhead tranche B which I shifted at par when I knew it was worth zero)
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IFISAcava
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Post by IFISAcava on Oct 30, 2018 17:53:41 GMT
Personally I prefer par. Discounting and in effect que jumping means you can plan to sell a loan and if poof some new info arrives you can end up with fastest fingers discounting etc. But, I understand some people like the thought of being able to derisk later on. But but, if your going to discount then I believe you should allow the market to work in both directions and as such I voted for both discount and premium. Some loans are rare as hens teeth and that pretty much indicates that the current interest is low compared to the perceived risk, why would you not allow someone luckily holding that to not be able to ask for a little extra. Not every loan goes up in risk as time passes, some with staged repayments in theory become lower risk as LTV drops, so these should be allowed to increase in value with a premium. It will change the SM thats for sure, but my gut feel is it will make little real diff to the solvency of it. My suspicion is that all you will get is people constantly que jumping vs others who try to sell at par only. Quite how the mechanics would work I am interested by. Its it whole 1% each time, or completely variable, to how many decimal points etc. IMHO it raises far more chance of bots benefiting people vs non bots. How will this function in regards suspended (currently from SM) and default loans? I don't see this "queue jumping" thing. The whole point is that there isn't a queue, just a price at which a person is willing to sell and a price at which another person is willing to buy, which may or may not coincide. And the mechanics are simple - just look at ABL for how to do it. 1 decimal place is my suggestion.
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7d7
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Post by 7d7 on Oct 30, 2018 17:54:53 GMT
I recall the days ABL were praised for their liquid SM, which was attributed to the premiums and discounts on offer. At present, there are plenty of discounted portions of performing loans not being purchased resulting in an increasing illiquid SM.
The reality is the number of lenders targetting an exit will diminish when more pressing matters such as over-valuation of security, loan presentation and monitoring, communication, recoveries etc. are consistently dealt with.
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IFISAcava
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Post by IFISAcava on Oct 30, 2018 17:58:15 GMT
I recall the days ABL were praised for their liquid SM, which was attributed to the premiums and discounts on offer. At present, there are plenty of discounted portions of performing loans not being purchased resulting in an increasing illiquid SM. The reality is the number of lenders targetting an exit will diminish when more pressing matters such as over-valuation of security, loan presentation and monitoring, communication, recoveries etc. are consistently dealt with. it's still liquid at the right price.
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ianj
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Post by ianj on Oct 30, 2018 20:20:01 GMT
Unfortunately, my preferrence will remain my secret as Monething's email service provider, SharpSpring, can't / won't handle 'disposable' email addresses and I no longer receive bulk emails from the platform.
In an email exchange with Customer Support I was assured this would be 'looked at' and subsequently..... << As for not being able to send emails to a disposable email address, we’ve asked why not and we’re waiting for a response. >> Now, five months further on, I'm none the wiser, possibly just the opposite! Perhaps, SophieThing , it's time for SharpSpring's response to be revealed.
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Post by MoneyThing on Oct 30, 2018 20:27:07 GMT
Unfortunately, my preferrence will remain my secret as Monething's email service provider, SharpSpring, can't / won't handle 'disposable' email addresses and I no longer receive bulk emails from the platform.
In an email exchange with Customer Support I was assured this would be 'looked at' and subsequently..... << As for not being able to send emails to a disposable email address, we’ve asked why not and we’re waiting for a response. >> Now, five months further on, I'm none the wiser, possibly just the opposite! Perhaps, SophieThing , it's time for SharpSpring's response to be revealed. Apologies ianj - I had thought that this had been dealt with. I have messaged SharpSpring to ensure that it gets dealt with asap. Regards, Ed.
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I have sold at par (including Birkenhead tranche B which I shifted at par when I knew it was worth zero) 
