blender
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Post by blender on Jan 17, 2014 10:21:37 GMT
Having complimented the C- borrowers may I draw readers' attentions to a post today by System2 on the 'official' forum. System2 is IMO a long standing, knowlegeable, and independent but fair commentator who FC would censor at their peril. He/she draws attention to a loan which has missed five repayments but is still late, and has since taken out a Rebuilding Society loan and is repaying that while not repaying the FC lenders. It now has a CCJ for about the value of the FC loan, but nothing is stated in comments. System2 is worried about an apparent weakness in collecting by FC compared with RS, which could work against FC lenders is perceived as the general position.
I am also worried about the fact that this loan is late and not defaulted, despite missing five payments and having an uncommented CCJ which is roughly equal to the oustanding FC debt. Some time ago, on both old boards, there was criticism of FC's apparent hiding of undefaulted zombie loans, when a default was defined as having missed three payments, which takes about 70 days. FC were suspected of being loath to declare losses to the borrowers. Coincidentally, the 'late greater than 90 days' category was introduced into the statistics and these zombie loans were at least visible in the statistics.
The zombie loans in the >90days category have now reached 830k (including the one C- mentioned on that thread). This is about 30% of lates. Keeping them in this category, presumably for the better management of the arrears FC might say, keeps the default sum down by the late category containing 830k of loans which are really defaults. Too much to be justifiable, IMO.
Not declaring the zombie loans as defaults gives an unrealistic impression of the lender's performance, directly in the understated losses, but also of course has a effect on the 'net return' percentage which some lenders are presented with. I would be comforted to know that FC are not on the one hand treating these borrowers as if the loan had been defaulted while at the same time benefitting from the better apparent lender returns by not defaulting 830k of loans.
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Post by captainconfident on Jan 17, 2014 11:43:34 GMT
Thanks for drawing attention to that interesting post. A shame it is in the other place, but as FC do not engage with this forum, and that post demands an answer from them, we need to keep an eye on what happens.
Personally, serves you all right for trying to profit from the livestock industry. Eat lentils instead.
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blender
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Post by blender on Jan 17, 2014 13:18:31 GMT
Personally, serves you all right for trying to profit from the livestock industry. Eat lentils instead. No need to get personal, Captain, especially as I do not have that loan myself and have excluded meat production from my protfolio. I am an omnivore (as you will guess from my avatar) but am closely connected to a vegan. Its the general point of the zombies (which eat human brains of course) which worries me and it has now been taken up on the other board also.
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oldgrumpy
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Post by oldgrumpy on Jan 17, 2014 13:24:44 GMT
Thank you for drawing this to our attention. Maybe FC will attend to this more rigorously with the knowledge that it is being watched and the matter is receiving publicity.
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blender
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Post by blender on Jan 17, 2014 15:27:13 GMT
Credit must be given to FC for answering this point quickly and straighforwardly on the official board. Basically FC have altered the T&C's to allow them flexibility in timing the declaration of a default, both sooner and later. Essentially when the borrower of a 'delinquent' loan (presumably one which has missed three consecutive repayments) is fully co-operative, short of actually paying, FC will generally not default the loan immediately, though they do not say when they will default the loan. The £830k of late > 90 days which has grown up gives a measure of the effect of that policy. This may improve collections in the long run, (or FC lenders may be considered a soft touch and this may explain why the borrower in the OP paid RS and not FC), but it has pushed out the average time to declare default for a delinquent loans significantly.
The effect on the performance figures given to lenders in the summary has not been raised and discussed there, but clearly a systematic deferral of defaults, which is what we have here, without a commensurate change in collections, significantly improves the individual figures for losses and net return given to affected lenders over what they would have been without this unannounced change of policy.
So if you wish to know your true likely losses, add in any 'delinquent' loans which have missed three consecutive payments, and take the net return with a pinch of salt.
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mikeb
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Post by mikeb on Jan 17, 2014 19:03:41 GMT
Basically FC have altered the T&C's to allow them flexibility in timing the declaration of a default, both sooner and later. Yes this is very convenient, and is pretty much the response I got when asking FC directly about this. So the zombie loans aren't really zombies they are just very very late loans. For example, one which got in trouble in Feb 2012, and beyond that is still rattling along with "chasing for payments" that don't arrive, winding up petitions, CVAs, blah blah blah. Endless comments. It is 485 days late and an A+ risk and yet isn't counted as in default. Of the others that are "late", the day counts are less spectacular but still stretching the idea of flexibility: 216, 162, 188 days late, and all still "only late". They still have risk bands. Then there's the tranche of "risk band removed: days late 0". It's not zero days late, though, is it? Some of those should have defaulted by now, but don't seem to. It does help skew the statistics in a positive direction. Sadly it skews faith in those statistics toilet-ward.
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Post by GSV3MIaC on Jan 18, 2014 8:54:51 GMT
Which is why, when I calculate the default probabilities, I toss all the late>90 days in with the defaulted, and apply some weighting to lesser-late loans, on the assumption that some of these are on the way out too. If it isn' t paying, can't be sold, and has been that way for ages, it's WORSE than defaulted IMO.
It also flags things sooner .. normally takes ~3 months for a loan to add to the default numbers, whereas late-going-on-later shows up after just a month or two.
As was said elsewhere, any way you slice it C-s are currently looking rather better than A+s.
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agent69
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Post by agent69 on Jan 18, 2014 10:03:25 GMT
Which is why, when I calculate the default probabilities, I toss all the late>90 days in with the defaulted, and apply some weighting to lesser-late loans, on the assumption that some of these are on the way out too. If it isn' t paying, can't be sold, and has been that way for ages, it's WORSE than defaulted IMO. It also flags things sooner .. normally takes ~3 months for a loan to add to the default numbers, whereas late-going-on-later shows up after just a month or two. As was said elsewhere, any way you slice it C-s are currently looking rather better than A+s. I've had 2 official defaults in the last 12 months, the big one and a "100k A+. Never had a lot of faith in the way FC report or deal with late payers. Always thought they were far to soft on the borrowers. 3032 (the crappy scrappy) is currently 118 days late, with a promise that repayments will resume this month. Won't be holding my breath.
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Post by bracknellboy on Jan 18, 2014 11:19:05 GMT
....It is 485 days late and an A+ risk and yet isn't counted as in default..... Ah but you see, the loan is not dead, its just resting, after a particularly long squawk spending spree. FC have just nailed it to its risk band so that when it wakes up it doesn't muscle up to FCs firewall and barge its way through.
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maxmarengo
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Post by maxmarengo on Jan 18, 2014 17:49:23 GMT
I looked at Zombie loans 6 months ago and concluded that this was not a key issue. A chart I prepared for the "Overall Default Rate" post shows that things have changed:  The light blue line shows the total loans late by more than 90 days and you can see a significant step up in the last month. They are now around 30% of the bad debt total! Note that the bad debt line (red) has levelled out. I can now see that part of this is due to the new handling of late loans! |
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Post by GSV3MIaC on Jan 18, 2014 18:14:22 GMT
quick question .. what number are you using to derive the 'expected' on this chart?
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maxmarengo
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Post by maxmarengo on Jan 19, 2014 9:26:50 GMT
I have put further details on this in the "Estimating the Long Term Default Rate" thread.
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Post by GSV3MIaC on Jan 19, 2014 21:43:28 GMT
Thanks, I went and had a look .. comments posted over there. Yes, the main problem is that loans do not fail regularly over time (per the available data).
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unmadem
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Post by unmadem on Jan 23, 2014 12:46:45 GMT
There is a new post on the other place saying FC will default loans after 90 days including the backlog and will improve communication on defaulted and late loans.
Well we will see.
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Post by phlitb on Jan 23, 2014 13:00:59 GMT
I've had 3 defaulted loans today so far, so they're clearly working on it...
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