ashtondav
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Post by ashtondav on Jan 29, 2017 12:09:54 GMT
Rubbish!
If you use conservative valuations and decent LTV rates, there is minimal risk. I.e. Lending up to 50% value is low risk. Lending 70% of value is high risk. Personally, looking at the way FS lend and the assets they lend on, I expect and would be happy with a return of about 7% to 8%. In other words I expect 30% defaults and zero recovery.
Returns of 10%+ will be just for the lucky - or the very choosy, or clever. And by the look of these forums the latter is not the majority.
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Liz
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Post by Liz on Jan 29, 2017 12:27:12 GMT
Rubbish! If you use conservative valuations and decent LTV rates, there is minimal risk. I.e. Lending up to 50% value is low risk. Lending 70% of value is high risk. Personally, looking at the way FS lend and the assets they lend on, I expect and would be happy with a return of about 7% to 8%. In other words I expect 30% defaults and zero recovery. Returns of 10%+ will be just for the lucky - or the very choosy, or clever. And by the look of these forums the latter is not the majority. I'm happy to be in the minority  This really is a contentious issue. Personally, I like to see quick action, especially when lending to SME's, but I am more comfortable with a bit of flexibility towards property loans where the asset can't wither away, although at some point the platform needs to aggressive in the recovery process and can't be seen to be a soft touch or have borrowers taking the mickey of them. It really is a fine balance and keeping everyone happy is impossible.
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Steerpike
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Post by Steerpike on Jan 29, 2017 13:13:46 GMT
Although the asset "can't wither away", the chances of a full return of capital and interest do indeed reduce over the life of a FS type loan.
A 6 month 13% loan that starts at 70% LTV reaches about 84% LTV including capital and accumulated interest by the time the loan is a year overdue as some FS loans are.
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mikes1531
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Post by mikes1531 on Jan 29, 2017 14:31:34 GMT
A 6 month 13% loan that starts at 70% LTV reaches about 84% LTV including capital and accumulated interest by the time the loan is a year overdue as some FS loans are. : I don't know exactly how you arrived at your 84% LTV, but I suspect you were considering only what the investors would be owed. If you add in something for FS's interest/fees I think you'll find the LTV is more like 90% for a loan that's a year overdue.
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Liz
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Post by Liz on Jan 29, 2017 14:33:53 GMT
A 6 month 13% loan that starts at 70% LTV reaches about 84% LTV including capital and accumulated interest by the time the loan is a year overdue as some FS loans are. : I don't know exactly how you arrived at your 84% LTV, but I suspect you were considering only what the investors would be owed. If you add in something for FS's interest/fees I think you'll find the LTV is more like 90% for a loan that's a year overdue. Exactly why they need to act way before it goes 1 year overdue in most cases.
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mikes1531
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Post by mikes1531 on Jan 29, 2017 14:44:44 GMT
Personally, looking at the way FS lend and the assets they lend on, I expect and would be happy with a return of about 7% to 8%. In other words I expect 30% defaults and zero recovery. : I think there's something wrong with your calculation. If I invest in 100 similar-sized loans and 30 go bad with no recovery, there's no way the interest earned on the 70 remaining loans will be enough to cover the capital lost on the defaults, much less to provide a return. ISTM that to achieve 7-8% return, you could stand only 5% defaults with no recovery, or 30% defaults with 83% recovery, or something similar. And that only works for 12-month loans. With 6-month loans you could stand only half as many defaults to achieve that return. Have I got this wrong? If I'm misunderstanding what you wrote, please try to explain.
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Steerpike
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Post by Steerpike on Jan 29, 2017 14:47:40 GMT
A 6 month 13% loan that starts at 70% LTV reaches about 84% LTV including capital and accumulated interest by the time the loan is a year overdue as some FS loans are. : I don't know exactly how you arrived at your 84% LTV, but I suspect you were considering only what the investors would be owed. If you add in something for FS's interest/fees I think you'll find the LTV is more like 90% for a loan that's a year overdue. Yes, I was being conservative as I am not entirely sure how FS handle their fees, but probably you are correct.
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phil
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Post by phil on Jan 29, 2017 14:49:44 GMT
Rubbish! If you use conservative valuations and decent LTV rates, there is minimal risk. I.e. Lending up to 50% value is low risk. Lending 70% of value is high risk. Personally, looking at the way FS lend and the assets they lend on, I expect and would be happy with a return of about 7% to 8%. In other words I expect 30% defaults and zero recovery. Returns of 10%+ will be just for the lucky - or the very choosy, or clever. And by the look of these forums the latter is not the majority. ashtonday: Thanks for your calculations. Do you mean a zero recovery of interest but a 100% recovery of capital in the 30% of loans that default to achieve a return of 7-8% ? I'm one of the forum members who's not very clever
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mikes1531
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Post by mikes1531 on Jan 29, 2017 14:58:25 GMT
Exactly why they need to act way before it goes 1 year overdue in most cases. Yes and no. If the end result in both the 'sell at 6-months case' and the 'sell at 12-months' case is calling in the receivers, then forcing the issue sooner should produce a better result for investors. If, however, the difference is between receivers conducting a fire sale after six months and the borrower managing to sell or refinance but taking a further six months to do so, ISTM that not calling in the receivers would produce a better result for investors. And that's without bringing in additional complications of FS needing to treat borrowers fairly, etc. The hard part, of course, is deciding whether the borrower has a realistic chance of being able to sell or refinance.
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09dolphin
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Post by 09dolphin on Jan 29, 2017 16:19:52 GMT
Was expecting about a 70% recovery on capital 6 months ago on the Scottish Boatyard. As the loan is now well over 12 months overdue I'm now expecting a recovery of about 60% or less of capital. Forget the interest that "continues to accrue" as I doubt anyone will see this added to their account. I really don't understand why FS have allowed this to happen - but I can't say I'm exactly surprised. FS do seem to be very gullible when accepting excuses from lenders who have property loans. Yet they quickly foreclose with jewellery etc.
I really don't understand, and anyone who can explain why "microsculptures", boats and property loans are allowed to extend their loans but jewellery isn't would be welcome. Yes I know it's expensive to foreclose on property but does the same apply to boats. Perhaps I'm just a little inexperienced and don't fully understand the market.
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jimc99
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Post by jimc99 on Jan 29, 2017 19:14:59 GMT
Rubbish! If you use conservative valuations and decent LTV rates, there is minimal risk. I.e. Lending up to 50% value is low risk. Lending 70% of value is high risk. Personally, looking at the way FS lend and the assets they lend on, I expect and would be happy with a return of about 7% to 8%. In other words I expect 30% defaults and zero recovery. Returns of 10%+ will be just for the lucky - or the very choosy, or clever. And by the look of these forums the latter is not the majority. Happily you have the option of not investing with FS and not taking part in this forum....or creating your own forum for very clever people.
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ashtondav
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Post by ashtondav on Jan 29, 2017 21:33:18 GMT
Oh no, I don't claim to be clever. That's why I have spread my investment at 1% or 2% or so for each loan except for a moment of madness over the au........ painting. And then only because Bowie's estate sold one at a good price.
And my thickness in choosing is why I think I'm more likely to hit 7% than 11%. I am not happy that FS uses 11% in its promo material (at least I think it did when I started).
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littleoldlady
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Post by littleoldlady on Jan 29, 2017 23:00:31 GMT
Oh no, I don't claim to be clever. That's why I have spread my investment at 1% or 2% or so for each loan except for a moment of madness over the au........ painting. And then only because Bowie's estate sold one at a good price. And my thickness in choosing is why I think I'm more likely to hit 7% than 11%. I am not happy that FS uses 11% in its promo material (at least I think it did when I started). To get a net 7% from 11% loans you need a default rate of no more than 3.6% if there is no recovery. Proof; you put in 100 and get return of capital of 96.4 plus interest of 11% of 96.4 = 10.6, so a total of 107. If the recovery rate is r then you can just scale 3.6% accordingly, so a 50% recovery needs a default rate < 7.2% But I stand to be corrected by anyone cleverer than me.
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mikes1531
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Post by mikes1531 on Jan 31, 2017 22:27:31 GMT
To get a net 7% from 11% loans you need a default rate of no more than 3.6% if there is no recovery. Proof; you put in 100 and get return of capital of 96.4 plus interest of 11% of 96.4 = 10.6, so a total of 107. If the recovery rate is r then you can just scale 3.6% accordingly, so a 50% recovery needs a default rate < 7.2% But I stand to be corrected by anyone cleverer than me. This is more of a clarification than a correction... (and I'm not claiming to be cleverer than LOL!  ) The important thing to note is that the above calculation is fine for 12-month loans. For 6-month loans, it's important to realise that the 3.6% default rate has to be an annual rate. Otherwise, the calculation becomes... ...you put in 100 and get return of capital of 96.4 plus interest of 11% of 96.4 for half a year = 5.3, so a total of 101.7, which is a 3.4% p.a. return.
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mikes1531
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Post by mikes1531 on Jan 31, 2017 23:04:38 GMT
I really don't understand, and anyone who can explain why "microsculptures", boats and property loans are allowed to extend their loans but jewellery isn't would be welcome. Yes I know it's expensive to foreclose on property but does the same apply to boats. Perhaps I'm just a little inexperienced and don't fully understand the market. : I don't think it's a case of some loans being 'allowed' to extend and others not. If any borrower pays the accrued interest when their loan reaches its maturity date, it would be extended. I expect fundingsecure make an attempt to contact every borrower as a loan's 'maturity' approaches to ask them whether they're intending to redeem, extend, or give up their security. I wouldn't be surprised if no response at all is more common for small (jewellery, watch, etc.) loans than for loans with substantial security where the borrower has more 'equity' to lose. If FS receive no response on a small loan, they probably don't invest a lot more time, and simply send the default letter promptly and start making plans to sell the security. They're probably more willing on larger loans to work a bit harder to ensure that they don't just 'dump' the security, especially as there'd be a greater chance of an unhappy buyer willing to take them to court.
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