|
|
Post by portlandbill on Sept 30, 2019 19:11:36 GMT
Just been surprised to read that I'm unlikely to get any money back on loan 2444968958 as it's a "supplemental" loan and the proceeds don't cover the original loans.
Is that right? Surely the proceeds should be shared equally amongst all loans unless clearly labelled as a 2nd charge? The loan description states "This is a 6-month loan secured by a first legal charge against a property in N*w B****on, W*****y"
|
|
arby
Member of DD Central
Posts: 910
Likes: 959
|
Post by arby on Sept 30, 2019 19:28:36 GMT
Just been surprised to read that I'm unlikely to get any money back on loan 2444968958 as it's a "supplemental" loan and the proceeds don't cover the original loans. Is that right? Surely the proceeds should be shared equally amongst all loans unless clearly labelled as a 2nd charge? The loan description states "This is a 6-month loan secured by a first legal charge against a property in N*w B****on, W*****y" It is never nice to have such a harsh education, but unfortunately the loan description was very clear in the 3rd sentence: "in the event of a default, this would rank behind the original loan and development facility" The issue you're raising is that you believe it should be described as a second charge. This loan is not the legal definition of 2nd charge. This is a loan where FS holds a first charge, but your specific loan is subordinated to the earlier loans. In reality though, it acts very much like a 2nd charge from the investors perspective.
|
|
|
|
Post by mrclondon on Sept 30, 2019 19:34:25 GMT
Just been surprised to read that I'm unlikely to get any money back on loan 2444968958 as it's a "supplemental" loan and the proceeds don't cover the original loans. Is that right? Surely the proceeds should be shared equally amongst all loans unless clearly labelled as a 2nd charge? The loan description states "This is a 6-month loan secured by a first legal charge against a property in N*w B****on, W*****y" In this case (Tower Block refurb), the Supplemental loan you are in is 3rd ranking within the 1st charge FS has on the site. ( See my table for the full list)
The critical lines on that loan listing ( 2444968958 ) are
"The client has an existing loan for £575,000 (2807104089.) that was used to part-finance the purchase of the property. In the event of a default that loan would have 1st priority.
The client has a development facility of £1,500,000 in place that was drawn down over 8 tranches (see below) that have second priority in the event of a default."
leaving your loan as having 3rd priority, there is a 4th priority one behind yours (also described as 'Supplemental')
This is not unusual amongst p2p platforms (MT, PL, TC, and L are/were all frequent users of this approach), which generally (but not always) allows higher rates of interest to be paid on the later more risky tranches, and lower rates on the earlier less risky tranches, so satisfying various degrees of risk appetite amongst lenders and more importantly allowing capital to be raised more easily as a wider cross section of lenders will feel inclined to participate. That said, it has never felt to me that the rates paid on the lower priority tranches are/were a fair reflection of the risk of capital loss.
|
|
trium
Member of DD Central
Posts: 384 
Likes: 304
|
Post by trium on Sept 30, 2019 23:40:03 GMT
Read loan details very carefully, particularly if you see the words "supplementary", "additional", "2nd facility" or similar - they will almost always rank behind earlier loans. 2nd/3rd tranches are usually ok.
All these loan types might be secured on the same first legal charge (covering all FS exposure) but their ranking within the overall exposure is subject to a pecking order. While that might not be comfortable if you find yourself in a junior loan when recoveries are looking thin, it's completely fair as those invested in the first loan will have assessed their risk on the basis of the headroom offered by the apparent LTV considering only that loan (and tranches of the same facility). It is right that additional borrowings which materialise later ought not to be allowed to erode the value of their security.
|
|
adrian77
Member of DD Central
Posts: 3,920
Likes: 4,145
|
Post by adrian77 on Oct 1, 2019 8:02:09 GMT
sadly "unlikely" is probably being too optimistic - anything other than zero recovery is on the cards here - sorry but that is how it is.
|
|
|
|
Post by portlandbill on Oct 1, 2019 12:56:37 GMT
Just been surprised to read that I'm unlikely to get any money back on loan 2444968958 as it's a "supplemental" loan and the proceeds don't cover the original loans. Is that right? Surely the proceeds should be shared equally amongst all loans unless clearly labelled as a 2nd charge? The loan description states "This is a 6-month loan secured by a first legal charge against a property in N*w B****on, W*****y" It is never nice to have such a harsh education, but unfortunately the loan description was very clear in the 3rd sentence: "in the event of a default, this would rank behind the original loan and development facility" The issue you're raising is that you believe it should be described as a second charge. This loan is not the legal definition of 2nd charge. This is a loan where FS holds a first charge, but your specific loan is subordinated to the earlier loans. In reality though, it acts very much like a 2nd charge from the investors perspective. Yes, so there was me, studiously avoiding any references to "2nd charge" loans and walking straight into "supplemental" loans.
|
|
ozboy
Member of DD Central
Mine's a Large One! (Snigger, snigger .......)
Posts: 3,168
Likes: 4,859
|
Post by ozboy on Oct 1, 2019 13:03:29 GMT
Good ole FS eh? They have a way with words. I trust them implicitly, I'm remortgaging my house and borrowing as much as I can from all my friends and bunging the LOT into FS' Loans. This is NOT investment advice.  |
|
arby
Member of DD Central
Posts: 910
Likes: 959
|
Post by arby on Oct 1, 2019 13:11:33 GMT
Good ole FS eh? They have a way with words. I trust them implicitly, I'm remortgaging my house and borrowing as much as I can from all my friends and bunging the LOT into FS' Loans. This is NOT investment advice. FS have many failings, but this isn't one of them. They didn't hide or obscure anything and the loan description was very clear this was a lower ranking loan. To have described it as a 2nd (or 3rd) charge would have been false. However, this is a perfect example of how easy it is for the common person on the street to unwittingly accept more risk than intended as most of us just aren't used to the specific terminology used. I don't feel anyone is to blame here. As I said at the start, it is just unfortunately a harsh education for portlandbill.
|
|
ozboy
Member of DD Central
Mine's a Large One! (Snigger, snigger .......)
Posts: 3,168
Likes: 4,859
|
Post by ozboy on Oct 1, 2019 13:22:58 GMT
Good ole FS eh? They have a way with words. I trust them implicitly, I'm remortgaging my house and borrowing as much as I can from all my friends and bunging the LOT into FS' Loans. This is NOT investment advice. FS have many failings, but this isn't one of them. They didn't hide or obscure anything and the loan description was very clear this was a lower ranking loan. To have described it as a 2nd (or 3rd) charge would have been false. However, this is a perfect example of how easy it is for the common person on the street to unwittingly accept more risk than intended as most of us just aren't used to the specific terminology used. I don't feel anyone is to blame here. As I said at the start, it is just unfortunately a harsh education for portlandbill. If I was running a Platform there are FAR crystal clearer ways to present Loan Details, especially "Loan Ranking", but these are rarely used. I wonder why? 
|
|
Mousey
Member of DD Central
Posts: 1,598
Likes: 6,768
|
Post by Mousey on Oct 1, 2019 14:13:12 GMT
This was reported to the FCA's financial mis-selling team and I was advised passed immediately to their supervision department. I'm unsure what effect my complaint had but shortly after that the loan was updated with a strong disclaimer and investors had the choice to withdraw their investment.
|
|
adrian77
Member of DD Central
Posts: 3,920
Likes: 4,145
|
Post by adrian77 on Oct 1, 2019 15:33:00 GMT
Have just read the FS clarification - unlike most of their English this was very clear and precise - maybe written by a solicitor? So "subordination agreement" is another term I have learnt - love this forum!
To return to this tower block I accept FS stated what was what but I am sure I am not the only one who missed it as the interest rates for all tranches were the same. To have a 4th charge paying the same rate as the first charge strikes me as somewhat atypical and that is being generous. FS have admitted the second charge holders are going to take a hit so ,assuming this is the case, then the 3rd and 4th charges will be yet another 100% loss. Personally I am dreading just how much of my second charge capital I am going to lose.
The FS management bought the loan book - as they were not forced to do so I don't want to hear any more excuses about the prior management. All I want is a bit more transparency and less spin - e.g. has the latest buyer signed a contract in principle - "yes" or "no"! If he has signed the contract then what is the sale price?
Flipped one of my properties last week - bought extremely cheaply for cash at way below asking price and sold at 55% gross profit. I costed the renovation and decided it was not guaranteed to make a profit. Wonder if this is the case with this one? The fact is was so cheap points to me that there was a mega problem with it and any sane developer is going to screw the price right down to compensate ...
I trust the new management weren't hoping to buy FS and make a killing by floating because if they were I suspect they are going to be sorely disappointed as the market has learnt from the *unding *ircle experience
Don't forget "organic growth it's a process" !
|
|
Godanubis
Member of DD Central
Anubis is known as the god of death and is the oldest and most popular of ancient Egyptian deities.
Posts: 2,011
Likes: 1,013
|
Post by Godanubis on Oct 2, 2019 7:52:01 GMT
Have just read the FS clarification - unlike most of their English this was very clear and precise - maybe written by a solicitor? So "subordination agreement" is another term I have learnt - love this forum! To return to this tower block I accept FS stated what was what but I am sure I am not the only one who missed it as the interest rates for all tranches were the same. To have a 4th charge paying the same rate as the first charge strikes me as somewhat atypical and that is being generous. FS have admitted the second charge holders are going to take a hit so ,assuming this is the case, then the 3rd and 4th charges will be yet another 100% loss. Personally I am dreading just how much of my second charge capital I am going to lose. The FS management bought the loan book - as they were not forced to do so I don't want to hear any more excuses about the prior management. All I want is a bit more transparency and less spin - e.g. has the latest buyer signed a contract in principle - "yes" or "no"! If he has signed the contract then what is the sale price? Flipped one of my properties last week - bought extremely cheaply for cash at way below asking price and sold at 55% gross profit. I costed the renovation and decided it was not guaranteed to make a profit. Wonder if this is the case with this one? The fact is was so cheap points to me that there was a mega problem with it and any sane developer is going to screw the price right down to compensate ... I trust the new management weren't hoping to buy FS and make a killing by floating because if they were I suspect they are going to be sorely disappointed as the market has learnt from the *unding *ircle experience Don't forget "organic growth it's a process" ! You could always Short any IPO . Of course that would have to be before Labour ban’s this course of action.
|
|
adrian77
Member of DD Central
Posts: 3,920
Likes: 4,145
|
Post by adrian77 on Oct 2, 2019 7:54:26 GMT
You could always Short any IPO . Of course that would have to be before Labour ban’s this course of action.
very true - if only I had shorted *unding *ircle!
|
|
r1200gs
Member of DD Central
Posts: 1,336
Likes: 1,883
|
Post by r1200gs on Oct 2, 2019 9:48:19 GMT
Have just read the FS clarification - unlike most of their English this was very clear and precise - maybe written by a solicitor? So "subordination agreement" is another term I have learnt - love this forum! To return to this tower block I accept FS stated what was what but I am sure I am not the only one who missed it as the interest rates for all tranches were the same. To have a 4th charge paying the same rate as the first charge strikes me as somewhat atypical and that is being generous. FS have admitted the second charge holders are going to take a hit so ,assuming this is the case, then the 3rd and 4th charges will be yet another 100% loss. Personally I am dreading just how much of my second charge capital I am going to lose.The FS management bought the loan book - as they were not forced to do so I don't want to hear any more excuses about the prior management. All I want is a bit more transparency and less spin - e.g. has the latest buyer signed a contract in principle - "yes" or "no"! If he has signed the contract then what is the sale price? Flipped one of my properties last week - bought extremely cheaply for cash at way below asking price and sold at 55% gross profit. I costed the renovation and decided it was not guaranteed to make a profit. Wonder if this is the case with this one? The fact is was so cheap points to me that there was a mega problem with it and any sane developer is going to screw the price right down to compensate ... I trust the new management weren't hoping to buy FS and make a killing by floating because if they were I suspect they are going to be sorely disappointed as the market has learnt from the *unding *ircle experience Don't forget "organic growth it's a process" ! Presuming there is any money for subordinate loans, there is less every day this drags on because your capital becomes my interest on the priority loan.
|
|
kielbasa
Member of DD Central
Posts: 246
Likes: 411
|
Post by kielbasa on Oct 2, 2019 12:33:53 GMT
I feel for you, portlandbill.
I've long thought that in general and perhaps without exception, supplemental loans are wholly unsuitable for retail investors. I think they are just too risky. I don't know what level of interest rate would compensate for the risk, maybe at least 30% p.a. for lenders and that should be with strict and timely defaulting if things overrun. As in the case of the tower block loan, if loans overrun the interest on the highest ranking tranches just eats up the capital of the lower ranking lenders.
As regards timely defaulting, we are talking about FS here!
If developments need supplemental loans then I think these should have been funded by FS, their directors and shareholders and possibly (brave) institutional investors.
I wonder how a fund comprised solely of FS supplemental loans, held to completion of the loan and remaining invested through any renewals, up to the ultimate denouement would have performed.
I haven't had a look, but I imagine it would not be too pretty.
|
|
