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Post by Deleted on Jun 4, 2015 9:46:49 GMT
In my Zopa account I have 11 defaults, only 2 are Cs but there are 5 Bs and 4 As.
On FC I am only investing in As and Bs but if their ratings are as bad as Zopa's then I am not sure if my C avoidance strategy is that clever.
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Post by Deleted on Jun 4, 2015 9:52:01 GMT
I think your strategy is right, I also suggest you need to read the details on FC a fair bit as clearly some of the A and A+ loans are for over-indebted companies, poor cash flow companies etc. The issue is the timing and the portal FC is suffering a long period of lousy rates since about mid December. The old shot gun approach no longer works, the property loans were looking good but have just recently collapsed to low rates, while I'm not sure how the flippers are doing. Basically too much cash chasing too few loans. Good for borrowers, bad for lenders.  |
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sl75
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Post by sl75 on Jun 4, 2015 10:12:40 GMT
FC is suffering a long period of lousy rates since about mid December... That of course depends what you're comparing it to; rates are still a lot higher than they were for much of 2013.
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adrianc
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Post by adrianc on Jun 4, 2015 10:53:14 GMT
FC don't publish their rating criteria. We have to assume that each of the bandings is fairly solidly defined within their internal criteria. We might not always necessarily agree with it, or understand it, but we have to assume... If you don't want to take it at face value, then you're going to need to make your own decisions based on the information presented and on any other due diligence you might want to perform.
Personally, I tend to avoid C and C-, unless there's something about the company that I feel like supporting. I've got personal MBRs for each of the other three bands. I'm no accountant, but I've got enough of a clue to go through the accounts and make my own decision on whether I feel comfortable with each loan - and the rating is a part of that, but far from all.
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Post by GSV3MIaC on Jun 4, 2015 12:47:48 GMT
Last time I had a serious look there was no statistically significant difference in the failure rates by risk band, although C- hadn't been around long enough to tell. There were a lot of bad As and Bs .. but then the earliest loans were ALL As or Bs or A+s. Personally I don't put a lot of faith in the risk banding given by FC .. use your own judgement.
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Post by 4thway on Jun 5, 2015 18:07:00 GMT
Looking at the average defaults since FC started nearly five years ago the risk banding looks a bit patchy. Ordinarily this is a really bad sign about their risk modelling, but if you were to take just the past couple of years you'd probably see their banding is now pretty good. It's clear that Funding Circle has learned a great deal since it started and I think it analyses and adapts well.
Although the FC banding might show gradually worsening loans, the difference between them has so far been reasonably small. C- certainly seems to be far from the dregs you might expect for the worst grade out of five.
That said, you have to bear in mind FC's forecast losses, because they might be closer to the truth in the long run, especially during a recession. On that measure, the interest rates for C- loans really look too low, on average, with around 40% of those loans in 2015 having a forecast net return of virtually no more than the expected net returns on the A+ market. In some cases the C- loans are even forecast to do worse.
If you're going up the risk scale, I think you should make sure you're bidding considerably higher than average at that risk grade.
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blender
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Post by blender on Jun 5, 2015 22:51:41 GMT
Looking at the average defaults since FC started nearly five years ago the risk banding looks a bit patchy. Ordinarily this is a really bad sign about their risk modelling, but if you were to take just the past couple of years you'd probably see their banding is now pretty good. It's clear that Funding Circle has learned a great deal since it started and I think it analyses and adapts well. Although the FC banding might show gradually worsening loans, the difference between them has so far been reasonably small. C- certainly seems to be far from the dregs you might expect for the worst grade out of five. That said, you have to bear in mind FC's forecast losses, because they might be closer to the truth in the long run, especially during a recession. On that measure, the interest rates for C- loans really look too low, on average, with around 40% of those loans in 2015 having a forecast net return of virtually no more than the expected net returns on the A+ market. In some cases the C- loans are even forecast to do worse. If you're going up the risk scale, I think you should make sure you're bidding considerably higher than average at that risk grade. Definitely, because the only definition of the bands on FC is the forecast average losses for the band. So if the band is doing better than the forecast, then it would make sense for FC to allow more risk into that band rather than redefine the band's loss performance. This can be done in two ways - by relaxing the criteria for accepting a borrower in the band, which will help sales, or by cost reducing the loan assessment process (being less thorough), which will help margins. I don't have any problem with this and like to see FC having the ability and confidence to tune their procedures to ensure that it works for all three parties as it scales up. Whether they are leaving slack in the loss rates to cater for the economic cycle I would not know - but I would think they might prefer to respond to a recession if and when it happens, say with tighter criteria. One thing which does trouble me is the fact that the A+ band will increasingly comprise two distinct loan groups, the unsecured business loans and the secured property loans. It's early days but you would think that the property loans would have lower losses, and this might allow the A+ business loans to become rather more lossy on average than the 0.6% pa.
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agent69
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Post by agent69 on Jun 6, 2015 7:52:48 GMT
FC is suffering a long period of lousy rates since about mid December... That of course depends what you're comparing it to; rates are still a lot higher than they were for much of 2013. When I started with FC I was targeting 7%, 8%, 9% and 10% for the 4 risk bands that existed at the time. Wasn't long before you were struggling to get an A loan for more than 7.5%. Fast forward to the end of last year and I was getting A+ for between 11 and 12%, Current rates aren't brilliant, but they've been a lot worse.
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fasty
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Post by fasty on Jun 6, 2015 10:54:33 GMT
I believe that the next few months will be very telling with regard to the accuracy of ratings for property loans, as the quantity reaching payback time escalates.
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registerme
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Post by registerme on Jun 6, 2015 15:18:03 GMT
I believe that the next few months will be very telling with regard to the accuracy of ratings for property loans, as the quantity reaching payback time escalates. If there are any material concerns there I imagine FC are bricking themselves.
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min
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Post by min on Jun 6, 2015 17:17:37 GMT
I believe that the next few months will be very telling with regard to the accuracy of ratings for property loans, as the quantity reaching payback time escalates. If there are any material concerns there I imagine FC are bricking themselves. Maybe they're out on the tiles getting stoned! 
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am
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Post by am on Jun 6, 2015 17:26:52 GMT
If there are any material concerns there I imagine FC are bricking themselves. Maybe they're out on the tiles getting stoned! As long as we don't find it necessary to slate their performance.
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Post by 4thway on Jun 6, 2015 17:40:29 GMT
Looking at the average defaults since FC started nearly five years ago the risk banding looks a bit patchy. Ordinarily this is a really bad sign about their risk modelling, but if you were to take just the past couple of years you'd probably see their banding is now pretty good. It's clear that Funding Circle has learned a great deal since it started and I think it analyses and adapts well. Although the FC banding might show gradually worsening loans, the difference between them has so far been reasonably small. C- certainly seems to be far from the dregs you might expect for the worst grade out of five. That said, you have to bear in mind FC's forecast losses, because they might be closer to the truth in the long run, especially during a recession. On that measure, the interest rates for C- loans really look too low, on average, with around 40% of those loans in 2015 having a forecast net return of virtually no more than the expected net returns on the A+ market. In some cases the C- loans are even forecast to do worse. If you're going up the risk scale, I think you should make sure you're bidding considerably higher than average at that risk grade. Definitely, because the only definition of the bands on FC is the forecast average losses for the band. So if the band is doing better than the forecast, then it would make sense for FC to allow more risk into that band rather than redefine the band's loss performance. This can be done in two ways - by relaxing the criteria for accepting a borrower in the band, which will help sales, or by cost reducing the loan assessment process (being less thorough), which will help margins. I don't have any problem with this and like to see FC having the ability and confidence to tune their procedures to ensure that it works for all three parties as it scales up. Whether they are leaving slack in the loss rates to cater for the economic cycle I would not know - but I would think they might prefer to respond to a recession if and when it happens, say with tighter criteria. One thing which does trouble me is the fact that the A+ band will increasingly comprise two distinct loan groups, the unsecured business loans and the secured property loans. It's early days but you would think that the property loans would have lower losses, and this might allow the A+ business loans to become rather more lossy on average than the 0.6% pa.I'd prefer it if Funding Circle did what FundingKnight does and split its property loans into a different grading system from its other business loans.
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min
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Post by min on Jun 7, 2015 7:11:09 GMT
Maybe they're out on the tiles getting stoned! As long as we don't find it necessary to slate their performance. That could happen if Flowering Cactus are leading us up the garden path.
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upland
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Post by upland on Jun 7, 2015 7:21:35 GMT
Definitely, because the only definition of the bands on FC is the forecast average losses for the band. So if the band is doing better than the forecast, then it would make sense for FC to allow more risk into that band rather than redefine the band's loss performance. This can be done in two ways - by relaxing the criteria for accepting a borrower in the band, which will help sales, or by cost reducing the loan assessment process (being less thorough), which will help margins. I don't have any problem with this and like to see FC having the ability and confidence to tune their procedures to ensure that it works for all three parties as it scales up. Whether they are leaving slack in the loss rates to cater for the economic cycle I would not know - but I would think they might prefer to respond to a recession if and when it happens, say with tighter criteria. One thing which does trouble me is the fact that the A+ band will increasingly comprise two distinct loan groups, the unsecured business loans and the secured property loans. It's early days but you would think that the property loans would have lower losses, and this might allow the A+ business loans to become rather more lossy on average than the 0.6% pa.I'd prefer it if Funding Circle did what FundingKnight does and split its property loans into a different grading system from its other business loans. The recovery rates from these asset backed property loans ought to be reported on their own too. When it eventually emerges it is going to be fascinating.
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