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Post by jmot on Aug 14, 2019 16:04:04 GMT
In case of indirect structure where you are effectively lending the money directly to the Loan Originator, and in case of a bankruptcy you will only have an unsecured claim against the assets of the LO after the secured claims or pledges have been paid. I noticed that Mintos for some indirect structure LOs also provides a "pledge" against the loan portfolio, which probably means they will have a priority claim in case of bankruptcy.
In case of direct structure you are instead purchasing directly a share of the loan, so in case of a bankrupt LO, your claim becomes direct against the original borrower and not against the LO. A direct structure can also have collateral pledged which reduces somehow credit risk (depending on LTV).
My thought is the following one: while for direct structure loans, it is a good idea to diversify the invested amount among the highest possible number of loans of the Originator to reduce somehow credit risk against original borrowers in case of LO bankruptcy, with an indirect structure, it does not make any sense to diversify since you are effectively lending money to the LO and you have no claim against the original borrower.
Is there any benefit in diversifying your investment in case of an indirect structure?
Thank you
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benaj
Member of DD Central
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Post by benaj on Aug 14, 2019 22:03:02 GMT
I suppose any diversification in P2P is better than none. Take my Varks loans for example, its INDIRECT investment, but diversification means I have 90% current instead of just one loan stuck in late with 10% chance.
What about "BOTH"? some LOs such as AO MKK Metrofinans, AS Hipocredit, AS mogo, Lendo, Lime Zaim, SIA ExpressCredit have both structures. So what does it exactly mean by both.
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Post by extremis on Aug 14, 2019 22:50:28 GMT
Well, "both" means that the loan originator is placing on Mintos marketplace some loans under direct structure, while others under indirect (indicated by a small i-icon next to the loan originator and borrower details).
Now, regarding the benefits of diversification in case of indirect structure, i think it makes absolutely no difference if the loan originator defaults. However, it might still be better to diversify in different loans in order to avoid everything being bought back early (in case the loan becomes 60+ days late or if the loan originator exercises its buyback rights). And with many loans with different payment schedules, one gets frequent payments instead of one big payment each month, so maybe the money can be better re-invested. Other than that, i cannot see any significant benefit.
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Post by rahafoorum on Aug 16, 2019 14:44:08 GMT
As said before, you reduce the risk of early repayment/buyback and the risk of grace periods/overdues which, as a result, may yield lower return in some cases.
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