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Post by dualinvestor on Feb 23, 2018 8:13:05 GMT
It is not a problem with valuations it is what lenders expect and understand from them.
Properties are usually unique, especially those used as security for P2P, rarely are there, recently sold, local, direct comparisons to base a value on. Therefore the valuer has to rely on a set of rules set out in the RICS “Red Book” and years of training and experience.
The realisable value of any security is only known when it is enforced and sold. Take two houses next door to each other identical in every way, one being sold by the occupier, on being sold by the bank because it has had to enforce the mortgage. Nobody really expects that the second one will sell for the same as the first, in fcat on TV reality shows they are sold either by private treaty or auction for often less than half their “market value.”
I’m not saying that sometimes valuations are often manipulated (PBL 020), but even where they are not it often takes an age to sell (PBL056) where it is mundane ordinary farmland or has to go to auction (PBL 155) or where you have a mendacious borrower (PBL 064) where it takes a year to gain possession.
But on the whole it is not the valuation but unrealistic views of what they mean and how they can be affexted when security is enforced.
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nick
Member of DD Central
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Post by nick on Feb 23, 2018 9:07:07 GMT
It is not a problem with valuations it is what lenders expect and understand from them. Properties are usually unique, especially those used as security for P2P, rarely are there, recently sold, local, direct comparisons to base a value on. Therefore the valuer has to rely on a set of rules set out in the RICS “Red Book” and years of training and experience. The realisable value of any security is only known when it is enforced and sold. Take two houses next door to each other identical in every way, one being sold by the occupier, on being sold by the bank because it has had to enforce the mortgage. Nobody really expects that the second one will sell for the same as the first, in fcat on TV reality shows they are sold either by private treaty or auction for often less than half their “market value.” I’m not saying that sometimes valuations are often manipulated (PBL 020), but even where they are not it often takes an age to sell (PBL056) where it is mundane ordinary farmland or has to go to auction (PBL 155) or where you have a mendacious borrower (PBL 064) where it takes a year to gain possession. But on the whole it is not the valuation but unrealistic views of what they mean and how they can be affexted when security is enforced. To add the above, valuations do not reflect the value to be expected from a distressed sale where the will know the seller is in a very weak position and is looking for a quick sale. This, as well as concerns over the underlying reasons for the property being in distress will invariably lead to significant discount to the valuation of a non-distressed property in a normal market. My base assumption in the event of default is a 25% haircut to any valuation and 50% for anything that is more unusual/exotic where the valuation is inherently going to be far less reliable. Based on recent events I should probably be assuming an even higher haircut for the more usual/obscure properties being lent against......
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Post by samford71 on Feb 23, 2018 10:07:48 GMT
I agree that valuations are not perfect sometimes, but I am looking for honest work (not miracles) and cannot see anything here around. Valuators should be more prudent and careful in every single assumption as they know what their valuation will be used for, but they are clearly not taking care of it. But the thing which is really worrying and stopping a lot of people investing is that it looks like there is a 'connection' between the p2p company and the valuation, where the final number seems not to come from a real independent valuation, but from the 'goals' or 'desires' of the p2p company/borrower.... For PBL155 Lendy was not even able to confirm they did not influence the valuation and/or will take due care of the wrong valuation. If things were as you stated (and they are clearly not) we would have the same support tossing a coin as from a professional valuation. I'm not trying to defend SS. It seems quite likely that some valuations may have been poor/inflated/optimistic etc. There is a fundamental point, however, that the posters above have made. The valuation is based on a number of input assumptions. These input assumptions do not include a distressed recovery scenario. Essentially the valuation, as it stands, is only accurate in the scenario where it is not needed: non-default. In the scenario where it is needed, default and recovery, it is unlikely to be accurate as the assumptions are invalid. This does not mean the valuation is worthless since the value in the non-default scenario may be a helpful in determining the value in the distressed scenario (once an appropriate haircut has been applied). The issue here is one of investor perception. They need to understand that the LTV is just a starting point in a process where they need to to take a subjective view on the likely recovery value in a default scenario. It is not the end point. Take the counterfactual: if the debt was secured property at a reliable LTV of <70% in a distressed sale scenario, then in the absense of a major property collapse, it would be risk free. Why then would such a loan then carry a yield of more than a few percent? The fact that it yields 12% (and remember the borrower is paying 18% + fees) means that it must be very risky ... or that there is huge arbitrage available. What is more likely?
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oldgrumpy
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Post by oldgrumpy on Feb 23, 2018 10:34:31 GMT
Don't worry Mr Grumbler, sir! Lendy have it all under control. They have said so. See email entitled, "Investor update Special", 23 Feb 2018.  |
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tombraider
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Post by tombraider on Feb 23, 2018 10:52:00 GMT
Don't worry Mr Grumbler, sir! Lendy have it all under control. They have said so. See email entitled, "Investor update Special", 23 Feb 2018. Yes that update fills me with no confidence whatsoever....
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oldgrumpy
Member of DD Central
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Post by oldgrumpy on Feb 23, 2018 11:28:51 GMT
A glossy spin. i wonder which doctor wrote it.
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ozboy
Member of DD Central
Mine's a Large One! (Snigger, snigger .......)
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Post by ozboy on Feb 23, 2018 11:34:39 GMT
Totally disagree (of course!) with any comments quasi-justifying Valuations. They're almost always "tailored", if anyone sincerely thinks otherwise they should remove their rose tinted glasses, and enter the real world on this planet, not the one they are currently on.  And if you wish to use a quasi-justification train of thought, a Solution would be for the "Professional Valuer" to also give a 90 Day Distressed Sale Valuation. as standard - simps. It should be an official RICS requirement. But of course it'll never happen, and we all know why. |
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Post by dualinvestor on Feb 23, 2018 11:36:09 GMT
It is not a problem with valuations it is what lenders expect and understand from them. Properties are usually unique, especially those used as security for P2P, rarely are there, recently sold, local, direct comparisons to base a value on. Therefore the valuer has to rely on a set of rules set out in the RICS “Red Book” and years of training and experience. The realisable value of any security is only known when it is enforced and sold. Take two houses next door to each other identical in every way, one being sold by the occupier, on being sold by the bank because it has had to enforce the mortgage. Nobody really expects that the second one will sell for the same as the first, in fcat on TV reality shows they are sold either by private treaty or auction for often less than half their “market value.” I’m not saying that sometimes valuations are often manipulated (PBL 020), but even where they are not it often takes an age to sell (PBL056) where it is mundane ordinary farmland or has to go to auction (PBL 155) or where you have a mendacious borrower (PBL 064) where it takes a year to gain possession. But on the whole it is not the valuation but unrealistic views of what they mean and how they can be affexted when security is enforced. I agree that valuations are not perfect sometimes, but I am looking for honest work (not miracles) and cannot see anything here around. Valuators should be more prudent and careful in every single assumption as they know what their valuation will be used for, but they are clearly not taking care of it. But the thing which is really worrying and stopping a lot of people investing is that it looks like there is a 'connection' between the p2p company and the valuation, where the final number seems not to come from a real independent valuation, but from the 'goals' or 'desires' of the p2p company/borrower.... For PBL155 Lendy was not even able to confirm they did not influence the valuation and/or will take due care of the wrong valuation. If things were as you stated (and they are clearly not) we would have the same support tossing a coin as from a professional valuation. You seem to have missed the point, relying on valuations does give about as much assurance as tossing a coin, not because they are inaccurate although they often are, but because when security is enforced it rarely realises anything other than a small proportion of its true worth. In fact in a DFL situation I would regard any realisation at all as a bomus. This is why I am amazed at the amount of effort by quite intelligent people on this board regarding the value of security and when push comes to shove it does not realise what they expect it to, and that is without the interference/manipulation of platforms, borrowers or anyone else
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moist
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Post by moist on Feb 23, 2018 11:41:56 GMT
Well that update solves everything Liam......
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Post by mike1963 on Feb 23, 2018 11:56:08 GMT
Well that update solves everything Liam...... Maybe I will be wrong but I am quite encouraged by the latest update. Lendy has at least recognised that they have issues and have made some steps to address these. I am not suggesting that the late loan book will be easy to work through, in fact I think their are some horrors to come but has Lendy’s handling of the “Fortified large house” been worse than windmills, short term property loans, Londonderry loans etc etc on other platforms?
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rocky1
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Post by rocky1 on Feb 23, 2018 11:57:02 GMT
closing the gate after the cowes are going/going/gone comes to mind
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dandy
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Post by dandy on Feb 23, 2018 12:01:42 GMT
You seem to have missed the point, relying on valuations does give about as much assurance as tossing a coin, not because they are inaccurate although they often are, but because when security is enforced it rarely realises anything other than a small proportion of its true worth. In fact in a DFL situation I would regard any realisation at all as a bomus. This is why I am amazed at the amount of effort by quite intelligent people on this board regarding the value of security and when push comes to shove it does not realise what they expect it to, and that is without the interference/manipulation of platforms, borrowers or anyone else
There is a big difference between false valuations and incorrect valuations. We know it is not an exact science.
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Post by charliebrown on Feb 23, 2018 12:21:46 GMT
Is that picture at the bottom of the update the result of their polygraph test? Looks like they failed.
i found the update semi-positive in that they’ve apparently recognised that losing investors’ money will ultimately be bad for business. I honestly wasn’t sure whether they had actually made that connection.
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fasty
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Post by fasty on Feb 23, 2018 12:29:47 GMT
Showing LTV against a "distressed sale valuation" would seem to make so much more sense. Naturally, I understand why this is not done.
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Post by easteregg on Feb 23, 2018 12:29:54 GMT
Well that update solves everything Liam...... I've read the update sent to lenders today, and I was surprised to see - or not see - any mention of the provision fund. This could be to try to ensure that lenders are aware that they are carrying the risk.
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