aju
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Post by aju on Feb 17, 2020 12:06:33 GMT
Starling Bank buys loans and transfers them to it's own balance sheet with Zopa continuing to service the loans according to this altfi article. No wonder lending is taking longer on some products!  |
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Greenwood2
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Post by Greenwood2 on Feb 17, 2020 15:14:23 GMT
Starling Bank buys loans and transfers them to it's own balance sheet with Zopa continuing to service the loans according to this altfi article. No wonder lending is taking longer on some products! Starling Bank funds loans on Zopa (lending?) then buys them back from Zopa and puts them on its balance sheet, and Zopa services them... I don't think I quite understand what they are doing or why, it seems a bit like eating your own tail. Is there a Dummies guide I could read?
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Post by propman on Feb 17, 2020 15:48:40 GMT
Buying into other providers loans is common practice. As a bank ythey need to ensure that they are not paying interest on too much unproductive cash. As a result they buy existing loans with any excess to the extent that they do not have sufficient credit worthy borrowers. The originating entity manages the loans and receiveds the ongoing fees with the new entity receiving the interest.
- PM
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benaj
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Post by benaj on Feb 17, 2020 15:48:42 GMT
+1 for Starling.
At this rate, Starling could end up buying Zopa at the end. Silmiar colour scheme as well.
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Greenwood2
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Post by Greenwood2 on Feb 17, 2020 17:21:42 GMT
Buying into other providers loans is common practice. As a bank ythey need to ensure that they are not paying interest on too much unproductive cash. As a result they buy existing loans with any excess to the extent that they do not have sufficient credit worthy borrowers. The originating entity manages the loans and receiveds the ongoing fees with the new entity receiving the interest.
- PM
OK, that makes sense in a convoluted way. I assume Starling still carries the risk of defaults. Do Zopa get anything extra out of the deal or are they similarly just using up excess demand for loans?
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Post by Deleted on Feb 17, 2020 17:53:01 GMT
What is it with Z? Are they purposely trying to emulate FC? Anyway it's not a good look and I'm out...
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Greenwood2
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Post by Greenwood2 on Feb 17, 2020 20:29:23 GMT
What is it with Z? Are they purposely trying to emulate FC? Anyway it's not a good look and I'm out... Did FC do this?
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Post by Ton ⓉⓞⓃ on Feb 17, 2020 22:03:55 GMT
Buying into other providers loans is common practice. As a bank ythey need to ensure that they are not paying interest on too much unproductive cash. As a result they buy existing loans with any excess to the extent that they do not have sufficient credit worthy borrowers. The originating entity manages the loans and receiveds the ongoing fees with the new entity receiving the interest.
- PM
OK, that makes sense in a convoluted way. I assume Starling still carries the risk of defaults. Do Zopa get anything extra out of the deal or are they similarly just using up excess demand for loans? Z is certain to be charging a monitoring fee or similar, 1 or 2% if the loans are simple.
I invested £500 less than a week ago and all but £30 went into RR loans. That would be tempting for any clever bank to pick up. I'd like to pick up some more.
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Post by Deleted on Feb 17, 2020 22:09:32 GMT
Z is certain to be charging a monitoring fee or similar, 1 or 2% if the loans are simple.
I invested £500 less than a week ago and all but £30 went into RR loans. That would be tempting for any clever bank to pick up. I'd like to pick up some more.
Why are RR loans appealing? Surely the rates are similar to the whole loan portfolio and they may still have been late payers, albeit they won't be in arrears at the time you get them.
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Post by propman on Feb 18, 2020 12:54:20 GMT
Buying into other providers loans is common practice. As a bank they need to ensure that they are not paying interest on too much unproductive cash. As a result they buy existing loans with any excess to the extent that they do not have sufficient credit worthy borrowers. The originating entity manages the loans and receiveds the ongoing fees with the new entity receiving the interest.
- PM
OK, that makes sense in a convoluted way. I assume Starling still carries the risk of defaults. Do Zopa get anything extra out of the deal or are they similarly just using up excess demand for loans? Normally the purchaser takes default risk although the price of the sale will take this into account (in addition to the nominal rate).
Re RR loans, this has been debated many times. It depends on the timing of defaults. If defaults are higher at the start, then the risk of default falls while the rate is consistent. I have found that defaults are early on lower rated loans. I assume these borrowers fall into better risk than on paper (either their situation has improved or there is little details on them as they have survived with little credit freviously due to good financial management) and those who are poor risks. As many of the latter are unavailable for RR as they are in arrears, the former make these generously paying loans for the risk. AGainst this (which I think is at least as important on top rated loans) is the fact that they are based on old risk assessments that may now be inapropriate, so you can get an A* loan from a borrower that has hit problems and so should now be paying higher interest due to a worse credit rating.
In any event, on such a purchase, the purchasing institution assesses what it believes the appropriate rate should be (probably pro-rating a sample) to determine the rate they are prepared to accept. This may require a purchase at a discount (eg the defaulted loan sales) or may even allow the seller to demand a premium. That said, I suspect that Z are probably selling new loans (simpler to sell whole loans) so I suspect that these are at par.
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aju
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Post by aju on Feb 18, 2020 16:23:11 GMT
OK, that makes sense in a convoluted way. I assume Starling still carries the risk of defaults. Do Zopa get anything extra out of the deal or are they similarly just using up excess demand for loans? Normally the purchaser takes default risk although the price of the sale will take this into account (in addition to the nominal rate).
Re RR loans, this has been debated many times. It depends on the timing of defaults. If defaults are higher at the start, then the risk of default falls while the rate is consistent. I have found that defaults are early on lower rated loans. I assume these borrowers fall into better risk than on paper (either their situation has improved or there is little details on them as they have survived with little credit freviously due to good financial management) and those who are poor risks. As many of the latter are unavailable for RR as they are in arrears, the former make these generously paying loans for the risk. AGainst this (which I think is at least as important on top rated loans) is the fact that they are based on old risk assessments that may now be inapropriate, so you can get an A* loan from a borrower that has hit problems and so should now be paying higher interest due to a worse credit rating.
In any event, on such a purchase, the purchasing institution assesses what it believes the appropriate rate should be (probably pro-rating a sample) to determine the rate they are prepared to accept. This may require a purchase at a discount (eg the defaulted loan sales) or may even allow the seller to demand a premium. That said, I suspect that Z are probably selling new loans (simpler to sell whole loans) so I suspect that these are at par.
Sadly I seem to be picking up quite a few loans with 1 or 2 payments failing lately from the wedding funds that then go on to default - not very predictable i would have thought unless people are playing the "best money use option" game. Does the loan usage selection even have a bearing on the rates to the borrower?. I've never checked my RR pickups against subsequent default levels but I would have thought there is minimal correlation to someone selling loans and the next person picking them up and the loans then defaulting. Other than the usual parameters of when loans default of course. Having a job that does not make one redundant all of a sudden is a big factor that plays out for a lot of people. After all no one is safe from sudden job loss these days. It's a very long time since anyone was guaranteed a job for life as it sometimes was 30 odd years ago or more, I took the kings before I was pushed out but then I know people who are my age who are still in the jobs they were in and are coming up for SPA (State pension Age).
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Post by Ton ⓉⓞⓃ on Feb 18, 2020 16:43:35 GMT
@inv11
propman goes into much more detail above.
I would rather that I lend £1000 into RR loans than £1000 into new ones. One reason being is that some believe (me included) that the first six months of the life of a personal loan is the riskiest, all things being equal. It's true that a different risk gradual rises as the loans get older, but you have to decide for yourself which is worst. A counter point is that we're getting ripe for recession so would new loans be better than RR loans in that environment? - Yes possibly new loans would be better than RR loans. Things like the Debt/Income ratio and number of loan enquiries in the last six months, personal loans for small businesses these are said to be some of the biggest determinates of default risk AIUI.
The only controls we have are; to loan or not to loan that is the question.
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Post by dan1 on Feb 20, 2020 15:16:47 GMT
I wonder if the Starling Bank portfolio of loan performance reads....  |
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benaj
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Post by benaj on Feb 20, 2020 17:09:40 GMT
I wonder if the Starling Bank portfolio of loan performance reads.... If Starling deposit keeps growing and buying loans from Z, it might not be noticeable for a few years. www.youtube.com/watch?v=taEcfBuoUDEAs Zopa explains, defaults won't happen in the first 4 months. 
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Post by gravitykillz on Feb 23, 2020 8:02:47 GMT
I heard a few months ago that starling had a venture with growth street. Now zopa as well ? This must be due to the additional government funding they were given to boost the uk economy.
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