Interest shortfall

Just trying to address some of the points raised on this thread.

As you are all aware, we made changes effective 1 January 2020 to ensure that the Lending Works Shield can continue to perform its primary function, regardless of the credit performance or macroeconomic environment. To do this, we are required to divert some of the interest that the loan portfolio is generating from retail investors to the Shield (before diverting retail investors’ interest we already diverted all of Lending Works’ net interest margin). This should be in everyone's best interest as it makes the Shield mechanism significantly more robust going forward, albeit gives rise to a period of slightly reduced returns.

The level of the contributions (adjustments) will fluctuate over time as the repayment cashflow of the portfolio of loans matures. The most severe impact will be felt in the first half of 2020, then from H2 onwards the impact will be less severe so rates on current loans will increase again.
However, the net result of all this is that while the interest rate paid to retail investors will fluctuate from time to time, the average annualised return investors will be receiving is the interest rate displayed on our website and in your Dashboard. Investing and investment performance should be viewed over the medium to long term, as with any other investment such as stocks and shares, and not necessarily just on the returns experienced in the space of a few months (or indeed XIRR over one month).

Regarding loan sale fees, some of you are going through the loan sale process to understand any interest shortfall penalty which may currently be applicable. This is currently higher than in the past due to interest adjustments on some of your loans (those funded prior to 2020). Please also note that this shortfall is being quoted here as a % but should not be confused with an annualised equivalent. By that I mean a 5% shortfall on a 4-year remaining term would be equivalent to around 2.5% or so p.a., rather than being equivalent to 5% p.a. As mentioned above, in H2 2020 interest shortfall payments will reduce as Shield contributions from interest payments reduce.

There is certainly no motivation or intention for Lending Works to penalise exiting lenders - this is simply a product of ensuring that investors purchasing your loans (and you may also be picking up loans from loan sales by other investors) receive the rate they are expecting from new loans.

Thanks

Or selling out from growth and buying flexible in December.   

Seeing the words retail investors more then Once in the reply are other investors better or worse off?

I won't claim to understand the maths being applied now, but it was pretty clear to me that LW were heading towards trouble from the middle of last year (1), and I wrote about it here a fair bit.

I was especially concerned in August when doing the simple sum of "PF cash + expected income - expected losses" resulted in a negative number i.e. LW were predicting themselves that their PF was going to run out of cash. That net figure has since kept on dropping btw.

Even before that, the drops in PF cash throughout last year looked unsustainable.  The 2017 cohort for example has over twice the level of bad debt LW initially expected.

My outstanding concern (from the outside, disinvested a while back) for existing investors is that the 2019 cohort expected bad debt seems out of kilter with prior years i.e. it's a very low forecast for a borrower APR that's as high as it's ever been. Matthew to his credit did address this point at the time, but I'm afraid I remain unconvinced. Whether that has now been addressed (if indeed it needs to be) we now don't really know with the nature of the revised statistics.

P.S. That 4th way seemed unable/unwilling to do the "advanced analysis" of monitoring PF cash levels and tracking expected performance vs actual tells you everything you need to know about how much to trust their views.

P.P.S For anyone also invested in RS, you might want to do some homework on their stats too if you haven't already. Don't just read the headline stats.