One of the biggest problems with lending on FS is that (if you are looking to deploy meaningful sums) it is in practice impossible to avoid having a lumpy portfolio, with exposure on some loans much bigger than others. Something goes wrong on just one of these & your entire platform returns get severely clobbered.
A SM would be the most obvious way to allow lenders to manage their exposure, but unless deal flow grows significantly it’s likely to help mainly by limiting our total platform exposure (not what many lenders will want).
A PF could help reduce losses if it can be funded sufficiently. I see at least 4 ways of doing this:
1. borrower contribution
2. FS contribution (initial seeding)
3. surpluses from any sales at auction
4. borrower charge for going into default
All should be possible (3 perhaps harder as not usual pawnbroking practice, maybe there’s a way around this? 2 is being done already albeit on a discretionary basis) & would have the additional knock-on benefits of focusing the borrower’s mind on making timely repayment (reducing losses) & encouraging the sale of assets at higher prices in auctions (enhancing recovery). Downside being that it would probably have to be applied to all loans (or at least non-property deals), & perhaps lower our rates. I personally might well prefer a SM solution (& increased dealflow) instead.
ramblin rose raises interesting questions. I see FS as continuing to be a niche platform (yes they will scale with property but nowhere near like proper P2P scaling in ISA-land), so don’t see it as imperative they try to build a PF to capture a truly mass market. They simply need enough lending capacity to match their projected deal flow (allowing for lender leakage ofcourse). There will always be a difference between platform headline & net rates, the problem with FS is that this can be huge & they don’t offer investors the tools to manage this. We basically have to take a punt (very quickly, sometimes seconds) & are then all locked in for the duration of the deal, no way out or in for anyone.
A dumbed down market is not a good place for discerning investors. You’d think, with the prospect of a steady stream of new lenders entering P2P, it would be in FS’ interest to offer us tools to manage our risk, yes we’d be offloading some of this to newer “dumber” investors but that’s how they will learn & in turn offload to other even newer ones, in an ever-growing loop with all of us having the ability to reduce our exposure on any single loan, squeezing out the big dents on headline rates & inviting new lenders in to take on quickly diversified (means lower risk) portfolios. No tools & I see only a loop of dumb investors replaced by other dumb investors, each getting out when they realise the net returns are nothing like what they were expecting.
Valuations –
sqh’s suggestion is worth a thought. Another idea could be (for the lumpiest assets, such as art & perhaps oriental carpets) for LTV to be expressed on the recent realised auction sales price of a similar asset if lower. It shouldn’t involve much/any significant more workload for FS, the valuers they’ll be talking to will have this info already.
