bigfoot12
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Post by bigfoot12 on Dec 8, 2018 18:09:58 GMT
Just for the sake of balance, let me point out a few of the downsides of LW. Note that LW is my 3rd largest investment, so I am investing despite these points. 3) Their weighted average APR for borrowers has gone up from 9.2% in 2015 to 11.8% in 2018. One could argue that's a good thing, but I haven't seen good results elsewhere when chasing for yield (think Z+). Does that include or exclude the institutional lending? The rates for those (non-shield) lenders seem very high, though I must confess I can't understand the numbers. What is the spread between lender's and borrower's rates? But if we are lending at 6.5% and they are borrowing at 11.8% I wouldn't call that a small spread. I guess some goes into the shield, but how much? I want my platforms to make money, but I also want to be paid appropriately for the risk I am taking.
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Post by Matthew on Dec 8, 2018 18:33:40 GMT
Just for the sake of balance, let me point out a few of the downsides of LW. Note that LW is my 3rd largest investment, so I am investing despite these points. 3) Their weighted average APR for borrowers has gone up from 9.2% in 2015 to 11.8% in 2018. One could argue that's a good thing, but I haven't seen good results elsewhere when chasing for yield (think Z+). Does that include or exclude the institutional lending? The rates for those (non-shield) lenders seem very high, though I must confess I can't understand the numbers. What is the spread between lender's and borrower's rates? But if we are lending at 6.5% and they are borrowing at 11.8% I wouldn't call that a small spread. I guess some goes into the shield, but how much? I want my platforms to make money, but I also want to be paid appropriately for the risk I am taking. If it helps, the weighted avg. APRs quoted on the website are for retail investor funded loans only. The basic composition of a loan at an average APR of say 12% is something like this: Annualised lender return (net of losses) = 6.5% Annualised Shield contributions (default rate) = 2% (lifetime rate of 4. something, taken as a mix of upfront fee and interest spread) Acquisition fee (annualised equiv.) = 1% (payable to introducers where applicable etc) Lending Works margin (remainder) = 2.5% (taken as a mix of upfront fee and interest spread) Total = 12%I'd say this is a pretty fair spread given we need to cover all the costs involved in originating (data, marketing, underwriting, processing etc) and servicing (customer service, processing and distributing repayments, collections etc). As a proportion of the gross interest rate payable to lenders of 8.5% (assuming there was no Shield), I think any less than that could be fairly unsustainable.
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Post by df on Dec 8, 2018 18:42:43 GMT
I have my biggest amount with Lending Works. 1 of 11 platforms I am invested in.
Nuff said.
I would love to increase my holding more, but commonsense is holding me back.
That's wise. Your risk is increased if have too many eggs in one basket. Any "safer" platform with PF can potentially collapse. As it's been pointed out, if LW runs out of PF it can be the end (the same for RS, GS etc.). It's best to spread you funds across different platforms. After series of mistakes I now trying to rebalance my funds leaving smaller proportion in high risk platforms and increasing in lower interest/lower risk.
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r00lish67
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Post by r00lish67 on Dec 8, 2018 18:47:11 GMT
Does that include or exclude the institutional lending? The rates for those (non-shield) lenders seem very high, though I must confess I can't understand the numbers. What is the spread between lender's and borrower's rates? But if we are lending at 6.5% and they are borrowing at 11.8% I wouldn't call that a small spread. I guess some goes into the shield, but how much? I want my platforms to make money, but I also want to be paid appropriately for the risk I am taking. If it helps, the weighted avg. APRs quoted on the website are for retail investor funded loans only. The basic composition of a loan at an average APR of say 12% is something like this: Annualised lender return (net of losses) = 6.5% Annualised Shield contributions (default rate) = 2% (lifetime rate of 4. something, taken as a mix of upfront fee and interest spread) Acquisition fee (annualised equiv.) = 1% (payable to introducers where applicable etc) Lending Works margin (remainder) = 2.5% (taken as a mix of upfront fee and interest spread) Total = 12%I'd say this is a pretty fair spread given we need to cover all the costs involved in originating (data, marketing, underwriting, processing etc) and servicing (customer service, processing and distributing repayments, collections etc). As a proportion of the gross interest rate payable to lenders of 8.5% (assuming there was no Shield), I think any less than that could be fairly unsustainable. That's a reason I do Like LendingWorks, having Matthew around to answer the difficult questions 
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ashtondav
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Post by ashtondav on Dec 8, 2018 18:55:47 GMT
If it helps, the weighted avg. APRs quoted on the website are for retail investor funded loans only. The basic composition of a loan at an average APR of say 12% is something like this: Annualised lender return (net of losses) = 6.5% Annualised Shield contributions (default rate) = 2% (lifetime rate of 4. something, taken as a mix of upfront fee and interest spread) Acquisition fee (annualised equiv.) = 1% (payable to introducers where applicable etc) Lending Works margin (remainder) = 2.5% (taken as a mix of upfront fee and interest spread) Total = 12%I'd say this is a pretty fair spread given we need to cover all the costs involved in originating (data, marketing, underwriting, processing etc) and servicing (customer service, processing and distributing repayments, collections etc). As a proportion of the gross interest rate payable to lenders of 8.5% (assuming there was no Shield), I think any less than that could be fairly unsustainable. Yes, the contrast with ZOPA and Ratesetter is disturbing and FC no longer sharing their loanbook. These companies used to engage with their punters on forums but now choose not do so. Why you would not engage, in an age of engagement, is baffling. Absolutely mind blowingly bonkers. It amounts to metaphorical spitting on your customers (possibly your best customers) and is a disgraceful way to behave. I will put more into LW - at least until i can get more on RS (sly old fox, eh?)
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Post by df on Dec 8, 2018 20:49:23 GMT
That's a reason I do Like LendingWorks, having Matthew around to answer the difficult questions Yes, the contrast with ZOPA and Ratesetter is disturbing and FC no longer sharing their loanbook. These companies used to engage with their punters on forums but now choose not do so. Why you would not engage, in an age of engagement, is baffling. Absolutely mind blowingly bonkers. It amounts to metaphorical spitting on your customers (possibly your best customers) and is a disgraceful way to behave. I will put more into LW - at least until i can get more on RS (sly old fox, eh?) The above mentioned platforms are too large to be interested engaging in forum threads. I think the vast majority of FC/Z/RS lenders don't even read this forum. In case of FC it would require a full time position to deal with all grumpy posts, not a desirable job. Zopa is going to be a bank, so there's no expectation of customer relation via forum.
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elliotn
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Post by elliotn on Dec 9, 2018 7:45:34 GMT
Yes, coverage is not good but we do have insurance as well. Speed of lending is also an issue. its the possibility of losing capital that’s important especially when comparing with equity. I think in a bad recession you could lose 10% of your capital in LW type platforms and recover in 2 years. In a bad recession and crash in equities it could be 40%+ loss and recover in 8+ years. i don’t consider a 10% loss recovered in two years a problem. True, they do have insurance, but AIUI the figures I've quoted are how Lendingworks are doing after the effects of their insurance. Perhaps there are further funds to boost the coffers from pending claims already, but I've not seen any detail around this. Re: capital loss, I could agree with losing 10% of your capital (suspect a bit more, but splitting hairs), but I'm not quite sure how you envision all of that being recovered? Some of that would be recovered from IVA's or the insurance, but again, LW are already spending the provision fund net of the effect of the insurance, so I would personally be planning on seeing that 10% (or whatever) disappear forever. Moreover, if LW impose a loss on lenders that would raise a big question mark about their whole business model - It's often said of RS that they would be finished if they locked in funds and imposed losses - LW's future would surely also be in doubt? Especially if one of their rivals managed to sail through with less damage.. I’m back on LW learning curve . I note ashtondav has replied since but I wonder if the thinking was 2 years Interest would ‘cover’ the 10% cap loss? (Although your stricter interpretation of the cap itself not being recovered stands.) Interested to see insurance is already being used to help the PF, anyway to tease out the split? When I first looked at LW I remember the main reason (by a margin) for consumer default was cumulative debt rather than a single insurable event such as injury or job loss (although hopefully the latter would help in Mr Carney’s fear of unemployment spike).
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Post by propman on Dec 10, 2018 10:15:59 GMT
Yes, it would be interesting to know if any modeling has been done on the proportion of a spike in defaults from a recession that the insurance would be expected to cover so we can factor this into comparisons with other platforms. The 10% loss is in line with what I am assuming. However, you can't compare losses with equities as equities have significant potential to outperform with 20%+ a common annual performance while P2P can only underperform. With equities the losses take a long time to recover, but if you have been fortunate for a few years often don't wipe out all gains (especially if you ignore the initial bounce from the panic low). This is true of P2P, but the lower expected returns on P2P are only justified by lower volatility so are only acceptable if losses are significantly lower.
Re downsides, the largest one is that the current estimate of losses anticipates significant recoveries from defaults in excess of further defaults for most cohorts. This remains to be seen, but is crucial for fund performing as hoped.
- PM
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bigfoot12
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Post by bigfoot12 on Dec 10, 2018 10:34:19 GMT
Yes, it would be interesting to know if any modeling has been done on the proportion of a spike in defaults from a recession that the insurance would be expected to cover so we can factor this into comparisons with other platforms. The 10% loss is in line with what I am assuming. However, you can't compare losses with equities as equities have significant potential to outperform with 20%+ a common annual performance while P2P can only underperform. With equities the losses take a long time to recover, but if you have been fortunate for a few years often don't wipe out all gains (especially if you ignore the initial bounce from the panic low). This is true of P2P, but the lower expected returns on P2P are only justified by lower volatility so are only acceptable if losses are significantly lower.
Re downsides, the largest one is that the current estimate of losses anticipates significant recoveries from defaults in excess of further defaults for most cohorts. This remains to be seen, but is crucial for fund performing as hoped.
- PM
Also when equities fall I own something cheaper and the fair price is visible to all. I might buy more, but I wouldn't be buying more in a Collateral type situation (unless offered at some massive discount which isn't normally the situation and probably not then).
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