ashtondav
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Post by ashtondav on Jul 7, 2019 9:26:15 GMT
I am sure, when I looked some months ago that 4th way gave Lending Works a risk score of 2. It now seems to be 5 - a massive change with no reasons provided. In fact the write up remains the same I think. Any ideas for the change?
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r00lish67
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Post by r00lish67 on Jul 7, 2019 9:40:26 GMT
I am sure, when I looked some months ago that 4th way gave Lending Works a risk score of 2. It now seems to be 5 - a massive change with no reasons provided. In fact the write up remains the same I think. Any ideas for the change? It was written up here, although it only changed from 4/10 to 5/10 apparently: www.4thway.co.uk/news/lending-works-hnw-lending-ratings-updates/?utm_source=4thWay%20News%20and%20Tips&utm_campaign=5a637bcd43-Newsletter_56&utm_medium=email&utm_term=0_415f2326f1-5a637bcd43-329011221"4thWay has reassessed Lending Works' recovery rate, which has led to its 4thWay Risk Score ticking up one point to 5/10, i.e. we now judge it to be slightly more prone to worse results in a severe recession, in which losses are likely to eat up the reserve fund and most interest earned. Those who commit to re-lend for longer, including during downturns, will be even better protected by the interest earned" Btw, 4thway, if you're reading then your views would be much more interesting if you could underpin statements such as "<LW's data> enables us to analyse each individual loan's performance using many risk modelling and investing techniques" with the actual risk modelling you've done and what specifically leads you to those conclusions.
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r00lish67
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Post by r00lish67 on Jul 7, 2019 9:55:47 GMT
FWIW, I think the onset of a severe recession is not a precondition for the depletion of the reserve fund, it seems to be managing that all by itself at the moment.
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benaj
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Post by benaj on Jul 7, 2019 11:36:52 GMT
I am sure, when I looked some months ago that 4th way gave Lending Works a risk score of 2. It now seems to be 5 - a massive change with no reasons provided. In fact the write up remains the same I think. Any ideas for the change? best to compare like for like, RS vs LW RS loan under management is 874 mil with 12 mil cash in PF LW loan under management is 165 mil with 1.37 mil cash in shield. RS 4th way risk rating is 4/10, up to 5 % loss before interest earned in severe scenario, while LW risk rating on 4thway is 5/10, up to 10% loss before interest earned in severe scenario. What we dont know is the actual number calculated by 4thway. is it a high %close to 5 for rs? a low number just above 5% for LW or is it a high % close to 10 for lw?
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ashtondav
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Post by ashtondav on Jul 7, 2019 13:06:34 GMT
I’m with you on the PF but with LW they also take out accident, sickness and unemployment insurance on every loan. That must cover almost anything.
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r00lish67
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Post by r00lish67 on Jul 7, 2019 13:36:43 GMT
I’m with you on the PF but with LW they also take out accident, sickness and unemployment insurance on every loan. That must cover almost anything. If that were true, why has the cash in the PF been consistently falling in recent months instead of rising strongly with borrower contributions to the fund? Surely the earliest claims would have been settled by now.
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r00lish67
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Post by r00lish67 on Jul 7, 2019 13:47:51 GMT
I am sure, when I looked some months ago that 4th way gave Lending Works a risk score of 2. It now seems to be 5 - a massive change with no reasons provided. In fact the write up remains the same I think. Any ideas for the change? best to compare like for like, RS vs LW RS loan under management is 874 mil with 12 mil cash in PF LW loan under management is 165 mil with 1.37 mil cash in shield. RS 4th way risk rating is 4/10, up to 5 % loss before interest earned in severe scenario, while LW risk rating on 4thway is 5/10, up to 10% loss before interest earned in severe scenario. What we dont know is the actual number calculated by 4thway. is it a high %close to 5 for rs? a low number just above 5% for LW or is it a high % close to 10 for lw? I think you're using the wrong figures there for LW. 165 mill is the total amount ever lent, not outstanding. There's only 92m outstanding, and only £87.8m is covered by the shield (as per the table at the top of the page). Their PF's in cash as % are actually quite similar (1.46% RS, 1.56% LW). RS claim to have greater provision overall through higher future inflows. I regard both RS and LW calculations of future inflows with significant levels of scepticism. If their future inflows are worth anything, then why haven't these future inflows been increasing their cash PF month-on-month? (answer = their future outflows have always exceeded their future inflows when they move to the present). To your point, we also don't know 4th Way's assumptions about additional costs if the platforms were to be wound up. I think at the moment they're just assuming pooling without other fees, but I don't know.
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ashtondav
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Post by ashtondav on Jul 7, 2019 16:35:37 GMT
I’m with you on the PF but with LW they also take out accident, sickness and unemployment insurance on every loan. That must cover almost anything. If that were true, why has the cash in the PF been consistently falling in recent months instead of rising strongly with borrower contributions to the fund? Surely the earliest claims would have been settled by now. Perhaps Lending Works can answer that one? I’m assuming the insurance would just continue to pay monthly interest and capital in the same way as the borrower. I am now befuddled, confused, bemused, and at a loss as to why the PF is going down!!!! Are they fibbing about the insurance? Is it not as comprehensive as expected? It doesn’t make sense.
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Post by gravitykillz on Jul 7, 2019 18:28:20 GMT
They are under pressure to lend quickly to reduce queue times. It is possible that due to this pressure the quality of their loans is going down.
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r00lish67
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Post by r00lish67 on Jul 7, 2019 19:55:37 GMT
They are under pressure to lend quickly to reduce queue times. It is possible that due to this pressure the quality of their loans is going down. The performance of the cash PF we're seeing currently is being driven by the 2016/2017/2018 loans (as you'd rather hope 2019 loans aren't defaulting in significant numbers yet!) The 'interesting' thing for current loans, 2019 loans that is, is that the average borrower APR is up to 14.3% from 9.7% just 2 years ago. Whether that will generate better, worse, or the same risk-adjusted return remains to be seen. What seems rather odd to me though is that they forecast a lower loss rate for these higher risk 2019 borrowers than they've experienced in reality in 2017/2018 so far.
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Post by gravitykillz on Jul 7, 2019 20:49:09 GMT
So they are lending to higher risk borrowers than a couple of years ago. Thus they expect higher defaults. So in theory the 2017 loans are lower risk and reflect that with the lower interest rate compared to 2018 and 2019 loans.
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ashtondav
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Post by ashtondav on Jul 8, 2019 7:31:02 GMT
Even so, the insurance should cover the defaults. Unless it’s a fraudulent borrower.
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