The pre-funding model

Did he give any indication as to when we might reasonably relax digits?

A good attempt by SS to accommodate all investors, large and small.

However I find myself in a quandary. I tend to prefer smaller loans because the aftermarket tends to be more liquid, although admittedly recently loans of all sizes seem to be snapped up, including in the aftermarket. But this may not always be the case.

I wonder whether SS might consider refining the prefunding model to permit some definition of the loans we want to include by say: size, term, LTV, 1st/2nd charge?

I don't see that you are any worse off with prefunding than you are at present. If you are getting any share of loans you must be buying them blind. Any attempt at assessing whether or not you want it means that you will have missed it. I admit that you might get more loans than you currently get, but no more than you would have liked to have done if only your fingers were quick enough.

Yes, a fair point.  I obviously need to mull some more.

Thinking on this more, it seems a simple way to allow everyone to invest is to set a limit (like other P2P's) on the amount you can invest over say five days, then what is left is fair game. But SavingStream probably does not want to do this as it creates more admin as more lenders have small parts of loans and also takes longer for them to fill a loan and therefore complete on the deal  

Doing it the pre-funding way allows SavingStream to get an idea of how much investment interest there is. They can then also present this information as potential future sales to investors in the P2P company.

Seems to be more in the favor of SavingStream than in the lender

 

I have deliberately taken some time to post on this thread so that I can have a good think about how this will work and what the consequences would be. How might my SS strategy change in light of this new model? I must admit I was a bit surprised with the deluge of 100% positive comments at the beginning. I assume that this was a reaction to frustration from a number of people who were denied investment opportunities in the system meltdowns that have recently occurred. I do note however one or two more questioning posts further down the list.

In practice we are not going to know how things will work out until the new method has been used in anger.  But I have a few concerns about what may happen.

I don't like the idea of buying blind without reading the documents although I have certainly done it (I'm sure most who have picked up recent releases are in the same boat). So I'm not keen on blind pre-funding. And I will be less keen when loans are in trust and potential losses are more directly linked to loans.  I have seen comments that say that blind pre-funding is the same as the current situation but while there is a lot of truth in this, it is not completely true.  When I have bought blindly I have done it with small loans up to (say) £500k because I know that should I not like the loan when I read the documents I can very quickly bail out as there will be good liquidity on the SM. In the current environment I would probably be safe up to £1m or more. But if a big loan of say £2m+ came to the market I would not buy blindly. Not just because I would worry about SM liquidity but because I wouldn't need to.  With loans of this size there is enough time to read the documents and make a considered judgement before investing.  I would be unhappy automatically picking up a slice of a large loan and not knowing what it was.  And while I am generally a good supporter of SS, I do think there is a small touch of arrogance if it is assumed that all investors want a slice of all loans without reviewing them first.  OK, I could switch off pre-funding and buy manually but this would then completely lock me out of all small loans which I certainly don't want.

Another thing that bugs me is automatically pre-funding a set amount for all future loans.  I often have lumpy availability of funds so at some times I will have nothing to invest and at other times some significant chunks.  Yes, of course I can change the pre-funding amount at any time although if I forgot and ended up funding something I couldn't deliver on I would have to rely on a liquid SM to quickly balance my position.  Ultimately though that would be down to my own stupidity and I suppose fair enough.  What worries me far more is multiple launches.  I may be fine investing £x but if suddenly I have to fund say £3x I might get a bit stuck.

In some ways, from a selfish point of view, I would like to revert back to the original model with its resultant feeding frenzy.  Whether by luck, persistence or skill I have somehow managed to get a good chunk of all loans that I have wanted to and therefore can be 'greedy' if I want to (although I'm not one of the very high rollers).  But on the other hand I do recognize that some fairness and order to proceedings is a good thing so I'm certainly not averse to making a change.  The model of allocating funds proposed by SS is as good a way as any of achieving this.  But I think there are a number ways to improve it.

My ideal model would be this:  Loans would be launched on the site at a pre-announced time in very much the same way as now with all documentation attaching. But instead of the loan filling immediately we would have (say) 24 hours to pre-fund specifically for this loan in the full knowledge of what it is.  At the end of the 24-hour period, pre-funding would close and loan parts would be allocated using the same equitable distribution method as has been proposed.  If the loan is over-subscribed then funding would be scaled back for the larger amounts.  When the allocation is complete the loan is then launched into the live market where trading on the SM can begin and in the case of larger loans any unfilled capacity is released to the market. This would not just be fair and orderly but it would also avoid blind funding and inadvertent over-funding with a multiple loan release.

If the above can't be implemented immediately then a sensible interim measure is to have some advance warning of loans coming to the market so we can sensibly set our pre-funding limits in advance. I think westcountryfunder had it about right by defining this to be: size, term, LTV, 1st/2nd charge. I note that westcountryfunder was proposing a way of pre-setting the pre-funding amounts based on these factors which I would be very happy with but I suspect that would be a systems complication too far. So what I propose is advance notification so that we could make a manual adjustment before the loan opens for pre-funding.

The other change I would make is to avoid multiple loan releases and set a maximum of 1 loan each day even if they are all related to the same borrower.  At the moment there is not such a large pipeline that this would cause any significant delay to launching loans and if there was a sudden increase in the pipeline we wouldn't be in the lender over-supply situation we are currently in.

So in summary, I give the new model a cautious welcome and applaud SS for listening to posters on this forum. But I think there are some potential improvements that can be made and would welcome feedback on this.