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Post by bracknellboy on Feb 10, 2015 20:51:48 GMT
I'd love to illuminate, but unsure of the question! RateSetter cannot "lose money" on the longer term loans (3, 4 and 5 year loans) other than losing a fee element on loans that close due to early repayment or default. It is possible that RateSetter could face a finance cost on shorter term loans if the rates increased substantially between the loan agreed rate and money to fulfil. But this is an actively managed risk, and changes are made constantly to avoid this risk by the finance team. In terms of money rolling over, the theory is that there will be new money waiting to fill the shoes of money departing, or loans finances by monthly money ending and therefore old/new money being available. There is a risk of new monthly money not being available (e.g. a run on the bank), but with the market structure the increase in rates should draw new money in and in extremity the T&Cs do allow a lock-in. This has never been needed in 5 years of trading to date, and in extremity would only be a short term measure. Kevin. Well I guess the risk level to RS as a whole depends somewhat on the proportion of short (sub 3 yr ?) to longer term loans. I hadn't really cottoned on before as to the way the 1 month and 1 year lending was being used (and not entirely sure I have now). But as i read it there is an element of borrowing short to lend long (ok, lend 'not so short'). Some shock that drove up the rates demanded on short money could presumably cause significant difficulties, particularly if the proportion of sub 3 yr (?) loans was high enough. If such an event did occur, I think its a brave / optimistic statement to extrapolote to saying that lock in would only be a short term measure. That would depend on whether the gap could be affordably filled from other sources.
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bigfoot12
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Post by bigfoot12 on Feb 10, 2015 21:02:00 GMT
I'd love to illuminate, but unsure of the question! RateSetter cannot "lose money" on the longer term loans (3, 4 and 5 year loans) other than losing a fee element on loans that close due to early repayment or default. It is possible that RateSetter could face a finance cost on shorter term loans if the rates increased substantially between the loan agreed rate and money to fulfil. But this is an actively managed risk, and changes are made constantly to avoid this risk by the finance team. In terms of money rolling over, the theory is that there will be new money waiting to fill the shoes of money departing, or loans finances by monthly money ending and therefore old/new money being available. There is a risk of new monthly money not being available (e.g. a run on the bank), but with the market structure the increase in rates should draw new money in and in extremity the T&Cs do allow a lock-in. This has never been needed in 5 years of trading to date, and in extremity would only be a short term measure. Kevin. The longer loans to which I was referring are those 2 year and shorter loans which are financed by some combination of one month and one year lending. So imagine an extreme scenario (but one which I think is very possible in the next few years). A leading P2P player gets into serious difficulty (sudden regulation change, extended IT failure, bust provision fund, fraud, fined by a regulator for lending to a money launderer...). Liquidity is going to dry up on Ratesetter (and other platforms very quickly). If the lowest offers in the one month start at 90% will you be obliged to accept those rather than rolling over my lending at 4% which otherwise should mature? Also is it always the case that 3 and 5 year lending is matched, ie. borrower and lender both have the same maturity date? Edit My post crossed with above.
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spiral
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Post by spiral on Feb 12, 2015 13:15:59 GMT
If the lowest offers in the one month start at 90% will you be obliged to accept those rather than rolling over my lending at 4% which otherwise should mature? The problem is AIUI that it is RS that take this risk so if the problem is caused by them going bust you are locked in as there is no real rollover of loans in the sense that a borrower takes out a new loan.
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shimself
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Post by shimself on Mar 3, 2015 15:38:37 GMT
I feel rather disappointed that the Provision fund is so vital to an RS lender. I rather foolishly supposed that RS spread the loans out in tiny chunks (like Zopa, Wellesley), but I've discovered that I am exposed to one borrower for £2000, another for £1000+. It's rather put me off and I don't understand why they don't divide loans into smaller bits, which I think would enhance our security.
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Grezza
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Post by Grezza on Mar 3, 2015 15:55:31 GMT
I feel rather disappointed that the Provision fund is so vital to an RS lender. I rather foolishly supposed that RS spread the loans out in tiny chunks (like Zopa, Wellesley), but I've discovered that I am exposed to one borrower for £2000, another for £1000+. It's rather put me off and I don't understand why they don't divide loans into smaller bits, which I think would enhance our security. I'm sure there is a reason - simplicity I would guess, maybe someone out there can enlighten us. The way around this is to drip feed smaller quantities into the market, or across slightly differing d.p. when there are large sums in those bands, much less likely to be gathered up against one borrower. It may take a little longer getting invested. I have one to two largish loans myself, but over time I've become more relaxed about the issue. I suppose you could sellout if you are uncomfortable with the large parts, it'll cost I presume, I've never used it, see the lenders FAQ's re accessing funds in an emergency or short notice. Has anyone got experience of selling out?
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spiral
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Post by spiral on Mar 3, 2015 16:36:54 GMT
I feel rather disappointed that the Provision fund is so vital to an RS lender. I rather foolishly supposed that RS spread the loans out in tiny chunks (like Zopa, Wellesley), but I've discovered that I am exposed to one borrower for £2000, another for £1000+. It's rather put me off and I don't understand why they don't divide loans into smaller bits, which I think would enhance our security. Having previously thought like you, I am now converted. The only real reason for wanting smaller chunks is to spread the risk of early repayment. If the provision fund is failing and enters active management, all loans are treated equal so whether your particular loan fails or not, the loss would be the same as the provision fund would be collecting all of the repayments and distributing them pro rata amongst all loans.
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adrianc
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Post by adrianc on Mar 3, 2015 16:45:13 GMT
I feel rather disappointed that the Provision fund is so vital to an RS lender. I rather foolishly supposed that RS spread the loans out in tiny chunks (like Zopa, Wellesley), but I've discovered that I am exposed to one borrower for £2000, another for £1000+. It's rather put me off and I don't understand why they don't divide loans into smaller bits, which I think would enhance our security. Apart from the thoughts of the previous two replies, don't forget that (assuming we're talking 3 or 5yr markets) the loan is paid back in chunks, which you then reinvest. So you won't be exposed £2k for long - you'll soon be exposed £1950, then £1900, then £1850 etc.
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shimself
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Post by shimself on Mar 3, 2015 17:54:38 GMT
I feel rather disappointed that the Provision fund is so vital to an RS lender. I rather foolishly supposed that RS spread the loans out in tiny chunks (like Zopa, Wellesley), but I've discovered that I am exposed to one borrower for £2000, another for £1000+. It's rather put me off and I don't understand why they don't divide loans into smaller bits, which I think would enhance our security. Having previously thought like you, I am now converted. The only real reason for wanting smaller chunks is to spread the risk of early repayment. If the provision fund is failing and enters active management, all loans are treated equal so whether your particular loan fails or not, the loss would be the same as the provision fund would be collecting all of the repayments and distributing them pro rata amongst all loans. OK got it. I'm on my way to Damascus, thanks.
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jonbvn
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Post by jonbvn on Mar 4, 2015 9:01:28 GMT
I feel rather disappointed that the Provision fund is so vital to an RS lender. I rather foolishly supposed that RS spread the loans out in tiny chunks (like Zopa, Wellesley), but I've discovered that I am exposed to one borrower for £2000, another for £1000+. It's rather put me off and I don't understand why they don't divide loans into smaller bits, which I think would enhance our security. Having previously thought like you, I am now converted. The only real reason for wanting smaller chunks is to spread the risk of early repayment. If the provision fund is failing and enters active management, all loans are treated equal so whether your particular loan fails or not, the loss would be the same as the provision fund would be collecting all of the repayments and distributing them pro rata amongst all loans. Me too! I now place much larger chunks of money on the markets now I fully I appreciate this.
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spiral
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Post by spiral on Mar 4, 2015 9:06:56 GMT
The only real reason for wanting smaller chunks is to spread the risk of early repayment. And I have just had my third one already in March which is more than I had in Jan and Feb put together
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Post by GSV3MIaC on Mar 4, 2015 11:38:17 GMT
If they early repay the 5 year 4.9%s from back in 2014 I am delighted. Repaying the 6.x% ones from mid Feb this year would be a bit of a bummer ..
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spiral
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Post by spiral on Mar 4, 2015 12:06:01 GMT
If they early repay the 5 year 4.9%s from back in 2014 I am delighted. Repaying the 6.x% ones from mid Feb this year would be a bit of a bummer .. 6.17% weighted average repaid this year which is slightly above the average rate of all my loans so the net effect is that my overal rate will drop a smidgen.
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Post by GSV3MIaC on Mar 4, 2015 13:23:18 GMT
I guess they got one of those cheaper loans people were saying 'why don't they go for ..' on another thread. 8>. Ah well, 6.17% is looking fairly achievable in the 5 year market at the moment (maybe even better later in the month, when the 'magic 28th feb triple repayments' bulge moves through?)
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