bugs4me
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Post by bugs4me on Nov 3, 2014 16:22:17 GMT
If there was a move to actual p2p, to obtain a comparable risk reduction, maybe a provision fund could be set up! I'm not sure how feasible a provision fund would be for a platform like SS that has only a relatively small number of loans. A provision fund is an insurance policy, and those work best where the premiums can be spread over a large number of payers. The total amount of premiums collected has to be enough to cover any losses that occur. Consider an analogy of home insurance. If you have 1000 homeowners who pay £100 each, you have a £100k pot to pay claims out of. If you're insuring against burglaries, where the typical loss is maybe a few thousand pounds, you're fine. If you're insuring against fire, on the other hand, and a single loss could wipe out your entire claims fund, you have a different situation -- and a problem. So a platform that makes a lot of smaller loans, such as Zopa or RS, can run a provision fund reasonably reliably. But a platform like SS, which has a dozen or so bridging loans outstanding at any one time, would be hard pressed to charge their borrowers enough of a premium that they could create a provision fund large enough to make a meaningful contribution if any one loan went pear-shaped. Provided the LTV's stack up then really there is no point in a provision fund IMO. Setting up a provision fund would impact on the returns and overnight SS would either need to reduce the current 12% return thereby making them not so attractive or introduce some type of levy - again making them not attractive. Of course any provision fund would not need to cover the total loan value - only any shortfall between the original valuation and the actual realisation value. It's really all down to how confident an individual lender/investor feels regarding the LTV's they are being presented with coupled with how scenarios are managed if the worst comes to the worst.
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mikes1531
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Post by mikes1531 on Nov 4, 2014 0:07:35 GMT
It's really all down to how confident an individual lender/investor feels regarding the LTV's they are being presented with coupled with how scenarios are managed if the worst comes to the worst. And whether SS/Lendy can do what they've promised to do, which is absorb any losses on defaulted loans.
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