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Post by Ace on Jul 3, 2021 10:05:41 GMT
I have a few loans on Proplend that are now beyond their agreed terms. Proplend have said that they will be on default/penalty interest once they've passed the agreed end date. Looking in the loan contracts, it seems that the default rate is 150% of the agreed rate (so a 10% loan would pay 15% default rate).
I couldn't find anything that specifically said how this would be split between lender and Proplend. Is it correct to assume that the whole of this interest is paid to the lenders, and that Proplend then take their usual 10% cut from that payment (so the lender would receive a net rate of 13.5% from a default rate of 15%)?
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sapphire
Member of DD Central
Posts: 483
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Post by sapphire on Jul 3, 2021 10:12:06 GMT
I have a few loans on Proplend that are now beyond their agreed terms. Proplend have said that they will be on default/penalty interest once they've passed the agreed end date. Looking in the loan contracts, it seems that the default rate is 150% of the agreed rate (so a 10% loan would pay 15% default rate). I couldn't find anything that specifically said how this would be split between lender and Proplend. Is it correct to assume that the whole of this interest is paid to the lenders, and that Proplend then take their usual 10% cut from that payment (so the lender would receive a net rate of 13.5% from a default rate of 15%)? Yes. That's been my experience.
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Post by uksoul on Jul 3, 2021 11:58:42 GMT
I have a few loans on Proplend that are now beyond their agreed terms. Proplend have said that they will be on default/penalty interest once they've passed the agreed end date. Looking in the loan contracts, it seems that the default rate is 150% of the agreed rate (so a 10% loan would pay 15% default rate). I couldn't find anything that specifically said how this would be split between lender and Proplend. Is it correct to assume that the whole of this interest is paid to the lenders, and that Proplend then take their usual 10% cut from that payment (so the lender would receive a net rate of 13.5% from a default rate of 15%)? Yes. That's been my experience. Mine too.
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Post by overthehill on Jul 3, 2021 14:23:06 GMT
I have a few loans on Proplend that are now beyond their agreed terms. Proplend have said that they will be on default/penalty interest once they've passed the agreed end date. Looking in the loan contracts, it seems that the default rate is 150% of the agreed rate (so a 10% loan would pay 15% default rate). I couldn't find anything that specifically said how this would be split between lender and Proplend. Is it correct to assume that the whole of this interest is paid to the lenders, and that Proplend then take their usual 10% cut from that payment (so the lender would receive a net rate of 13.5% from a default rate of 15%)? Yes. That's been my experience.
That is exactly the way it works. I believe Proplend's surge in popularity is down to investors' due diligence and comparisons. Compare it to what Assetzcapital take from the borrower and what lenders get when a loan is in trouble. Do lenders get anything in the MLA account? I've never checked.
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Post by Ace on Jul 3, 2021 14:46:48 GMT
Yes. That's been my experience.
That is exactly the way it works. I believe Proplend's surge in popularity is down to investors' due diligence and comparisons. Compare it to what Assetzcapital take from the borrower and what lenders get when a loan is in trouble. Do lenders get anything in the MLA account? I've never checked.
Yes, lenders do usually receive extra interest on AC MLA loans, but AC usually take a fairly large slice of the increase. I'm impressed with the fact that Proplend pay the whole default interest to lenders (except for their 10% fee, which I find very reasonable). I'm also impressed that they charge default interest from the first late day. This must concentrate the borrower's mind to get the issue sorted ASAP. I find CrowdProperty similarly impressive in this regard. I.e. they usually charge default interest from 1 day late, and the whole 2% increase goes to lenders.
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Post by overthehill on Jul 5, 2021 13:30:39 GMT
I noticed 4thway has a lower expected return rate for Tranche B + C loans than it does for Tranche A.
At a glance it looks like an obvious mistake especially when you look around the expected return rates for other companies. It might be because of the tranche system where B + C receives nothing if the total recovery is < 50%. If this is the case then 4thway really need an extra entry for Kuflink. Are there others with this tranche system?
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Post by uksoul on Jul 5, 2021 13:53:11 GMT
I noticed 4thway has a lower expected return rate for Tranche B + C loans than it does for Tranche A.
At a glance it looks like an obvious mistake especially when you look around the expected return rates for other companies. It might be because of the tranche system where B + C receives nothing if the total recovery is < 50%. If this is the case then 4thway really need an extra entry for Kuflink. Are there others with this tranche system?
4th Way rates Tranche A extremely highly due to the lower LTV and higher Interest rate coverage. They do say the B+C are good value loans but their rating seems to be primarily based on tranche A. Relendex has a similar Tranche system but just A+B.. Kuflink differential between the tranches is extremely marginal compared to Proplend's.
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sapphire
Member of DD Central
Posts: 483
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Post by sapphire on Jul 5, 2021 14:00:29 GMT
I noticed 4thway has a lower expected return rate for Tranche B + C loans than it does for Tranche A.
At a glance it looks like an obvious mistake especially when you look around the expected return rates for other companies. It might be because of the tranche system where B + C receives nothing if the total recovery is < 50%. If this is the case then 4thway really need an extra entry for Kuflink. Are there others with this tranche system?
I understand from PL that in the event of a default, Tranche B lenders will receive any outstanding capital & interest only after Tranche A lenders have been repaid both the capital and all outstanding interest (including any penalty interest at the 50% higher default rate) due to them. Similarly Tranche C lenders get paid only after Tranche A & B lenders have received all their outstanding dues. I haven't been able to find a mathematical formula on how much additional interest rate a Tranche B/C lender should receive (compared to a Tranche A lender), to compensate for the extra risk they take. I understand PL use a proprietary algorithm to determine the differential for the Tranche B & C interest rates. Not sure if this accurately reflects the additional risk. My gut feeling is that for most PL loans the (small) additional rate paid to Tranches B&C is not sufficient for the extra risk entailed. 4th Way's analysis (Expected net return on Tr B/C lower than Tr A) appears to confirm this view. Personally I focus only on Tranche A loans.
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Post by overthehill on Jul 5, 2021 14:04:35 GMT
I noticed 4thway has a lower expected return rate for Tranche B + C loans than it does for Tranche A.
At a glance it looks like an obvious mistake especially when you look around the expected return rates for other companies. It might be because of the tranche system where B + C receives nothing if the total recovery is < 50%. If this is the case then 4thway really need an extra entry for Kuflink. Are there others with this tranche system?
4th Way rates Tranche A extremely highly due to the lower LTV and higher Interest rate coverage. They do say the B+C are good value loans but their rating seems to be primarily based on tranche A. Relendex has a similar Tranche system but just A+B.. Kuflink differential between the tranches is extremely marginal compared to Proplend's.
The interest rate difference is marginal with Kuflink but the potential impact on expected return rates across the tranches should reflect what is being shown for Proplend, partial recovery scenario is pretty much identical between the two, is it not?
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Post by uksoul on Jul 5, 2021 15:08:40 GMT
4th Way rates Tranche A extremely highly due to the lower LTV and higher Interest rate coverage. They do say the B+C are good value loans but their rating seems to be primarily based on tranche A. Relendex has a similar Tranche system but just A+B.. Kuflink differential between the tranches is extremely marginal compared to Proplend's.
The interest rate difference is marginal with Kuflink but the potential impact on expected return rates across the tranches should reflect what is being shown for Proplend, partial recovery scenario is pretty much identical between the two, is it not?
Yeah, you're right.. the recovery scenario is pretty much identical. I guess as you can choose to invest only in A that is reason enough for 4th way not to be so inclusive of all tranches. Majority of investors do just invest in A although i focus on B/C.
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Post by Ace on Jul 5, 2021 17:26:44 GMT
I've been running a test of this issue over the past 3 years. I had one account that invested in only Tranche A and another that invested in Tranches B and C.
The Tranche A account has returned an XIRR of 6.58% to date. The Tranche B and C account has returned an XIRR of 11.53%.
It was a very limited test as there were only 5 loans at any one time in the Tranche A account, and up to 13 in the other one. Also, I recently abandoned the strict divide and have now added some B loans to the A account, but the divide was strictly kept for nearly 3 years.
Proplend's own stats show that under stress conditions (defined as a 30% dip in property prices) Tranche B is the winner (6.85% in A, 7.04% in B, 6.35% in C).
Though under normal conditions, like we've had so far, the average are 6.85% in A, 9.04% in B, 11.35% in C.
I choose to invest mainly in B and C in the hope that a few bad years under stress conditions will be more than made up for by the years under good/normal conditions. I fully understand that many will prefer to invest in Tranche A only. They don't just sleep better, they also have the advantage of being able to deploy funds more easily since Tranche A is much larger and they can take advantage of the priority of Autolend.
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morris
Member of DD Central
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Post by morris on Jul 5, 2021 17:33:53 GMT
The expected losses stress test, assuming property values fall 30%, is 5% for tranch C, 2% for tranch B and 0% for tranch A. This would result in an average annual average interest rate after losses of 6.35% for tranch C, 7.04% for tranch B, and 6.85% for tranch A. Of 123 loans funded between 2014 and 2020 only one has so far resulted in a loss, to tranch B investors.
Ace you beat me to it!
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