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Post by Butch Cassidy on Sept 8, 2016 9:05:14 GMT
Could anyone give a brief summation of what went wrong on the Anglesey loan? I'm new to p2p, but having just scanned the particulars I imagine it looked like a decent enough loan to start given the reasonable LTV (which should've only decreased as refurbishment took place) and a rental income (which I gather is a plus point). Just wondering if there are any lessons to be learned from this loan. This loan highlights a wider problem across all such bridging & security backed P2P loans; platforms are driven by volume to get growth whilst investors require quality to get returns & whilst in most cases these aims can be mutually beneficial sometimes they are not.
Borrowers approach brokers needing to borrow, say £875k in this case, with a lump of security such as property - so the broker/platform get an independent valuation, often from a reputable firm with professional indemnity insurance, which they are happy to lend approx. 70% against, the chicken & egg temptation is then to mould the valuation to fit the borrowing requirement, hence a valuation of £1.26m is secured (£875k being just under 70%  ). This satisfies everyone's requirements until the borrower gets into payment difficulties & a claim against the security is eventually required. JUST TO BE CLEAR I AM NOT SUGGESTING THAT IS WHAT HAPPENED IN THIS CASE.
Now the 30% headroom is designed to be sufficient to allow a forced sale, pay lawyers, LPA receivers & other professional fees & still leave enough to pay investors back the capital & hopefully accrued interest as well & to be fair to AC this has often proved to be the case so far. However in cases where the valuation proves to fall short of expectation lenders invariably find that the platform points to small print that highlights the risks of lending & that it was intended to only be a guide & the RICS firm will say that it was correct at the time but market conditions have now changed & the only loss makers are the investors.
So as you highlight the loan looked good on paper (I was an original investor who later sold out to reinvest in a better proposition) but BUYER BEWARE the platform only does enough DD to satisfy it's lending requirements which will change over time (often getting less strict as the need to increase volume becomes greater) & the risk needs to be reflected in the rate otherwise you may well lose money. This loan initially offered 12% whilst similar AC loans now go for 8% - are they really so much safer or are AC now pricing for liquidity not risk?
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jo
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Post by jo on Sept 8, 2016 9:52:30 GMT
Borrowers approach brokers needing to borrow, say £875k in this case, with a lump of security such as property - so the broker/platform get an independent valuation, often from a reputable firm with professional indemnity insurance, which they are happy to lend approx. 70% against, the chicken & egg temptation is then to mould the valuation to fit the borrowing requirement, hence a valuation of £1.26m is secured (£875k being just under 70% ). This satisfies everyone's requirements until the borrower gets into payment difficulties & a claim against the security is eventually required.
There's an old equity investment saying which holds that a a gold mine is a 'hole in the ground, owned by a liar'. I try to channel this notion in my DD of P2P investment - considering property security to be 'a pile of bricks above the ground, owned by an optimist'. As you say, buyer beware.
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iren
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Post by iren on Sept 8, 2016 10:58:48 GMT
Could anyone give a brief summation of what went wrong on the Anglesey loan? I'm new to p2p, but having just scanned the particulars I imagine it looked like a decent enough loan to start given the reasonable LTV (which should've only decreased as refurbishment took place) and a rental income (which I gather is a plus point). Just wondering if there are any lessons to be learned from this loan. This loan highlights a wider problem across all such bridging & security backed P2P loans; platforms are driven by volume to get growth whilst investors require quality to get returns & whilst in most cases these aims can be mutually beneficial sometimes they are not.
Borrowers approach brokers needing to borrow, say £875k in this case, with a lump of security such as property - so the broker/platform get an independent valuation, often from a reputable firm with professional indemnity insurance, which they are happy to lend approx. 70% against, the chicken & egg temptation is then to mould the valuation to fit the borrowing requirement, hence a valuation of £1.26m is secured (£875k being just under 70% ). This satisfies everyone's requirements until the borrower gets into payment difficulties & a claim against the security is eventually required. JUST TO BE CLEAR I AM NOT SUGGESTING THAT IS WHAT HAPPENED IN THIS CASE.
Now the 30% headroom is designed to be sufficient to allow a forced sale, pay lawyers, LPA receivers & other professional fees & still leave enough to pay investors back the capital & hopefully accrued interest as well & to be fair to AC this has often proved to be the case so far. However in cases where the valuation proves to fall short of expectation lenders invariably find that the platform points to small print that highlights the risks of lending & that it was intended to only be a guide & the RICS firm will say that it was correct at the time but market conditions have now changed & the only loss makers are the investors.
So as you highlight the loan looked good on paper (I was an original investor who later sold out to reinvest in a better proposition) but BUYER BEWARE the platform only does enough DD to satisfy it's lending requirements which will change over time (often getting less strict as the need to increase volume becomes greater) & the risk needs to be reflected in the rate otherwise you may well lose money. This loan initially offered 12% whilst similar AC loans now go for 8% - are they really so much safer or are AC now pricing for liquidity not risk?
Yes. I worked as a mortgage underwriter back in the 1990s. I remember the branch manager removing valuers from the panel because they weren't valuing the properties as he would wish, which of course affected his ability to hit branch lending targets and thus his appraisal and bonuses.
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Post by GSV3MIaC on Sept 8, 2016 17:44:51 GMT
/mod hat off
IIRC 70% is a particularly magic number, which people will move heaven, earth, and brick walls, in order to try to achieve.
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jjc
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Post by jjc on Sept 8, 2016 19:16:31 GMT
Brainer - Didn’t follow this loan closely but if I’m not mistaken I believe there was a specific concern regarding works that AC/others claimed had been undertaken (increasing the value of the property?) that as it turned out had not been done. IIRC some lenders consider this to be one of the least well-handled loans on the platform (how can works claimed to have been done really not have been done?) & went in heavily when there were confident signals from AC on their 12% loans, although the borrower herself didn’t help. As to the valuation it may be Anglesey fell into the group of loans (different story) for which VR’s were not made available to lenders (when they could have been simply redacted) until very late in the day (eg loan was already suspended, so you couldn’t get out). Butch Cassidy makes good comments for a p2p newbie, to which I’d add that (imo) the quality of both p2p borrowers & (critically) platform duedil is lower now than I thought & may not reflect the returns (p2p is subject to easy QE money same as everyone else). Also maybe worth factoring in lower expected recoveries on platforms that are targeting large deal flow, as they grow they have less bandwidth to chase borrowers down. On this particular loan I’m interested in seeing how much AC can get chasing down the PG. Like the Scots Prop loan there might be good chasings to be had, but we shall see.
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agent69
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Post by agent69 on Sept 9, 2016 8:16:24 GMT
217 and 257 are refinancing, and due to repay today. That's another wadge of cash looking for a home.
Strange thing is I have no idea how they make any money given that I have never seen any of their products for sale anywhere.
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jonah
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Post by jonah on Sept 9, 2016 8:23:41 GMT
217 and 257 are refinancing, and due to repay today. That's another wadge of cash looking for a home. Strange thing is I have no idea how they make any money given that I have never seen any of their products for sale anywhere. Wasn't that the one selling to airlines for in flight?
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warn
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Post by warn on Sept 9, 2016 8:28:07 GMT
217 and 257 are refinancing, and due to repay today. That's another wadge of cash looking for a home. Strange thing is I have no idea how they make any money given that I have never seen any of their products for sale anywhere. Wasn't that the one selling to airlines for in flight? Also general retail - e.g. www.waitrose.com/shop[Mod removed search term .. it takes you too directly to the borrower]
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SteveT
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Post by SteveT on Sept 9, 2016 8:28:21 GMT
Try Waitrose
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agent69
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Post by agent69 on Sept 9, 2016 9:15:52 GMT
Not certain you should have posted this given that the link names the borrower. [They shouldn't no, but nor should you have re-quoted it, thus making fixing it twice as much work!]
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warn
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Post by warn on Sept 10, 2016 10:44:57 GMT
Not certain you should have posted this given that the link names the borrower. [They shouldn't no, but nor should you have re-quoted it, thus making fixing it twice as much work!]Quite right, I shouldn't have. Didn't think. I'm a very naughty boy. 
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ianj
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Post by ianj on Sept 10, 2016 17:16:11 GMT
I'm a very naughty boy. You heard it here first......"Search for the Messiah continues!" 
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ilmoro
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'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
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Post by ilmoro on Sept 15, 2016 16:38:51 GMT
Two more distressed loans today
#230 S*******ks - gone into liquidation to due to adverse currency fluctuations, apparently most of product is now from Europe contrary to credit report (20%), suspended permanently
#226 S W P****** - tenant in adminsitration, property being sold at end of month to repay loan - not suspended but targets disabled.
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SteveT
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Post by SteveT on Sept 15, 2016 17:16:32 GMT
Two more distressed loans today #230 S*******ks - gone into liquidation to due to adverse currency fluctuations, apparently most of product is now from Europe contrary to credit report (20%), suspended permanently #226 S W P****** - tenant in adminsitration, property being sold at end of month to repay loan - not suspended but targets disabled. It's clear now why #230 was judged sufficiently low risk to be worthy of just 9% interest .... not.
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jjc
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Post by jjc on Sept 15, 2016 18:05:37 GMT
230 – first loan on AC I recall to blame Brexit (despite 20% import claim as IM above mentions) & I doubt will be the last. That chunky 1st charge might weigh heavily. Never dipped (9% on a second charge at close to 100% LTV on 6MRMV didn’t tick any box).
226 - Assetz looking confident about this one it would seem. Encouraging to see the property has been listed for sale at £415k, which allows ample margin.
If the number of young loans entering difficulties continues to increase, one wonders if AC will implement a review process of their origination (& risk pricing) processes, could there be lessons to learn?
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). This satisfies everyone's requirements until the borrower gets into payment difficulties & a claim against the security is eventually required. JUST TO BE CLEAR I AM NOT SUGGESTING THAT IS WHAT HAPPENED IN THIS CASE.
