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Post by mrclondon on Aug 27, 2015 20:56:42 GMT
so could someone explain, in simple terms, what a "buffer" offers me as a lender as compared to no buffer? The existance of a buffer means there is a greater chance of you as the lender receiving a monthly dollop of interest on the appointed day each and every month than without a buffer. To take the example of a tenanted property where the rental income is the (only) source of funds the borrower has to meet the monthly AC payment - if the tenant moves out, until a new tenant moves in there will be no income, and no payment to AC. If a buffer exists in an AC client account, the monthly payment can be made from that even though there is no incoming funds that month. In very simple terms, the existance of a buffer implies that AC recognises that the borrower is very unlikely to be able to make every monthly payment when due so incorporates some flexibility into the loan structure to both satisfy lenders (and ensure our compounded returns don't suffer) and to be a responsible loan provider in so far as the buffer prevents the loan from going into immediate default with added default "fees" for the borrower And in what circumstances, the AC guarantee, to make up for a non-full buffer, would make a practical difference? If the borrower eventually defaults, by definition the buffer will have been exhausted in making monthly payments to lenders. So for those loans where the buffer is currently less than what it should be, AC have pledged to add the notional value of the buffer from their own funds, if the security realisation for that loan falls short of the loan value (+ accrued interest I assume)
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SteveT
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Post by SteveT on Aug 28, 2015 6:50:58 GMT
I've no issue with loans having an interest buffer to help keep payments on time, but they must not hide the fact there may be underlying payment issues with the loan. The problem with the L**ds loan was that no-one could know from the loan information that several payments had been missed and drawn instead from the (now empty) buffer. Provided that AC make it clear in future when a payment had been drawn from the buffer (rather than being made by the borrower direct) then the problem is solved.
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mikes1531
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Post by mikes1531 on Sept 10, 2015 15:11:42 GMT
In very simple terms, the existance of a buffer implies that AC recognises that the borrower is very unlikely to be able to make every monthly payment when due so incorporates some flexibility into the loan structure to both satisfy lenders (and ensure our compounded returns don't suffer) and to be a responsible loan provider in so far as the buffer prevents the loan from going into immediate default with added default "fees" for the borrower But if the maintenance of the buffer is a requirement of the loan, then doesn't a case of the borrower failing to make a payment on time -- and thus requiring AC to make the payment to lenders using the funds in the buffer -- mean the borrower has broken one of the Ts&Cs which in turn means the borrower is in default?
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ilmoro
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'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
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Post by ilmoro on Sept 10, 2015 15:19:51 GMT
In very simple terms, the existance of a buffer implies that AC recognises that the borrower is very unlikely to be able to make every monthly payment when due so incorporates some flexibility into the loan structure to both satisfy lenders (and ensure our compounded returns don't suffer) and to be a responsible loan provider in so far as the buffer prevents the loan from going into immediate default with added default "fees" for the borrower But if the maintenance of the buffer is a requirement of the loan, then doesn't a case of the borrower failing to make a payment on time -- and thus requiring AC to make the payment to lenders using the funds in the buffer -- mean the borrower has broken one of the Ts&Cs which in turn means the borrower is in default? Not according to AC, conditions are considered to be different to covenants (there are responses on this on various loans Qs/in forums which Ill try & find)
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