bugs4me
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Post by bugs4me on Jan 5, 2014 10:57:34 GMT
The one thing that I find concerning about Wellesley are the conditions attached to the Provision Fund. Now maybe I've got this wrong but the PF is specific that any payment made from the fund is at the sole discretion of the directors of the PF. No mention is made as to the circumstances that the PF would compensate or not compensate a lender/investor in the event that the loan defaulted.
Also, the PF seems to be 'stuck' at 100k even though the web site makes mention of a topping up mechanism. Is it just a case of the web site not being updated or has there been no contributions to it since inception?
As at today's date, £3.9M loans have been made against £6.3M of security which I assume is from borrowers. Are these legal charges that have been effected against borrowers property or just an assumed pledged amount - seems a little vague.
So clarification on the above points would be appreciated. Possibly if I drilled down deeper then I would find the answers so apologies if I'm being lazy.
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pikestaff
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Post by pikestaff on Jan 5, 2014 11:48:00 GMT
Thie discretionary nature of payments is no different from Ratsetter's provision fund, where payments are "at the ultimate discretion of the trustee". Wellesley just spell it out more clearly, possibly on legal advice.
Payments need to be discretionary, in order to ensure that:
- the entity operating the provision fund is not undertaking the regulated activity of insurance; - if there is a shortfall, the entity will not be insolvent; - the trustees/directors have the flexibility to deal equitably with claimants if a shortfall is foreseen.
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Post by mrclondon on Jan 6, 2014 13:38:08 GMT
Whilst we wait for some comment from Wellesley on the other thread regarding AER interest rates, I've given a bit more thought to the provsion fund. From the statistics page its possible to deduce the current average loan size is c. £215k and the one repaid loan was just over £738k. The obvious conclusion is this provision fund is a very different animal to the ratesetter (or zopa) equivalent. RS's fund started with £50k of seed capital which was increased soon after to £150k, against a maximum (unsecured) loan size of £15k. So one or two loans going bad immediately wouldn't have swamped the fund. Clearly Wellesley loans are meant to be secured, so the call on the provision fund is presumably only if there is a shortfall when the security is realised as cash. There must, however, be a risk that on a single very large loan (say > £500k) that the current provision fund of £100k might struggle to plug the gap.
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bugs4me
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Post by bugs4me on Jan 6, 2014 14:20:50 GMT
Whilst we wait for some comment from Wellesley on the other thread regarding AER interest rates, I've given a bit more thought to the provsion fund. From the statistics page its possible to deduce the current average loan size is c. £215k and the one repaid loan was just over £738k. The obvious conclusion is this provision fund is a very different animal to the ratesetter (or zopa) equivalent. RS's fund started with £50k of seed capital which was increased soon after to £150k, against a maximum (unsecured) loan size of £15k. So one or two loans going bad immediately wouldn't have swamped the fund. Clearly Wellesley loans are meant to be secured, so the call on the provision fund is presumably only if there is a shortfall when the security is realised as cash. There must, however, be a risk that on a single very large loan (say > £500k) that the current provision fund of £100k might struggle to plug the gap. My other query is of course the level of security or at least how it is calculated. We will have to wait until Wellesley comment as payment from the provision fund is discretionary. Now I appreciate pikestaff's comments reference insurance but nonetheless it is not clear under what circumstances the provision fund would or would not reimburse. It could of course just be that the web site has not been updated regarding the 100k.
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pikestaff
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Post by pikestaff on Jan 6, 2014 17:15:40 GMT
I am not cynical about Wellesley's intentions regarding paying out from the provision fund. I just think they have been advised not to make any promises.
However, I agree with mrclondon that, because Wellesley is making relatively big loans, the risk of the provision fund being wiped out is much greater than on RS or Zopa. This being so, I am not convinced that it quite justifies the relatively low interest rates as compared to Assetz. I will be keeping my toe out of the water for now.
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bugs4me
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Post by bugs4me on Jan 6, 2014 17:32:44 GMT
I am not cynical about Wellesley's intentions regarding paying out from the provision fund. I just think they have been advised not to make any promises. However, I agree with mrclondon that, because Wellesley is making relatively big loans, the risk of the provision fund being wiped out is much greater than on RS or Zopa. This being so, I am not convinced that it quite justifies the relatively low interest rates as compared to Assetz. I will be keeping my toe out of the water for now. That may be the case regarding 'promises' but there has to be some sort of reassurance somewhere. I am cynical as there as so many P2P & P2B's popping up promising the earth, moon and stars that when you drill down into the T&C's or the individuals behind them you find things are not as desirable as first appears. A provision fund should in theory not be required in any event provided the loans are supported by asset security. I have a question on the table as to what form the asset security takes. Is there a first or second legal charge or is it just a promissory IOU from the lender or is it....... It's up to Wellesley to inspire confidence in lenders/investors. I was going to dip my toe in the water but saw the conditions on the provision fund, plus it doesn't seem to have moved. mrclondon has raised a question or two which is outstanding so like yourself I'm not in. There are a few other platforms which are well run and the companies are very quick at responding to queries.
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Post by wellesleyco on Jan 9, 2014 11:42:25 GMT
bugs4me Thank you very much for starting this post regarding our provision fund and I do apologise for the delay in responding. The member of our team who normally monitors the forum is on holiday and as such we missed these. Please allow me to elaborate a little more on the way we lend as it will help me answer your questions. We provide short term loans that are secured on properties, the term is typically 6-12 months and the reason for the loan is either to finance purchase of a property at auction or to allow someone to develop a property with a view to sale or re-mortgage with a buy to let long term mortgage. To date we have only lent on residential property and we do not provide loans that are secured on the borrower’s primary residence and as such if the borrower were to default on repayment of the loan then the enforcement process is very straight forward and involves appointing a receiver as opposed to requiring court orders. I say all of this because ability to enforce the security is paramount. The next consideration we make which arguably epitomises our approach to credit assessment relates to the underlying liquidity of the property itself. By this I am referring to the number of potential buyers that would be willing to buy the property if it was to be sold at auction or through an estate agent. We only lend on the most liquid of properties, for example, normal size properties within the M25 or in other major cities in England, Scotland or Wales. We do not wish to be stuck with security that does not sell because it creates risk to our P2P clients and therefore ensuring that the security can be easily realised is paramount. We require the first legal charge over the property (or second charge in very limited circumstances). We as a firm are very different to other P2P companies in that make loans using our own capital and then we re-assign these loans at a fixed rate of interest to our customers. Therefore whenever we lend money we do so using our own capital in the first instance regardless of whether we will have enough money from customers to cover the loan. We do it this way for a host of good reasons and we believe it is a much more efficient way to operate not to mention it means we have ‘skin in the game’. Your posting has inspired me to have a new section of our lending statistics added which gives a breakdown of how much of the current loan book is funded by Wellesley & Co money versus how much is funded by P2P lender money. As you will see we currently have a loan book of £3,226,985, I can tell you that this consists of £2,309,741.50 of P2P funds and £917,243.50 of Wellesley funds (72%/28% breakdown). The next point for me to cover is the nature of how provision funds work within the P2P industry. As pikestaff mentions, all provision funds must be discretionary. If we were legally permitted to make it non-discretionary or better still provide a guarantee we would, that being said please allow me to state that our intentions to use the funds to cover shortfalls are genuine, in fact, our intentions are to make sure that no customer loses any money to the extent that we can use the capital within our company to compensate loss in such situations. I totally accept your point that the fund balance has been ‘stuck’ on our £100,000 level and in truth we have not yet added any additional funds to it as of yet on the basis that the true call on the fund using our 2% estimate would be £46,194.83 using the £2.3M value of P2P lender cash mentioned above. That being said we planned to start this on all loans from 1st Jan and therefore we will commence adding new funds on the loans that we have ready to draw down in the coming days. Please note that by comparing us to an unsecured P2P I do not believe it will give you a very accurate reflection of perceived risks. Our average LTV floats between 50%-60% and as mentioned we are lending on properties that we believe would sell very quickly for little discount even if they went to auction, therefore we believe that the risk of suffering a bad debt is very low and the 2% estimated claim rate is very conservative. Furthermore, as you can see we have as of today 28% of exposure to the properties which is distributed roughly evenly across all loans and we have chosen to subordinate our rights to the security in the case of a default. Let me explain this part. We have an independent trustee who will hold and manage the security in the case of default and his remit is to recoup all customer interest and capital before any of the Wellesley & Co funds are recovered. We did it this way so that our customers come first in such a situation and therefore you could argue that the actual LTV presented to our P2P lenders is even more conservative as a result. mrclondon We thank you for your comments and you are correct, our provision fund is very different to that of Ratesetter’s and Zopa’s in that the average loan sizes are very different. We accept this, however in light of the first legal charge and our conservative approach we feel that the risk and reward proposition offered by our firm is compelling.
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Post by bengilbert on Jan 9, 2014 12:16:48 GMT
Thanks to both sides for the updates - the challenging questions and the responses from Wellesley.
Can I check I understand everything correctly. Let's say the loan with highest LTV is 60% LTV (I understand the average is lower). Also, let's say that Wellesley end up holding 25% of all loans, with 75% held by lenders. Then, if that loan were to default and you had to sell the property, then 1) if the property raises 60% of the loan value, everyone gets repaid. 2) if the property raises (0.60 * 0.75 = ) 45% of the loan value, Wellesley will lose their money and p2p lenders would be repaid in full 3) if the property raises less than 45%, if the shortfall is less than the provision fund, p2p lenders will be repaid in full. 4) any shortfall greater than the provision fund would be losses to p2p lenders.
A couple of things that would I think help make the actual level of security clearer would be: -guidance on what proportion of the loans Wellesley plan to hold (you write that you'll keep a portion of all loans but I don't think I've seen what % you expect that to fall to) -more details on the loan book, with the size, LTVs and portion held by Wellesley of each individual loan
(I know you may consider the latter too much detail to make open, but it would help those who want to dig into understanding the security position - perhaps some sort of spreadsheet download like the FC loan book?)
Also, I can't yet find the part in the statistics section about the split between lender and Wellesley money - is it up yet?
Finally - how have you managed to raise so much p2p investment so quickly?
Thanks.
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Post by wellesleyco on Jan 10, 2014 11:53:37 GMT
Dear bengilbert thank you for the questions and comments. Your interpretation of points 1, 2, 3&4 are completely correct however I would also like to add one further note regarding point 4. It is correct that if the losses exceeded the balance of the provision fund then in theory the P2P lender would make a loss. However it is actually our intention to see that no customer ever makes a loss and whilst we are not legally permitted to issue any sort of guarantee we intend to use our own capital inside the P2P to make right any such losses. As mentioned in our press release we have £5M of capital available for lending and we intend to use this for the time being. That being said, as our loan book grows we may consider putting in a greater sum which would hopefully give greater customer comfort as things increase in size. We have not determined a minimum ratio at present. With respect to the greater clarity on the loan by loan breakdown, I can completely understand why you would ask for this, I shall look into what our IT team can achieve by way of reporting for our customers. Good idea. The split between lender money and Wellesley money is up at www.wellesley.co.uk/how_it_works/lending_statistics, perhaps trying a refresh by pressing F5 in case your browser has cached the previous page. In response to your final point, the founders of Wellesley & Co are delighted by the response we have seen since launching and based on feedback it seems that certain elements of our unique P2P model have been very well received (paying interest as soon as funds are committed rather than lent, fixed rates with no fees, significant company capital at risk and the simplicity of relying on our experienced credit committee to manage the credit process). If you have any further suggestions we would be very receptive.
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Post by cautious on Feb 9, 2014 11:26:07 GMT
Morning All,
Sorry if I am being dim re this provision fund.
Lender total which is eligbible for Provision Fund £2,420,884 P2P lender funds on loan £4,530,490
The above two lines are copy and pasted from W&C lender stats page.
Why aren't all the P2P lender funds eligible for the provision fund ?
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Post by wellesleyco on Feb 11, 2014 15:46:26 GMT
cautious Sorry for the late reply to this thread I mistook this thread for the other one as this topic was being discussed on there also. The reason that not all of the lent funds are eligible for the provision fund is because we have some lenders who are institutional users and as such do not have a call on the provision fund in the case of default. These are a separate class of investor who do not use our website to make investments and instead it is done by individual agreement. I can confirm that every client who uses our website for lending is eligible for the provision fund and that will not change. The reason we do this is to ensure that our provision fund has the greatest amount of money available to serve our customers without dilution. I am going to try and angle the conversation about the Provision Fund from that board onto this one. Although I know not how to. Admin ?
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shimself
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Post by shimself on Feb 11, 2014 22:15:10 GMT
to continue my question from the other thread
You didn't answer the question about how I know what loans my money has been matched to (and yes your quote from the site did answwer my other question, ahem, sorry)
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Post by badger on Feb 14, 2014 11:40:29 GMT
The Provision Fund is clearly a key backstop underpinning Wellesley's security. How independent is it?
Could you list the names of the board members of Provision Fund Limited please - on this forum or better still on the website. Are any members of Wellesley & Co (or Wellesley Group) on the board of Provision Fund Limited?
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mikes1531
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Post by mikes1531 on Feb 15, 2014 21:26:22 GMT
As you will see we currently have a loan book of £3,226,985, I can tell you that this consists of £2,309,741.50 of P2P funds and £917,243.50 of Wellesley funds (72%/28% breakdown). The current numbers seem to be: Loan book £6.12M, P2P funds £4.74M, and Wellesley funds £1.38M, giving a current split of 77.5%/22.5%. So it looks like they're increasing P2P funds faster than their own funds. (P2P funds are up 105%, W&Co funds are up 50%.) Did we ever get an answer to the question of what split they are aiming for?
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Post by wellesleyco on Feb 17, 2014 16:35:37 GMT
This number will fluctuate as and when we draw down loans. Due to the model of the platform.
We are aiming so that when our loan book reaches £50million that we will look for more Loan capital as our initial £5million will be lent out and therefore we will have 10%-90% split.
To put into perspective most small banks in the UK are required to keep a 10% Capital ratio against their loan books.
When taken into consideration that, the Wellesley & Co. retained portion of every loan is sub-ordinated below the lenders on the platform, there is in effect a 10% buffer for bad debt. This is before taking into account the Provision Fund.
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