c88dnf
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Post by c88dnf on Jan 16, 2015 15:27:32 GMT
As I write (15.23 on Jan 16th) the 1 year market has totally run out of funds after a single loan request for £250k+ arrived around lunchtime. Interestingly, the rate at which funds could be loaned appears to have been capped at 10% by Ratesetter. Although the loan was ostensibly offering 60% for its last £20k, any offers around that number were bounced by the system as too high. Whether or not those of us lucky enough to see this momentary moneypot will keep our 10% loans remains to be seen. On the previous occasion funds ran out, Ratesetter declared the deals void. I hope that doesn't happen this time: the borrower should have had the intelligence to see what funds were available before submitting such a large loan request. Caveat emptor and all that!
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c88dnf
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Post by c88dnf on Jan 16, 2015 15:47:58 GMT
Update 15.45. Looks like either the borrower has run screaming from the loan, or Ratesetter have bounced it. Damn! There is now a bit of a mess on my account's balances as RS' various systems don't appear to have caught up with each other.
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spiral
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Post by spiral on Jan 16, 2015 16:41:04 GMT
Two points here, Firstly any borrower has a period of grace in which to cancel a loan which I think is around a week. Secondly, I thought RS said a couple of weeks back that all their big loans were funded by institutional investors!
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c88dnf
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Post by c88dnf on Jan 16, 2015 17:26:47 GMT
Two points here, Firstly any borrower has a period of grace in which to cancel a loan which I think is around a week. Secondly, I thought RS said a couple of weeks back that all their big loans were funded by institutional investors! The same thoughts had occurred to me. £250k in one lump sum is a hell of a chunk of money to be playing silly beggars with, in the sense of going out to get a loan and then suddenly realising that you've made a muck of it, which seems to be what happened on this occasion. All accounting now back in good order, by the way.
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Post by westonkevRS on Jan 16, 2015 21:36:35 GMT
You guys are eagle eyed!
The loan was cancelled before it was matched (i.e. there were no funds to match to). So the regulatory cooling of period wasn't needed, as was the case with loans some months before. This £250k loan was matched once funds became available at agreeable rates. To be blunt there is no point having money sitting around at 10% plus in any of the markets, it is unlikely to be lent on a loan that is either fully matched or remains not cancelled within the cooling off period.
We are truly P2P in my opinion, as only 3% of lending is "institutional", so your funds are lent on the same approved loans as institutions with the same rates. So for example your money is lent alongside that of the British Business Bank who have performed deep due diligence and are confident with our processes to lend £10m with us. We believe in equality and diversification, so apologies if you don't want your money lent on bigger loans but this is the way we operate within this philosophy. Diversification of lending types brings improved safety, alongside the existing diversification provided by the £10m Provision Fund that is for everyone's protection irrespective of loan type or size.
Kevin.
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spiral
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Post by spiral on Jan 19, 2015 11:15:00 GMT
So for example your money is lent alongside that of the British Business Bank who have performed deep due diligence and are confident with our processes to lend £10m with us. We believe in equality and diversification, so apologies if you don't want your money lent on bigger loans but this is the way we operate within this philosophy. Its not lending on bigger loans that I'm against but as I've said before, I like to spread my risk and currently leave at least 50K between any of my offers on the assumption that they shouldn't get matched in the same loan. That goes totally out of the window if £250K goes out in 1 loan as my exposure is potentially 6 times greater than I'd planned for.
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sl75
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Post by sl75 on Jan 19, 2015 12:08:09 GMT
Its not lending on bigger loans that I'm against but as I've said before, I like to spread my risk and currently leave at least 50K between any of my offers on the assumption that they shouldn't get matched in the same loan. That goes totally out of the window if £250K goes out in 1 loan as my exposure is potentially 6 times greater than I'd planned for. As I understand it, the only risks that you're spreading are: - the risk of early return of funds (in the event of a borrower early repayment, or a default that the PF pays out for). - the risk of the trustees failing to operate the provision fund according to the rules set out for them, so that claims you make of the PF are not paid out even in circumstances when it could and should have done. For a "normal market failure" of the provision fund (i.e. defaults exceeding the level of cover), a resolution event would occur, which has the effect of spreading the default risk across the entire loan book, regardless of your original level of diversification. Based on previous statements made, RS would seem unlikely to continue trading following such a resolution event, unlike Zopa whose T&Cs imply that they could somehow continue to write new loans with Safeguard, whilst knowing the fund was insufficient to meet expected claims - last time I read Zopa's T&Cs on the matter, they even seem to imply they'd use contributions made w.r.t. later loans in order to pay out the shortfall from earlier loans - a kind of Ponzi "lite" (only applying to the Safeguard fund rather than to the entire investment). Hopefully that was merely a poor drafting (or my poor reading) of the relevant T&Cs rather than an actual intention to operate Safeguard as a variant Ponzi scheme.
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spiral
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Post by spiral on Jan 19, 2015 17:20:01 GMT
For a "normal market failure" of the provision fund (i.e. defaults exceeding the level of cover), a resolution event would occur, which has the effect of spreading the default risk across the entire loan book, regardless of your original level of diversification. If what you are saying is true, then I totally agree with your intrpretation of what I'm spreading my risk against but I can't see that the good loans would be used to subsidise the bad loans (or am I misunderstanding what you're saying?) I could see that all defaulting loans would receive a similar level of payment e.g. PF has 900K and there's 1m of defaulting loans so they all receive 90% of outsatanding debt rather than some receiving full repayment and others none due to pot luck of when the default occured but how you could draw non defaulting loans into that equation I'm not sure.
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jlend
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Post by jlend on Jan 19, 2015 17:39:22 GMT
For a "normal market failure" of the provision fund (i.e. defaults exceeding the level of cover), a resolution event would occur, which has the effect of spreading the default risk across the entire loan book, regardless of your original level of diversification. If what you are saying is true, then I totally agree with your intrpretation of what I'm spreading my risk against but I can't see that the good loans would be used to subsidise the bad loans (or am I misunderstanding what you're saying?) I could see that all defaulting loans would receive a similar level of payment e.g. PF has 900K and there's 1m of defaulting loans so they all receive 90% of outsatanding debt rather than some receiving full repayment and others none due to pot luck of when the default occured but how you could draw non defaulting loans into that equation I'm not sure. There was a change to the terms and conditions last year to draw non defaulting loans in. See 11.12 and 11.13 below
"12.If at any time, in the opinion of RateSetter, the Provision Fund does not have sufficient funds to satisfy the claims arising from the loans outstanding (a "Negative Position"), and, the Negative Position is not capable of being rectified through the ordinary course of business, RateSetter may declare a Resolution Event. If a Resolution Event occurs the benefit of all Loan Contracts shall automatically be assigned to the Provision Fund and all monies owing under the Loan Contracts (the "Assigned Funds") will be collected and pooled into the Provision Fund for the Provision Fund Trustee to hold on trust for the lenders. Following the assignment of loans to the Provision Fund, the Provision Fund Trustee will wait for all the loans to fully run down in order that it can collect all monies owing under the outstanding loan contracts, after which it shall distribute the Assigned Funds to lenders on a pro rata basis. In the event the initial distribution of Assigned Funds results in a balance of Assigned Funds, the Provision Fund Trustee will distribute the remaining funds pro rata to the lenders in as many stages as the Provision Fund Trustee deems necessary in order to fully distribute the Assigned Funds. In the event that there is any bad debt arising from the loans outstanding, the Company acting as agent on behalf of the Provision Fund will take action to recover the outstanding debt, and may at its discretion sub-contract any debt collection activities to the RateSetter Collector. 13.Section 6(12) above comes into force and effect on 16th April 2014 and relates to loan contracts created on or after this date. In the event a Resolution Event is declared lenders with loans created before this date will be notified by RateSetter and offered the opportunity to participate. "
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spiral
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Post by spiral on Jan 19, 2015 17:50:28 GMT
Very interesting. OK I stand corrected. How did RS "advise" lenders of this change or am I supposed to read the T&C's everytime I place money on the market as I certainly don't recall being advised that a change to T&C's was being made, but then again, I have a memory like a (now what's that thing called)
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jlend
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Post by jlend on Jan 19, 2015 18:04:30 GMT
Very interesting. OK I stand corrected. How did RS "advise" lenders of this change or am I supposed to read the T&C's everytime I place money on the market as I certainly don't recall being advised that a change to T&C's was being made, but then again, I have a memory like a (now what's that thing called) There was a blog entry on Wednesday 16th April last year and an email on the 17th April talking about the provision fund - it was mentioned in the blog entry and in a PDF provision fund brochure that was downloadable from the blog. That's where I saw it anyway.
Hope that helps
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pikestaff
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Post by pikestaff on Jan 19, 2015 18:09:07 GMT
A point to highlight in the new(ish) clause:
"Following the assignment of loans to the Provision Fund, the Provision Fund Trustee will wait for all the loans to fully run down"
This means that, if a Resolution Event has occurred, lenders on all markets will have to wait 5 years before they see any of their money.
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spiral
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Post by spiral on Jan 20, 2015 11:12:45 GMT
There was a blog entry on Wednesday 16th April last year and an email on the 17th April talking about the provision fund - it was mentioned in the blog entry and in a PDF provision fund brochure that was downloadable from the blog. That's where I saw it anyway.
Hope that helps
The email only mentioned the renaming of the fund not anything about changing their T&C's (not that it would've made any difference unless they'd put the T&C's in the email). I never read any blogs so that's why I missed it. When my bank changes its T&C's I get the new T&C's through the post and they draw attention to the "important" changes. Perhaps in future RS might consider drawing peoples attention to important changes rather than implying that the most important change was the renaming of the PF. Quote: "Goodbye Provision Fund, hello 100% Fund Dear Spiral, The Provision Fund - responsible for protecting our 12,600+ savers from ever losing a penny - has today been renamed the '100% Fund'."
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sl75
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Post by sl75 on Jan 20, 2015 13:24:17 GMT
A point to highlight in the new(ish) clause: "Following the assignment of loans to the Provision Fund, the Provision Fund Trustee will wait for all the loans to fully run down" This means that, if a Resolution Event has occurred, lenders on all markets will have to wait 5 years before they see any of their money. I think you are reading more into this than it deserves, and other reasonable interpretations exist. Why on earth would the Trustee sit on a bank deposit of many millions of pounds and refuse to return the monies to their rightful owner? If interpreted in that manner, it would seem to me an unfair term in the contract. "wait for all the loans to fully run down in order that it can collect all monies owing ..." seems to me an alternative to "sell the loans to [name of debt collection agency] in order that it can provide a cash return to lenders as soon as possible" "collect all monies owing under the outstanding loan contracts, after which it shall distribute the Assigned Funds to lenders on a pro rata basis" can be reasonably interpreted as a self-contained phrase describing an ongoing action that the trustee takes DURING the run-down period - e.g. they collect all monies owing in month 1, and after that they distribute them to lenders on a pro-rata basis. Later within the clause we also have: "the Provision Fund Trustee will distribute the remaining funds pro rata to the lenders in as many stages as the Provision Fund Trustee deems necessary in order to fully distribute the Assigned Funds.", which further suggests that funds will be distributed in stages rather than all in a single hit. Certainly, it would be a good idea for RS to clarify the intended meaning of this clause, but I don't interpret it as unambiguously meaning what you think it means.
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pikestaff
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Post by pikestaff on Jan 20, 2015 15:13:20 GMT
sl75 The whole sentence reads: Following the assignment of loans to the Provision Fund, the Provision Fund Trustee will wait for all the loans to fully run down in order that it can collect all monies owing under the outstanding loan contracts, after which it shall distribute the Assigned Funds to lenders on a pro rata basis. [emphasis added] I don't think this bears any other interpretation, and I'd assumed the subsequent bit about multiple distributions was there to deal with recoveries after the five years are up. I agree that in theory the trustee could start making distributions sooner, but they might not be able to distribute all of the funds received because this could put them at risk of not sharing out losses evenly once interest is taken into account. In any event I'd be amazed if they paid out as often as once a month. Even if the trustee paid out in instalments as soon as possible, lenders on all markets would have to wait at least 5 years to get all of their money back and it would be a real shock to those in the shorter term markets.
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