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Post by chris on Sept 30, 2014 15:52:08 GMT
Loan units are only tradable on both old and new systems as long as the scheduled payments are up to date. The only difference being with the new loan model we no longer need to refinance a loan in order to change that schedule in the system. : Thanks for the further info. However, I still feel that the above statement applies only to the monthly interest payments scheduled at the time the loan was drawn down. To continue using Ha***ey as an example, there were six monthly interest payments scheduled from the beginning, plus a bullet payment due on 14/Aug. The monthly interest payments have been made (using funds retained at drawdown), but the bullet payment was missed -- and still is overdue. In the old system, the loan had to be 'refinanced' and now shows to be having one payment due -- on 14/Feb/2015 -- so of course it has no missed payments. In the new system, in a situation like this I presume the bullet payment would be moved from its original Aug.'14 date to Feb.'15 which might make the loan look like there were no missed payments, but we'll all know better. An alternative would be to treat the loan the way it had to be done this time (because of the system limitations) which is to show it as having been paid off on 14/Aug and re-lent the same day. But that's just an accounting exercise. In a genuine refinancing/rollover, lenders would have a choice whether to take their money elsewhere or to leave it in the loan and take their chance that the recovery will be successful and that they'll earn the default interest rate. Perhaps at some point in the future AC will have the resources to be able to offer lenders a optional rollover into the defaulted loan, effectively funding the extension loan from lenders willing to continue, new investors willing to take their chances, and underwriters willing to fill any funding gap, and giving those lenders who aren't interested in the higher-risk defaulted loans an option to get out. There's still a large notice on the new loan which should be more than enough to let any potential purchaser on the aftermarket know that there is an adverse credit history. The new system will show a revised payment plan with the bullet payment moved and no longer showing as overdue, but again we'll have large risk notices. This shouldn't be viewed as a genuine refinancing, it's one of the ways we work with borrowers to affect recovery of lender's funds. Hence the solution we're giving is, in effect, giving lenders the option to exit but only if someone else is willing to take part. The alternative is full default of the loan and commencement of legal recovery which isn't usually in the lenders interests at that stage. So with that in my I don't think it makes sense to give the lenders the option to roll over the loan, unless this is part of a wider vote on recovery as was used for the FF loan. The current solution gives you exactly what you're asking for which is a route for the risk averse to leave the loan and for others to come in.
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oldgrumpy
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Post by oldgrumpy on Sept 30, 2014 15:52:26 GMT
"Perhaps at some point in the future AC will have the resources to be able to offer lenders a optional rollover into the defaulted loan, effectively funding the extension loan from lenders willing to continue, new investors willing to take their chances, and underwriters willing to fill any funding gap, and giving those lenders who aren't interested in the higher-risk defaulted loans an option to get out."
I totally agree. Why should a new loan (when issued) be compulsory for lenders who have been defaulted upon? New lenders, consenting original lenders, and fresh underwriters should be made fully aware of the transition and agree to it all for the at 18% or 24% rate, whichever it is. Those who prefer not to should just be paid off as if the borrower rather than AC accountants had settled the original loan.
edit: (just read Chris's last post)
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Post by chris on Sept 30, 2014 16:19:28 GMT
"Perhaps at some point in the future AC will have the resources to be able to offer lenders a optional rollover into the defaulted loan, effectively funding the extension loan from lenders willing to continue, new investors willing to take their chances, and underwriters willing to fill any funding gap, and giving those lenders who aren't interested in the higher-risk defaulted loans an option to get out."
I totally agree. Why should a new loan (when issued) be compulsory for lenders who have been defaulted upon? New lenders, consenting original lenders, and fresh underwriters should be made fully aware of the transition and agree to it all for the at 18% or 24% rate, whichever it is. Those who prefer not to should just be paid off as if the borrower rather than AC accountants had settled the original loan.
edit: (just read Chris's last post)
As I said, it's not a new loan it's the first step to recovery due to a breach of the original loan. Lender's are being given an "opt out" that they aren't given on other platforms but it rightly requires someone else to opt in.
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ramblin rose
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Post by ramblin rose on Sept 30, 2014 16:25:03 GMT
"Perhaps at some point in the future AC will have the resources to be able to offer lenders a optional rollover into the defaulted loan, effectively funding the extension loan from lenders willing to continue, new investors willing to take their chances, and underwriters willing to fill any funding gap, and giving those lenders who aren't interested in the higher-risk defaulted loans an option to get out."
I totally agree. Why should a new loan (when issued) be compulsory for lenders who have been defaulted upon? New lenders, consenting original lenders, and fresh underwriters should be made fully aware of the transition and agree to it all for the at 18% or 24% rate, whichever it is. Those who prefer not to should just be paid off as if the borrower rather than AC accountants had settled the original loan.
edit: (just read Chris's last post)
As I said, it's not a new loan it's the first step to recovery due to a breach of the original loan. Lender's are being given an "opt out" that they aren't given on other platforms but it rightly requires someone else to opt in. I was about to say exactly that - on other platforms we are stuck with the defaulting loans in general, waiting until they are recovered or not. Just one that I use regularly allows the opt out in the same way as AC, via the SM. When you are given the choice of rolling over into renewed loans, it is when it really is a loan renewal, and not an ongoing default situation.
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mikes1531
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Post by mikes1531 on Sept 30, 2014 18:24:18 GMT
OK. I've read the above, and I accept the system the way it is. The notices on the loans make the situation abundantly clear, and if lenders want to get out, they can try to sell on the Aftermarket. If there are risk-takers around, they can pick up units in the aftermarket. Everyone is covered.
As for the Ha***ey loan, it doesn't look like the borrower paid it off today, so it looks like the formal demand for full repayment will be going out tomorrow.
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bugs4me
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Post by bugs4me on Sept 30, 2014 21:34:15 GMT
1. It has big risk warnings all over it saying that there's been a missed payment. We need to trust our lenders that they read and understand these and the implications, as well as trusting that they can deduce an increase in risk from the interest rate being offered. 2. I don't see how this can be the case when we have large notices on the new loans. For the case of the risk averse the alternative to being rolled into the new loan is legal recovery, which is rarely the best option in these circumstances. By allowing these loans to trade we're allowing the risk averse an opportunity to exit that wouldn't be possible otherwise. Personally, I don't think the risk warning is large or plain enough. Instead of saying the credit position on this loan has changed, why not say "the borrower failed to repay on time." Or "the credit position on this loan has got worse" ?
I'm a big boy and I diversify but I just don't want these boards to be full of complaints from newbies asking why AC are selling loans that have, in at least some sense of the word, failed. And why they were allowed to buy it, either through the auto buy mechanism of the new system or manually because the weak warning didn't register with them.
I think you can only go so far with the hand holding otherwise you're going to finish up like a fag packet with a 90% health warning and the name of the brand in mini print. It's up to investors to make their own decisions and if you're that risk wary then stick with the high street banks and their paltry interest. AC IMO doing a pretty good job in posting notices and it's up to the potential investor to read them. Just my thoughts.
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Post by geoffrey on Sept 30, 2014 21:39:16 GMT
Personally, I don't think the risk warning is large or plain enough. Instead of saying the credit position on this loan has changed, why not say "the borrower failed to repay on time." Or "the credit position on this loan has got worse" ?
I'm sorry if I set the cat amongst the pigeons with my "shady introducers" post. I very much appreciate Chris's patience and care in explaining the process. I am well diversified, and am like everyone hoping for a happy ending for the bridging loan I'm in. But I have to agree that "The credit position on this loan has changed" is not really an explicit enough warning for a newbie. It sounds generic, could conceivably refer to an improvement, and certainly doesn't sound like "a big red flag". I think one of the alternatives john334 has suggested would be much better and a clearer red flag for the risk averse.
I want to clarify that I did not purchase the late/defaulted unit by mistake, after it had defaulted (I purchased it a couple of months ago), but I was a little surprised when I looked earlier today at the loan in question (re-listed) to find that there was nothing to stop me buying more of it, or of one of the related defaulted loans. Now I understand that having the aftermarket available means I can consider offering my unit at a discount in order to get out, but I'm not really sure that I want that privilege at the expense of someone who has put their first £500 into AC, doesn't understand the system yet (hey, we were all in the same boat once), sees the high interest rate, and purchases a unit without doing due diligence. We can all argue that such naïve investors are not wanted on AC, but we were probably all a newbie when first exploring the system. I'm not sure what the solution is, but making the big red flag actually big and red and clear ("defaulted") would seem a no-brainer to me.
I have to say that in future I'll be much more wary of investing in interest-only loans with repayment of all capital at the end. It seems too obvious a risk, and an incentive for those who fully understand the risk to try to get out a few weeks before the final payment is due. An amortizing model is much saner, as the (former) Building Societies who indulged in "affordable", "interest only" loans to house-buyers in the 1990s and 2000s discovered to their cost during the credit crunch. Just my tuppence.
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ilmoro
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Post by ilmoro on Sept 30, 2014 22:41:46 GMT
If people are looking for amortizing loans than Im not sure AC is the right place for them as pretty well all loans involve the bulk of capital being repaid at the end, with only a small capital repayment over the life of the loan. Even if a lender doesnt access any of the loan information, every single one of the 'suspect' loans includes the word default in the info displayed on the AM listing & in all but two cases says 'now in default as not paid in time'. The loan page itself has a danger sign and warning at the top which nobody could possibly mistake for indicating a positive event. However, perhaps the symbol should be in red, warning in bold caps and the word negative inserted in front of change in the actual note. Also the warning symbol could be placed in the loan title on the AM listing and ultimately a further warning appear in the AI/purchase confirmation dialogue box. Also a robotic arm could come out of the screen & slap them round the face with a wet fish just to make sure!  www.youtube.com/watch?v=xCwLirQS2-oEDIT: Compare AC to FK who also allow distressed loans (late payments) to be traded on the AM but with very few obvious warnings attached (not asset backed either so higher risk too) |
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Post by Ton ⓉⓞⓃ on Oct 1, 2014 0:12:55 GMT
The 'Expected future default rate' is 1.5% I take that to mean in the future in any given one hundred loans 1 and a half will default.
The 'future expected loss' is about or less than 0.5%cash value. AIUI.
I know we're at loan number 143 but not all numbers from 1 to 143 have been used, two numbers recently were just skipped for no obvious reason and of course several loans have more than one loan number, plus other proposals didn't make it thru' DD and died taking their number with them. The upshot is that we've really only have had about 80 odd loans really (I made it 77 a few weeks ago, but things haven't changed much).
Can some one work out the potential 'actual default rate' at the moment? There's no loss as yet.
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Post by batchoy on Oct 1, 2014 5:46:54 GMT
The 'Expected future default rate' is 1.5% I take that to mean in the future in any given one hundred loans 1 and a half will default. The 'future expected loss' is about or less than 0.5%cash value. AIUI. I know we're at loan number 143 but not all numbers from 1 to 143 have been used, two numbers recently were just skipped for no obvious reason and of course several loans have more than one loan number, plus other proposals didn't make it thru' DD and died taking their number with them. The upshot is that we've really only have had about 80 odd loans really (I made it 77 a few weeks ago, but things haven't changed much). Can some one work out the potential 'actual default rate' at the moment? There's no loss as yet. One of the problems with attempting to calculate and compare 'Default Rates' is a lack of consistency in the definition of was actually constitutes a default and hence the default rate. I have always understood a default to be a breach of loan terms, so a loan is in default the moment a borrower misses a payment, however in P2P land according to the P2PFA a loan does not go into default until the borrower has failed to make a payment for 120 days, with Bondora it used to be 60 days which was the point that they started making legal moves to the recover the loan, however they have now moved to the 120 day P2PFA definition which raises the question of what happens if the loan gets rescheduled (a regular occurrence) during days 61 to 120 does it still constitute a default. Returning to AC we have a situation where we have a number of loans that are in default either because they have failed to make they terminal payment, are late with their regular monthly repayments or as in the case of FF the loan was loss so the default rate is currently quite high but fluctuates day to day depending on the late payers making payments, but the recovery rate potentially looks very good. There has been a partial recovery of the capital for FF and the potential of further recoveries, and with the bridging loans the borrowers are making the right noises all be it that AC are now turning the screw with the threat of liquidating the assets but in the majority of cases whether it is through liquidation or repayment by the borrower it looks like we will get not only repayment of capital but also default interest payments. By the way on Bondora which is all unsecured personal loans, the default rate is relatively high but so is the recovery rate and lates can be traded on the SM right up to the 60day mark when legal recovery starts. So I have no problem with the way AC are operating nor with the level of warnings that are given.
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merlin
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Post by merlin on Oct 1, 2014 5:58:43 GMT
Ton I think you are asking for the moon. What ever anyone other than AC come up with would IMO have to be a guess. I doubt AC will pass out this type of info. as it would be seen as commercially sensitive. Take for example FF which we all know is in default, only FC really know what the chances are of recovering the remaining part of the debt and it is going to take some time till we find out the truth. Similarly several of the Bridging loans are in trouble with refinancing and the increased interest rates now being charged must indicate the increasing risk factor, if nothing else. My gut feeling is that shortly one or more of these will become a basket case and then the original LTV's will get a critical testing. However provided AC have got their paperwork right none of these need to be a total loss. However like FF it may take some time to get our money back. As to the 1 to 1.5% I have always budgeted for more that double that figure but I probably tend to be more cautious than most. Anyway what does that percentage really mean? Is it the number of loans expected to fail or something else?
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spockie
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Post by spockie on Oct 1, 2014 6:37:54 GMT
I'd read it as probable capital loss over time.
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Post by Come_on_Grandad on Oct 1, 2014 7:24:42 GMT
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Post by batchoy on Oct 1, 2014 11:26:59 GMT
The FF loan highlights some of the issues with trying to standardise over a whole sector and redefining understood terminology to the point that the standardised figures are meaningless. You have a loan which most definitely defaulted but according to the P2PFA definitions because AC was able to get a partial recovery more than 45 days after default but within 120 days of the default the whole loan appears as an Under Performing loan and only that part which was not immediately recovered appears as a default. Now since the loan has not been totally written off and we are hoping for recovery of the outstanding money next year will the 2015 figures for AC show a negative default of £300K? By a similar token we have the Hackney Bridge for £2.1M which defaulted back in August but which has only just become an Under Performing loan and will hopefully be fully recovered along with default interest in relatively short order and thus never be reported as a Defaulted loan. We also have the leisure loan which drops in and out of default due to late payment so it is most definitely under performing but because the late payments are made within 45 days it doesn't appear in the standardised figures.
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