tony
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Post by tony on Apr 29, 2018 9:48:11 GMT
I should know the answer to this question but my senile brain has forgotten it - when does L get paid their fee by the borrower? If the platform has no stake in the loan and all lending is done by the investors, are not L laughing all the way to their bank when loans are extended and do they have any incentive to take a hard line with defaulting borrowers? Apart from loans made under the original rules, where L provided the funds initially, I would have thought it would be in their interest to keep extending loans or adding tranches if by so doing they "earn" extra income. When a loan finally defaults are not the lenders the only ones to lose out?
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pom
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Post by pom on Apr 29, 2018 18:00:00 GMT
I should know the answer to this question but my senile brain has forgotten it - when does L get paid their fee by the borrower? If the platform has no stake in the loan and all lending is done by the investors, are not L laughing all the way to their bank when loans are extended and do they have any incentive to take a hard line with defaulting borrowers? Apart from loans made under the original rules, where L provided the funds initially, I would have thought it would be in their interest to keep extending loans or adding tranches if by so doing they "earn" extra income. When a loan finally defaults are not the lenders the only ones to lose out? Pretty much...it's in their interest to be able to continue to say "no-ones lost anything" but that is wearing thin. There might be some exit payments I suppose, but I think the loans are predominantly front-loaded (have withdrawn all but some shrapnel stuck in Exeter 1&2, so don't care much any more).
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elliotn
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Post by elliotn on Apr 30, 2018 5:37:44 GMT
The original model used to be something like 4% origination (shared with broker), a cut of the monthly interest, say 6% from borrower paying 18%, default interest, say another 6% (although possibly 50% of normal rate) and 2% exit fee.
Most (all?) of default rate is now passed on to the lender as a bonus so there is less (perceived) financial benefit to Ly for allowing the loan to enter tolerance period.
There is possibility of additional arrangement fee to extend but the lender benefits in having interest brought up to date and being retained for the duration of the extension and allowing time for an improved outcome.
Extensions are not unusual for development loans, and the reasons and additional costs should be supported by IMS reports. There will also need to be sufficient headroom and often hard reddies paid before extensions will be sanctioned.
If you look at the Exeters, Ly will be prepared to pull the plug if developments no longer look viable (although that may not demonstrably lead to a better lender recovery).
With the fca breathing down their necks, an expensively assembled recoveries team, dwindling investor confidence and further exit fees due I don't find it convincing Ly want non-performing loans as some kind of benefit.
In fact they are now keen to tell us about the robustness of their latest procedures in chasing exit plans from 3 months before repayment is due.
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Post by samford71 on Apr 30, 2018 9:44:28 GMT
tony . P2P platform are just intermediaries; they take no principal risk and provide "no investment advice". So the bottomline is that lenders are always the ones to lose out in a credit event. SS/Lendy is not different from that perspective. Where SS was different was that their fee structure (as explained by elliotn ) was very front-loaded. On a bridge loan that paid 12% to lenders, SS was charging a 4% fee and 18% interest, all upfront. So the borrower would receive just 78% of the loan notional and then pay 102% at redemption (par + 2% exit fee). This was an effective IRR of 30.8%. Lenders were receiving just 1%/month in arrears, so an IRR or 12.8%. The two clear problems with this model are a) the lender takes the credit risk but gets only 41% participation in the borrowers's IRR. b) with 20% of 22% of the fees/interest taken upfront, this favours SS trying to increase origination volumes, risking a "pump and dump" type scenario. c) the platform tends to make large profits upfront with costs from recoveries pushed downstream (essentially profits are PVed to spot). If origination volumes collapse, however, the fee income can dry up, leaving with platform with substantial costs but little new fee income. In comparison, other P2P platforms have a larger proportion of trailing fees, with less incentive to pump orgination volumes and providing more income to pay costs at a later date. Essentially, you could argue there is better ALM in a trailing structure. It's worth noting that the above fee structure was mentioned in 2015, so it could well be out of date. It was also a fee structure for bridges and it's not clear how development loans operate, albeit early DFLs seemed to have a structure that was similar.
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