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Post by jazzmonkey on Nov 3, 2014 15:36:01 GMT
Hi folks.
Just going through my first couple of experiences of defaulted loans. Interesting comment today on 2881
"The loan account holds a small credit balance which is the result of partial payments received prior to the default, we will distribute this to investors as a recovery payment today"
Am I missing something.... or isn't this our money anyway, and should have been distributed before now? My definition of a recovery would be something FC achieved for us AFTER a loan defaulted through their perseverance and negotiation.
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blender
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Post by blender on Nov 3, 2014 15:46:37 GMT
In the real world you would be right, but this is Planet FC where they are unable to distribute a partial repayment, they say, and so have to distribute it after default as recoveries. But you've seen nothing yet, jazzmonkey. Consider a loan which was agreed for asset purchase but which was inexplicably late in the first repayment, then was defaulted, then repaid in full as recoveries with the explanation that that FC never got as far as buying the asset. The borrower pulled out. Good for the recovery stats, for money which never left the lender coffers. It's all on one of the recent threads. You could not make it up.
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mikeb
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Post by mikeb on Nov 3, 2014 18:48:21 GMT
Hi folks. Just going through my first couple of experiences of defaulted loans. Interesting comment today on 2881 "The loan account holds a small credit balance which is the result of partial payments received prior to the default, we will distribute this to investors as a recovery payment today" Am I missing something.... or isn't this our money anyway, and should have been distributed before now? My definition of a recovery would be something FC achieved for us AFTER a loan defaulted through their perseverance and negotiation. That comment is (co-incidentally, of course) because I questioned this earlier comment :- From September: "We have received both payment for July and August" ... but these were never distributed. Then they default the loan and start talking about recoveries and strategies. Hang on, what about the money you already collected? No reply to my comment yet, naturally, "We are working hard to put a comment on so we can come back to you and say 'There is a comment that says this, don't see the problem?'" -- and it's not the first loan that has been defaulted with money already collected, but not handed over. Of course now they can give us the money (which was already ours) and call it a recovery. Which is what has happened today. All helps the stats look more rosy. I don't think it's just a foible of the accounting system.
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Post by jazzmonkey on Nov 3, 2014 21:03:41 GMT
This young monkey is getting wise beyond it's years!
Think that we need to keep bananas close to our chest!!
Seriously chaps, thanks for the feedback, thought I was missing a trick. Don't really care which method is used to recover any losses, just don't want to get caught up in a spin machine.
JM
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blender
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Post by blender on Nov 3, 2014 23:18:08 GMT
It's only as scary as you wish to make it, Jazzmonkey. If you set and forget Autobid you should get safe but average results for no effort. It is pretty obvious that if you choose your own loans to get the higher interest rates and cashback then you can get better returns, but to use your time efficiently you have to buy larger amounts. When it comes to avoiding defaults the most effective plan is to sell anything that goes late and comes back, because - some have said - that up to half of loans which default first have problems with repayments. If you could set Autobid to buy only from the primary market and then sell the lates then that might be a good option. But you cannot do that and so you probably either have to use Autobid fully or take manual portfolio management seriously and try for returns which are worth the extra effort. FC is a good place for both, imo, though I have not tried the other platforms.
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Post by twerling on Nov 4, 2014 0:55:40 GMT
@ the thread title: whenever you transfer your cash to some financial institution, you're lending it to them....... so depending on the contract you enter into, you're either a relatively secured creditor or an entirely unsecured creditor.
It's tempting to think we lend to borrowers when we do p2p, but in reality we don't: we lend to the platform; the platform then ticks over as a business; we then choose which loans to directly support.
If the platform succeeds (eg. if most lenders pick the 'right' loans to support) then all's fine and dandy, but if the platform fails (even if it's not you that's backed the wrong loans: not you at all whatsoever, not even one!) you lose.
It's worth remembering that when weighing up a platform: backing only certain types of loan will not protect you - you need for the platform to not be filling bad loans in the first place. If you see a platform extending unsupported loans' application process in order to fill them because they want to fill them, or if you see a whole load of loans being filled that you wouldn't dream of touching, that's your signal to change platforms.
On a yet higher level, you may decide that the meta-risk is just not worth your while, especially since you're committing to loans of at least a few months, perhaps even a few years.
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Post by gingergent on Nov 4, 2014 8:15:37 GMT
It's tempting to think we lend to borrowers when we do p2p, but in reality we don't: we lend to the platform My understanding is that's a little misleading. FC and other platforms do hold onto cash that hasn't been lent out, but it is held in a segregated 'client money' account so that it is ring-fenced if the platform fails. I wouldn't expect it to be quickly or easily accessed if the worst happened, but it should still 'exist' and be returned eventually. Similarly, I believe the loan agreements are technically between the borrowers and lenders, with the platform acting in an agent-type role, which is why you have the transfer agreements, etc.. FC's terms include (or included when I agreed to them) clauses about how loan servicing would continue in the event of FC's demise. So my understanding is that lending through FC is very different to lending to FC but 'secured' on certain loan's revenue streams (eg SavingStream), in that failure of FC does not imply default or loss on the funded loans. If anyone has a different take on this please do speak up; the detail of this is increadibly important to the risk profile of a P2x platform IMHO. PS: I'm not intending any implication about the probability of any platform failing here, only about the impact of a failure. I wouldn't have cash in FC, SS or any other platform if I thought it was about to fail.
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blender
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Post by blender on Nov 4, 2014 8:59:58 GMT
Twerling (reborn again?) is incorrect in the case of FC. The loan contracts for each part are between the lender and borrower and do not require the continued existence of FC to be enforceable.
I agree with Twerling that the health of the platform depends on the quality of the loans filled - and that all we can then do subsequently is move any problems around and hope not to be holding the few problem loans when the music stops. The fact that FC have demonstrated that they will let loans go unfilled is encouraging - though it's very rare and sometimes due to the offer rather than the quality of the company.
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sl75
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Post by sl75 on Nov 4, 2014 14:00:08 GMT
It's tempting to think we lend to borrowers when we do p2p, but in reality we don't: we lend to the platform; the platform then ticks over as a business; we then choose which loans to directly support. This is incorrect. Initially we lend to the bank which operates the holding account for the P2P platform, not to the P2P platform itself. Later, when matched to a loan, we are lending to the relevant borrower (arranged via the platform), and also not to the platform itself. At no point on most P2P platforms do we ever lend money to the platform itself. The only exception of which I am aware is Wellesley, whose "savings bonds" (offering a slightly higher interest rate than the P2P loans) are money lent directly to the platform, with all the additional risk that entails.
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sl125
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Post by sl125 on Nov 4, 2014 14:21:56 GMT
That's right. It's the fiduciary principle laid out by the FCA's Client Money Rules, which means the platform is acting as an investment intermediary. So, moneys not lent out to borrowers have to be held in a segregated client account. If the platform went bust, subject to the costs of liquidation, the clients' moneys are protected as they do not belong to the platform.
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Post by batchoy on Nov 4, 2014 15:50:31 GMT
It's tempting to think we lend to borrowers when we do p2p, but in reality we don't: we lend to the platform; the platform then ticks over as a business; we then choose which loans to directly support. This is incorrect. Initially we lend to the bank which operates the holding account for the P2P platform, not to the P2P platform itself. Later, when matched to a loan, we are lending to the relevant borrower (arranged via the platform), and also not to the platform itself. At no point on most P2P platforms do we ever lend money to the platform itself. The only exception of which I am aware is Wellesley, whose "savings bonds" (offering a slightly higher interest rate than the P2P loans) are money lent directly to the platform, with all the additional risk that entails. There are two exceptions Wellesley which you picked up on and Savings Stream. However it applies to all off Wellesley's products not just their 'Savings Bonds', the difference being that with the 'Savings Bond' you are lending it directly to Wellesley, where as with their other products you are lending it to a separate company within the Wellesley group that holds all the (securities backing the) loans which they have made which are then assigned on a rotating basis to your investment.
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blender
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Post by blender on Nov 5, 2014 10:27:30 GMT
This is incorrect. Initially we lend to the bank which operates the holding account for the P2P platform, not to the P2P platform itself. Later, when matched to a loan, we are lending to the relevant borrower (arranged via the platform), and also not to the platform itself. At no point on most P2P platforms do we ever lend money to the platform itself. The only exception of which I am aware is Wellesley, whose "savings bonds" (offering a slightly higher interest rate than the P2P loans) are money lent directly to the platform, with all the additional risk that entails. There are two exceptions Wellesley which you picked up on and Savings Stream. However it applies to all off Wellesley's products not just their 'Savings Bonds', the difference being that with the 'Savings Bond' you are lending it directly to Wellesley, where as with their other products you are lending it to a separate company within the Wellesley group that holds all the (securities backing the) loans which they have made which are then assigned on a rotating basis to your investment. "Saving Stream is an investment platform that offers investors fixed rates of 12% pa." Is it a p2p operator?
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Post by batchoy on Nov 5, 2014 10:44:44 GMT
There are two exceptions Wellesley which you picked up on and Savings Stream. However it applies to all off Wellesley's products not just their 'Savings Bonds', the difference being that with the 'Savings Bond' you are lending it directly to Wellesley, where as with their other products you are lending it to a separate company within the Wellesley group that holds all the (securities backing the) loans which they have made which are then assigned on a rotating basis to your investment. "Saving Stream is an investment platform that offers investors fixed rates of 12% pa." Is it a p2p operator? Not in my books no, they are a lending business that seeks crowdfunding to finance their business, as you are lending to SS/Lendy Ltd not to the borrower who has borrowed from Lendy Ltd. Though I don't invest in SS for a number of reasons, the interesting one for me is what would happen if a borrower defaulted and there was not the equity in the security to cover payments to lenders, the lenders agreement is with SS/Lendy Ltd and not with the borrower so if SS/Lendy Ltd failed to pay up the capital and interest they would be in default to the Lender. Given the holes in SS/Lendy Ltd's Ts&Cs I'm pretty sure you would win if you took the issue to court, if enough people did this then it would bring SS/Lendy Ltd down with the result that there would potentially be big losses for all since the loans to borrowers and deposits from lenders are not segregated from the core business as they are with Wellesley and it would be down to the Administrators how they viewed the Assets (loan securities) held by SS/Lendy Ltd and any assignments against these assets to lenders.
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blender
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Post by blender on Nov 5, 2014 14:00:31 GMT
Yes, that's what I though batchboy, the investors do not lend to the borrowers at all - they just pick loans with which their money is associated, which allows SS to match its payments to investors to repayments made by the borrowers. So the money is matched in a cashflow sense, but the borrower has no direct relationship with the investors. A small point where I would put it differently is the that the investors do not lend at all, and not to SS's business as such - I hope. Presumably the investors deposit money into a client fund of some sort and that cash is secure.
I find it curious that FC, which is true p2p, keeps wishing to call us investors instead of lenders. I am proud to be a lender and it is one of the reasons I stick with FC.
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