bg
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Post by bg on Mar 29, 2019 9:28:06 GMT
Finally, the rate of return on these loans is actually higher than the 90DAA when you take into account the discounts. If you buy an amortising 5%, 60 month loan at a 4% discount its annual return is in excess of 6%. From a retail investor's perspective, that makes sense...
But what is the rate of return for the underwriters who appear to be routinely funding these loans and immediately selling on at 3%, 3.5% or 4% discounts?
Whilst not impossible, it seems highly implausible to me that AC underwriting fees are so generous as to make that activity profitable for those underwriters!
Edit: ... and in addition, if there are in fact investors on the underwriting panel willing to fund these loans at par and hold to term due to the high quality of those loans, why are those same investors not biting off the hands of the other underwriters who offer 3% and larger discounts on the very same loans they were willing to invest in at par! If they really were such good investments, the market would not be leaving those sale offers unmatched for more than a day or two!
I think some underwriters were caught out a little. they funded thinking they could shift quickly for 1-1.5% disc and are now just trying to get out. These loans weren't offered immediately at these discounts, but at 1-1.5% which was gradually increased. Underwriting is different form of investing, its about recycling the money (while remaining invested). The risks are higher (if loan gets into trouble and you have a big holding) and the higher return compensates that. Some underwriters are indeed holding but some were caught out as mentioned and thought they could shift quickly. If you look, it's one particular batch of loans that are heavily discounted. Compare 934 which has £100k discounted to 964 which has £99 discounted. I think you will find that future low rate loans have much lower and smaller discounts.
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sl75
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Post by sl75 on Mar 29, 2019 13:15:36 GMT
I think some underwriters were caught out a little. they funded thinking they could shift quickly for 1-1.5% disc and are now just trying to get out. These loans weren't offered immediately at these discounts, but at 1-1.5% which was gradually increased. Underwriting is different form of investing, its about recycling the money (while remaining invested). The risks are higher (if loan gets into trouble and you have a big holding) and the higher return compensates that. Some underwriters are indeed holding but some were caught out as mentioned and thought they could shift quickly. If you look, it's one particular batch of loans that are heavily discounted. Compare 934 which has £100k discounted to 964 which has £99 discounted. I think you will find that future low rate loans have much lower and smaller discounts. #964 had considerably more discounted to 3.5% (£2,812 at the time of your March 26 update, but by then at least the first batch of trades would already have been processed so the initial amount would have been rather more than that). Unlike the earlier loans the availability was launched directly at that level. Going directly to that 3.5% level seems to have resulted in fairly swift sales for the underwriter(s) in question, having achieved multiple £k of sales already, whilst at least one other underwriter is still sitting on £1250 that was only discounted to 2.0% (the discounted total right now is £1349 rather than the £99 you mention, down from the £4,062 mentioned on your March 26 update).
As this was quite some time after the previous heavily-discounted loans, I was rather surprised that the relevant underwriter(s) did this, rather than simply not participating in the loan at all... but perhaps there's a more significant time lag than I realised between the point when underwriters irrevocably commit to funding a specific loan and when the funds are called upon...
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bg
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Post by bg on Mar 29, 2019 14:41:05 GMT
I think some underwriters were caught out a little. they funded thinking they could shift quickly for 1-1.5% disc and are now just trying to get out. These loans weren't offered immediately at these discounts, but at 1-1.5% which was gradually increased. Underwriting is different form of investing, its about recycling the money (while remaining invested). The risks are higher (if loan gets into trouble and you have a big holding) and the higher return compensates that. Some underwriters are indeed holding but some were caught out as mentioned and thought they could shift quickly. If you look, it's one particular batch of loans that are heavily discounted. Compare 934 which has £100k discounted to 964 which has £99 discounted. I think you will find that future low rate loans have much lower and smaller discounts. #964 had considerably more discounted to 3.5% (£2,812 at the time of your March 26 update, but by then at least the first batch of trades would already have been processed so the initial amount would have been rather more than that). Unlike the earlier loans the availability was launched directly at that level. Going directly to that 3.5% level seems to have resulted in fairly swift sales for the underwriter(s) in question, having achieved multiple £k of sales already, whilst at least one other underwriter is still sitting on £1250 that was only discounted to 2.0% (the discounted total right now is £1349 rather than the £99 you mention, down from the £4,062 mentioned on your March 26 update).
As this was quite some time after the previous heavily-discounted loans, I was rather surprised that the relevant underwriter(s) did this, rather than simply not participating in the loan at all... but perhaps there's a more significant time lag than I realised between the point when underwriters irrevocably commit to funding a specific loan and when the funds are called upon... 964 drew the day before my first update. I do not think the first batch of selling was at 3.5% but do not have the data to prove that. It's not an efficient market, you can't legislate for what one/two guys may do. Maybe he/she suddenly had an urgent need for the cash a week on....stuff happens. Point I was making is that the earlier batch of low rate loans there was significant underwriter participation while similar loans now will see next to none. I think we will see low rate loans going forward having tiny amounts discounted - compare that to previous ones that had 6 figure sums being dumped. That's not to say you won't get one guy taking £3k of one and selling at a 10% discount - you would have to ask them why though.
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bg
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Post by bg on Mar 29, 2019 15:31:57 GMT
#975 drawn (5%). Only £3k for sale (tha'ts for sale, not just discounted) of a £750k loan.
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lobster
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Post by lobster on Mar 29, 2019 15:54:11 GMT
#975 drawn (5%). Only £3k for sale (tha'ts for sale, not just discounted) of a £750k loan. Have to say that is weird, because the very closely related #934 , also a 5% loan for 750k to the same lender has availability of no less that 562k (about 75% of the loan) , plenty of which is heavily discounted. Go figure 
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bg
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Post by bg on Mar 29, 2019 16:14:30 GMT
#975 drawn (5%). Only £3k for sale (tha'ts for sale, not just discounted) of a £750k loan. Have to say that is weird, because the very closely related #934 , also a 5% loan for 750k to the same lender has availability of no less that 562k (about 75% of the loan) , plenty of which is heavily discounted. Go figure They probably haven't released any of the QAA held loan for sale yet. Once they press the button it should shoot up....I think what you're seeing now is just u/w parts offered for sale.
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trevor
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Post by trevor on Mar 29, 2019 17:23:59 GMT
Plenty of 8% now in the pipeline or recently draw down.
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