Greenwood2
Member of DD Central
Posts: 4,243
Likes: 2,686
Member is Online
|
Post by Greenwood2 on Oct 27, 2022 15:32:43 GMT
Hi, for clarification. The SM is restricted to 10 loan sales per investor. We occasionally put this restriction on to try and be fair to allow large investors the ability sell a large block of loans but also allow smaller investors adequate visibility who may only be selling one. We appreciate that there maybe other ways to help smaller investors gain visibility if a large investor is selling (such as time sensitive listings, or displaying the higher discounted rated first or only allow one Loan ID per SM with the other loans from that Loan ID to wait in a queue). We are reviewing all of these ideas and will feedback if any changes are made. There are at time of writing 24 loans parts for sale on the SM and 24 loans parts displayed on the platform (ie no investor is selling more than 10). The present loans for sale on the SM all carry lower rates of return than the new loans being offered on the PM. Therefore, we would like to highlight to investors, that the loans for sale on the SM will likely take longer to sell (if at all) than they have historically. We would expect this trend to continue for as long as new loans have a higher rate of return than SM loans. That being said, some investors like to purchase loans that are close to the term end as it as this stage that loans are likely to go over term and later, into default. It is noted that some investors would like clarity on when the default rates will be applied. I have raised this point with the board and it is our intention to inform investors in the next CEO newsletter (scheduled for December) and provide further clarity as to when and why default rates will be applied. However, in short, default rates are applied when the loan moves to Default Proceedings Stage 1 (this is when the loan term is up and the borrower does not have a realistic exit plan and or the borrower is failing to service a loan). There are instances where the borrower may have not repaid the loan on maturation but they continue to service the monthly interest, in such scenarios we may forgo the default rates in order to help the borrower maintain their commitments and or refinance and or keep then borrower "on side". (FYI - at present, for all overdue loans where interest is not being serviced they are all attracting the default rate). Do you get a message to say you have exceeded your ten allowable current sales? This would seem fair usage, is that what prospective sellers are experiencing? I got the impression (from posts above) that even one loan put up for sale was not appearing on the SM list. Is it not always working as intended?
|
|
michaelc
Member of DD Central
Posts: 4,866
Likes: 2,762
|
Post by michaelc on Oct 27, 2022 17:04:58 GMT
Could do with some paragraphs in there.
|
|
|
Post by davefoz on Oct 28, 2022 6:00:29 GMT
Firstly thank you for the update Simon.
Feedback for your board - without an effective secondary market I will no longer continue to invest - as my personal strategy of selling prior to term is compromised.
I may be the sole investor of this opinion however if you do not accelerate redemptions and restrict the volume of new loans coming onto the market, I fear the platforms excellent reputation will be severely damaged, as investors are locked into investments, which they can not liquidate and which run for term periods way in excess of those initially advised.
You make a valid point regarding investors potentially investing in near term loans in the hope of attaining a premium rate of interest. This ‘incentive’ (which would enhance liquidity) is diluted by the ambiguity that surrounds default interest and the complete lack of communication in and around pending redemptions.
High street lenders revert to standard terms once the fixed term is lapsed, perhaps it’s time SOMO adopted a similar strategy particularly against a back drop of rising interest rates and a correction in the property market.
|
|
iRobot
Member of DD Central
Posts: 1,657
Likes: 2,450
|
Post by iRobot on Oct 28, 2022 14:57:08 GMT
It seems to me that this manipulation / management of the SM is an unnecessary complication. Even though (to quote the SoMo website) " The SoMo business is unregulated for both borrowers and investors", there is an apparent requirement (also quoting the SoMO website) " For FCA regulatory reasons, we are not permitted to provide you with information unless you are classed as a High Net Worth Investor, Certified Sophisticated Investor or Self-Certified Sophisticated Investor." - so investors should know their onions and have the experience or wherewithal to understand what a marketplace is and how external influences such as rising interest rates can and will affect that marketplace. If they don't, they'll learn. Given the 'requirement' for qualification as a SoMo participant, Lenders shouldn't need protecting from themselves. Not in a physical, restricted-SM sense. By all means educate with newsletters advising of potential wider economic influences, so they might be expected and can be planed for. SoMo could even canvass opinion as to whether Lenders as a cohort think changes are necessary via a survey launched to all Lenders. (And any changes made - canvassed or otherwise - should be communicated before -or at least at the point of- their implementation.) I'm a fan of Occam's razor and it seems to me that the most sensible solution is just allow the secondary market be what it is designed to be - a market where buyers will pay what they feel is the correct, risk-adjusted amount for anything that is offered, and sellers will need to sell at a discount if market forces dictate that. No need for restrictions and if any effort is to be expended on developing the SM, I'd suggest improved functionality for sorting and filtering (such as the 'stacking' suggestions) would be much more warmly received by the SM participants. That all said, if Simon / SoMo's clarification is that " The SM is restricted to 10 loan sales per investor" would indicate to me that every Lender should be able to list up to ten loan parts for sale, so given this is even being discussed surprises me a little. Therefore, I echo Greenwood2 's query as to whether the SM is behaving as SoMo intends.
|
|
iRobot
Member of DD Central
Posts: 1,657
Likes: 2,450
|
Post by iRobot on Oct 28, 2022 15:00:57 GMT
Feedback for your board - without an effective secondary market I will no longer continue to invest - as my personal strategy of selling prior to term is compromised. I would love it if SoMo would tell us the % of Lenders that routinely sell prior to term. And also what % of the loanbook is 'churned' in this manner. Tagging somo just in case they're in a sharing frame of mind
|
|
|
Post by drg on Oct 28, 2022 15:06:14 GMT
I respectfully disagree dave. I like that SoMo engage fairly with borrowers, allowing a bit more time to repay in cases where they are clearly trying to push through a refinance or house sale etc. I wouldn't like to see them start implementing punitive default rates immediately when the borrower is trying to co-operate. Not only would it be unpleasant business practice but it would no doubt cause lots of ill-will, more court cases and risk of loss etc. As for your strategy of selling loans before their term is up; that's completely fine if you would like to do that but you must be aware that this strategy is least likely to work in the times where you want it to the most (i.e. house price crash, interest rate rise etc). That's not the fault of SoMo (and I'm pretty sure I've seen plenty of warnings on the site that there is no guarantee that you'll be able to sell on the Secondary market and that many loans run way beyond their term date), it's just a risk you take on when employing your strategy. If you really want to avoid the risks involved with loans going to term then you can offer a discount and view this as a price you are willing to pay for risk reduction. I think the fact that there aren't loads of Secondary market loans with discounts shows that the market is working pretty effectively still.
It would also make no sense for SoMo to reduce the volume of new loans just so that some of their investors can offload some of their less attractive old loans a bit more easily to other investors on the platform. I get that this may be in your personal interest but it can't be a serious suggestion for the benefit of the platform and investor base as a whole. I'm also happy with the monthly (usually) updates on late loans and I'm not really sure what else you're expecting. A lot of the time they are going to be waiting on responses from borrowers and will be unsure when default rates are going to be implemented or when the money will be repaid because they're not mind readers who know what the borrowers are going to do next.
All that being said, it does seem that the Secondary market process could be improved a little and there have been a couple of good suggestions in this thread so hopefully SoMo take that on board. Apologies for disagreeing so strongly with pretty much everything you wrote dave but I wouldn't want SoMo to think those views represent all of their investor base (and I note that you already said you may be the sole investor of this opinion). Obviously fine if we just have opposite opinions here.
|
|
ilmoro
Member of DD Central
'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
Posts: 10,848
Likes: 11,077
|
Post by ilmoro on Oct 28, 2022 17:13:03 GMT
Interesting that all Somo/BC published FOS complaints are from borrowers
|
|
michaelc
Member of DD Central
Posts: 4,866
Likes: 2,762
|
Post by michaelc on Oct 28, 2022 17:26:12 GMT
Feedback for your board - without an effective secondary market I will no longer continue to invest - as my personal strategy of selling prior to term is compromised. I would love it if SoMo would tell us the % of Lenders that routinely sell prior to term. And also what % of the loanbook is 'churned' in this manner. Tagging somo just in case they're in a sharing frame of mind Yes couldn't agree more. Aren't these exactly the sorts of things the FCA could require platforms to publish and what timescales? That would also allow platforms to be compared in a sort of standardised way (secondary benefit) I'm waiting for that to happen before I were to get back in.
|
|
nick
Member of DD Central
Posts: 1,055
Likes: 825
|
Post by nick on Oct 28, 2022 19:13:04 GMT
Interesting that all Somo/BC published FOS complaints are from borrowers Given that lenders investment activity isn't regulated (it's not P2P), lenders have no recourse to make a FOS compliant so not so surprising.....
|
|
ilmoro
Member of DD Central
'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
Posts: 10,848
Likes: 11,077
|
Post by ilmoro on Oct 28, 2022 20:00:16 GMT
I would love it if SoMo would tell us the % of Lenders that routinely sell prior to term. And also what % of the loanbook is 'churned' in this manner. Tagging somo just in case they're in a sharing frame of mind Yes couldn't agree more. Aren't these exactly the sorts of things the FCA could require platforms to publish and what timescales? That would also allow platforms to be compared in a sort of standardised way (secondary benefit) I'm waiting for that to happen before I were to get back in. Probably but then as Somo isn't regulated for that stuff ...
|
|
ilmoro
Member of DD Central
'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
Posts: 10,848
Likes: 11,077
|
Post by ilmoro on Oct 28, 2022 20:04:31 GMT
Interesting that all Somo/BC published FOS complaints are from borrowers Given that lenders investment activity isn't regulated (it's not P2P), lenders have no recourse to make a FOS compliant so not so surprising..... Doh, engage brain ... though was a subtle hint for people to read those FOS complaints which give an indication on spread/fees
|
|
Greenwood2
Member of DD Central
Posts: 4,243
Likes: 2,686
Member is Online
|
Post by Greenwood2 on Oct 28, 2022 20:25:51 GMT
Given that lenders investment activity isn't regulated (it's not P2P), lenders have no recourse to make a FOS compliant so not so surprising..... Doh, engage brain ... though was a subtle hint for people to read those FOS complaints which give an indication on spread/fees I can't see why lenders would be complaining (in any serious way) no one has lost any capital, I think there may have been some small interest losses. Nothing much to complain about (compared to most P2P anyway).
|
|
michaelc
Member of DD Central
Posts: 4,866
Likes: 2,762
|
Post by michaelc on Oct 28, 2022 20:56:10 GMT
Yes couldn't agree more. Aren't these exactly the sorts of things the FCA could require platforms to publish and what timescales? That would also allow platforms to be compared in a sort of standardised way (secondary benefit) I'm waiting for that to happen before I were to get back in. Probably but then as Somo isn't regulated for that stuff ... Maybe it should be.....
|
|
Greenwood2
Member of DD Central
Posts: 4,243
Likes: 2,686
Member is Online
|
Post by Greenwood2 on Oct 29, 2022 7:07:34 GMT
Probably but then as Somo isn't regulated for that stuff ... Maybe it should be..... Outside the scope of the regulations.
|
|
|
Post by davefoz on Oct 29, 2022 7:46:32 GMT
Please note whilst the context I use is I, it is more a reflection on my concern for the platform rather than my personal circumstances. I will answer your points however I’ve probably done this wrong given a lack of technical competence 😊. I like that SoMo engage fairly with borrowers, allowing a bit more time to repay in cases where they are clearly trying to push through a refinance or house sale etc. - So do I however a loan term is a loan term - I’m presently in a 6 month loan that is now 9.5 months is that fair. I took them at their word, the loan has now run for over by 60% of the original term advertised - where do you draw the line. Maybe an arbitrary 10% LTV reduction in capital or a 10% increase in interest would be a fair compromise on redemption date to prevent default interest.
As for your strategy of selling loans before their term is up; that's completely fine if you would like to do that but you must be aware that this strategy is least likely to work in the times where you want it to the most (i.e. house price crash, interest rate rise etc). That's not the fault of SoMo (and I'm pretty sure I've seen plenty of warnings on the site that there is no guarantee that you'll be able to sell on the Secondary market and that many loans run way beyond their term date), it's just a risk you take on when employing your strategy. I agree but I’ve been prevented from doing so by the (temporary) suspension of an integral part of the platform.
If you really want to avoid the risks involved with loans going to term then you can offer a discount and view this as a price you are willing to pay for risk reduction. I can’t offer a discount as the market was suspended.
I think the fact that there aren't loads of Secondary market loans with discounts shows that the market is working pretty effectively still. The market isn’t working as SOMO albeit temporarily prevented investors putting loans on the market.
It would also make no sense for SoMo to reduce the volume of new loans just so that some of their investors can offload some of their less attractive old loans a bit more easily to other investors on the platform. SOMO needs to manage the platform . My point is if they fail to manage the secondary market during this period, it is may have a detrimental effect on the primary market. Without me and say 2 or 3 others of a similar ilk no longer contributing say £10k each to 7.8% loan @65% LTV that loan is now marketed @ a higher % potentially eroding SOMOS’S MARGIN, alternatively the borrower refuses to pay a premium, and it doesn’t hit the platform. A loss of confidence will result in investors ultimately leaving the platform.
A lot of the time they are going to be waiting on responses from borrowers and will be unsure when default rates are going to be implemented or when the money will be repaid because they're not mind readers who know what the borrowers are going to do next.
Borrowers sign up to a fixed term. At the outset their objective should be refinance of the loan or redemption prior to the term date
All that being said, it does seem that the Secondary market process could be improved a little and there have been a couple of good suggestions in this thread so hopefully SoMo take that on board. Apologies for disagreeing so strongly with pretty much everything you wrote dave but I wouldn't want SoMo to think those views represent all of their investor base (and I note that you already said you may be the sole investor of this opinion). Obviously fine if we just have opposite opinions here. NO need to apologise, I agree with a lot of your sentiment. It’s just the market has changed. SOMO has never operated in a declining property market. Each of their initial valuations infers a circa 10% drop in sales price if a distress sale is invoked. That against the back drop of a 8-10% forecast drop in the market, leaves very little for payment of interest, and costs associated with LPA receivers, particularly when loans are second charges.
|
|