webwiz
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Post by webwiz on Mar 23, 2015 19:56:23 GMT
I realise I'm new here but the way I see the provision fund working is that it is there to cover any shortfall in the valution of the security should it have to be sold to cover the debt am I right? my question is is how is the provision fund funded and is it protected from market fluctuations? also would it not be more prudent to have a larger provision fund? See www.savingstream.co.uk/provision-fundRemember that money going into a PF is money that could have been paid in higher interest to lenders. It represents a transfer of cash from current investors to subsequent investors (who could be partly the same people). In that respect it is a bit like endowment insurance.
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mikes1531
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Post by mikes1531 on Mar 31, 2015 16:41:12 GMT
SS show a similar 'Stress Test' calculation at the bottom of their Provision Fund page, but they don't seem to be updating it whenever the other numbers on that page change. The Stress Test figures do not change relevant to the Provision Fund size. savingstream: ISTM that all the Stress Test numbers should change. As pointed out by Investor, the percentages "the property is required to fetch" "Without Provision Fund" should depend on the size of the largest current loan. And, furthermore, those labelled "With Provision Fund" depend both on the size of the largest current loan and on the size of the Provision Fund. But perhaps I'm misunderstanding something, so could you please explain exactly how the displayed percentages are calculated? : Can you please respond to the issue/question I raised last week? AIUI, the Stress Test results published on the SS website are now in error and need updating. It's taken a few weeks, and SS never have acknowledged that our comments were valid and that the Stress Test info that had been displayed was in error and needed correcting, but they have quietly updated the numbers so that they are correct now.
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locutus
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Post by locutus on May 13, 2015 10:32:32 GMT
I'm quoting mikes1531 from another thread.
Can Lendy give us any clarification around this? I would also expect the Provision Fund to build up over time.
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Liz
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Post by Liz on May 13, 2015 10:50:44 GMT
Where are the provision funds money kept? A secure place seperate from Lendy?
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Post by savingstream on May 13, 2015 10:52:50 GMT
For confirmation the Provision Fund will remain fixed at 2% of the loan book and currently will only increase if the loan book increases.
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locutus
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Post by locutus on May 13, 2015 12:13:56 GMT
For confirmation the Provision Fund will remain fixed at 2% of the loan book and currently will only increase if the loan book increases. Thanks for the clarification. That seems like a decision that should be revisited. RateSetter have created a good pattern for provision funds which allows the fund to grow and makes the platform more stable and attractive over time. Lendy's provision fund seems severely limited by comparison. For me, provision funds and the approach taken to them is a key factor when assessing P2P platforms. It has made me reconsider my existing loans and I'm sure others will have similar concerns. Would Lendy reconsider their approach?
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webwiz
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Post by webwiz on May 13, 2015 16:32:23 GMT
For confirmation the Provision Fund will remain fixed at 2% of the loan book and currently will only increase if the loan book increases. Thanks for the clarification. That seems like a decision that should be revisited. RateSetter have created a good pattern for provision funds which allows the fund to grow and makes the platform more stable and attractive over time. Lendy's provision fund seems severely limited by comparison. For me, provision funds and the approach taken to them is a key factor when assessing P2P platforms. It has made me reconsider my existing loans and I'm sure others will have similar concerns. Would Lendy reconsider their approach? I expect that SS could only do this if they reduced the interest rate. Would investors be happier with a growing PF that could, in time, provide a realistic safety net, but only 10% interest?
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bugs4me
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Post by bugs4me on May 13, 2015 17:35:48 GMT
Thanks for the clarification. That seems like a decision that should be revisited. RateSetter have created a good pattern for provision funds which allows the fund to grow and makes the platform more stable and attractive over time. Lendy's provision fund seems severely limited by comparison. For me, provision funds and the approach taken to them is a key factor when assessing P2P platforms. It has made me reconsider my existing loans and I'm sure others will have similar concerns. Would Lendy reconsider their approach? I expect that SS could only do this if they reduced the interest rate. Would investors be happier with a growing PF that could, in time, provide a realistic safety net, but only 10% interest? In my case it would be a no especially remembering that we are in effect lending to Lendy via SS. If one loan goes south then it may, if the PF proved insufficient, have a direct impact on all lenders irrespective as to any particular loan they were invested in. In that worst case scenario I would expect there may be a mass exodus out of the platform so it's in the interests of SS to reassure both existing and prospective lenders and the best way of doing this is to ensure the PF is robust enough. I cannot recall how or why the 2% figure was arrived at rather than 5% or even 10%. There must have been some science behind the decision somewhere. The 12% ATM IMO 'compensates' for the higher risk.
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webwiz
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Post by webwiz on May 13, 2015 19:23:31 GMT
I expect that SS could only do this if they reduced the interest rate. Would investors be happier with a growing PF that could, in time, provide a realistic safety net, but only 10% interest? In my case it would be a no especially remembering that we are in effect lending to Lendy via SS. If one loan goes south then it may, if the PF proved insufficient, have a direct impact on all lenders irrespective as to any particular loan they were invested in. In that worst case scenario I would expect there may be a mass exodus out of the platform so it's in the interests of SS to reassure both existing and prospective lenders and the best way of doing this is to ensure the PF is robust enough. I cannot recall how or why the 2% figure was arrived at rather than 5% or even 10%. There must have been some science behind the decision somewhere. The 12% ATM IMO 'compensates' for the higher risk. My bold. How would we exit? The SM will not be operating in this scenario. We could stop adding more money but we would just have to wait until our loans hopefully matured before getting any of our dosh back. Assuming that the platform survives.
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bugs4me
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Post by bugs4me on May 13, 2015 20:57:50 GMT
In my case it would be a no especially remembering that we are in effect lending to Lendy via SS. If one loan goes south then it may, if the PF proved insufficient, have a direct impact on all lenders irrespective as to any particular loan they were invested in. In that worst case scenario I would expect there may be a mass exodus out of the platform so it's in the interests of SS to reassure both existing and prospective lenders and the best way of doing this is to ensure the PF is robust enough. I cannot recall how or why the 2% figure was arrived at rather than 5% or even 10%. There must have been some science behind the decision somewhere. The 12% ATM IMO 'compensates' for the higher risk. My bold. How would we exit? The SM will not be operating in this scenario. We could stop adding more money but we would just have to wait until our loans hopefully matured before getting any of our dosh back. Assuming that the platform survives. If the FCA provisions have been implemented then there should/would be a third party to wind things down but I confess I'm not up to speed in this area regarding the FCA requirements. You are correct though, it wouldn't be possible to simply pull out financially as the SM would not be operating. So it would be a mass exodus of confidence. I'm still intrigued though how the 2% figure for the PF requirement was arrived at. Hopefully a forum member will enlighten me as it must have been based on something.
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webwiz
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Post by webwiz on May 13, 2015 21:35:42 GMT
I guess that 2% was what SS thought they could afford, given that they were charging borrowers 18% and giving SS lenders 12%. I don't see how they can put much more into the PF unless they increase the rate to borrowers or decrease the rate to lenders.
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mikes1531
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Post by mikes1531 on May 14, 2015 0:56:19 GMT
For confirmation the Provision Fund will remain fixed at 2% of the loan book and currently will only increase if the loan book increases. : I'm afraid I find this a bit disappointing, inasmuch as the SS PF page says "The Provision Fund will have a minimum of 2% of the live loan book at any one time." Usually, when something is stated as 'being a minimum of' it means that's as low as it will be but it could be higher. The above SS statement makes it rather clear that there is no upside potential. So my question for SS is... What exactly will happen to the balance in the fund if there is an incident that results in a payout? Will it instantly be topped back up to the 2% level? Or will it drop and stay down? I cannot recall how or why the 2% figure was arrived at rather than 5% or even 10%. There must have been some science behind the decision somewhere. I'm still intrigued though how the 2% figure for the PF requirement was arrived at. Hopefully a forum member will enlighten me as it must have been based on something. IMHO bugs4me is being very generous. My own theory about the origin of the 2% figure is that someone stuck their finger in the air and decided that 2% seemed like a reasonable number -- and that was that.
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mikes1531
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Post by mikes1531 on May 14, 2015 1:06:19 GMT
I guess that 2% was what SS thought they could afford, given that they were charging borrowers 18% and giving SS lenders 12%. I don't see how they can put much more into the PF unless they increase the rate to borrowers or decrease the rate to lenders. Based on what SS have been reported elsewhere to have said, 2% is half of the SS loan arrangement fee, so it ought to be affordable by them, especially when you consider the way SS have said they'll operate the PF -- if a loan completes successfully, they'll take the 2% back out of the PF when the loan repays, in which case it wouldn't be a cost to them at all.
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webwiz
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Post by webwiz on May 14, 2015 8:33:40 GMT
I guess that 2% was what SS thought they could afford, given that they were charging borrowers 18% and giving SS lenders 12%. I don't see how they can put much more into the PF unless they increase the rate to borrowers or decrease the rate to lenders. Based on what SS have been reported elsewhere to have said, 2% is half of the SS loan arrangement fee, so it ought to be affordable by them, especially when you consider the way SS have said they'll operate the PF -- if a loan completes successfully, they'll take the 2% back out of the PF when the loan repays, in which case it wouldn't be a cost to them at all. The arrangement fee is to cover SS's upfront costs, legal and valuation etc. This is reasonable for boat loans IMO, but does seem a bit steep for very large loans. They did not start the PF until they started lending the larger amounts so I suspect you are right that this is where the PF money comes from. Your point that there is no cost to them if a loan completes ignores liquidity. Personally I would prefer 10% with a robust PF, but it would take years to build up and we would be losing 2% interest in the interim. This is a bit like an endowment insurance policy start up. I have always wondered how they ever got off the ground. They had to persuade current policy holders to take less than the full profits earned for the benefit of future policy holders. I guess it's a marketing problem.
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bugs4me
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Post by bugs4me on May 14, 2015 8:45:14 GMT
Based on what SS have been reported elsewhere to have said, 2% is half of the SS loan arrangement fee, so it ought to be affordable by them, especially when you consider the way SS have said they'll operate the PF -- if a loan completes successfully, they'll take the 2% back out of the PF when the loan repays, in which case it wouldn't be a cost to them at all. The arrangement fee is to cover SS's upfront costs, legal and valuation etc. This is reasonable for boat loans IMO, but does seem a bit steep for very large loans. They did not start the PF until they started lending the larger amounts so I suspect you are right that this is where the PF money comes from. Your point that there is no cost to them if a loan completes ignores liquidity. Personally I would prefer 10% with a robust PF, but it would take years to build up and we would be losing 2% interest in the interim. This is a bit like an endowment insurance policy start up. I have always wondered how they ever got off the ground. They had to persuade current policy holders to take less than the full profits earned for the benefit of future policy holders. I guess it's a marketing problem. Maybe lenders would be prepared to accept 10% but it would not be for me personally unless the loans were also ringfenced bearing in mind we are still loaning to SS via Lendy. Also any payment from the PF which is a separate company is entirely at the discretion of the separate company even though IIRC the directors of Lendy are the same as the company operating the PF. Without the discretion term then it effectively is classified as insurance which is another can of worms
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