stevio
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Post by stevio on Aug 28, 2015 9:57:55 GMT
Just considering investing in the new loans on Ablrate and wondered about the Secondary Market - read the FAQ and still not much further on:
Why would I pay the sellers interest? Why do I have to have cleared funds sitting there earning no interest while I wait for my bid to be excepted? Why are you allowing people to sell for a premium, rather than at face value?
Why can't you just keep it simple like SS - Seller wants to sell x amount of a loan, puts for sale and buyer pays x for it
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SteveT
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Post by SteveT on Aug 28, 2015 10:05:36 GMT
Just considering investing in the new loans on Ablrate and wondered about the Secondary Market - read the FAQ and still not much further on: Why would I pay the sellers interest? Why do I have to have cleared funds sitting there earning no interest while I wait for my bid to be excepted? Why are you allowing people to sell for a premium, rather than at face value? Why can't you just keep it simple like SS - Seller wants to sell x amount of a loan, puts for sale and buyer pays x for it In brief: 1) you pre-pay the Seller the interest they have earned the right to up until the date of the sale / purchase transaction, which you will then get back when the next monthly payment is made 2) so that the transaction can be completed instantly when your bid is filled. You also have the option to buy immediately at the best available rate rather than setting your own higher bid rate and waiting. 3) I like the simplicity of the SS approach too but at least the chosen AR approach is a proper market, with both buyers and sellers able to set the rate they are happy to trade at. There are no seller fees (like SS) and no loss of interest whilst parts are offered for sale (unlike SS) so it seems pretty fair to me.
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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 Aug 28, 2015 10:15:23 GMT
Just considering investing in the new loans on Ablrate and wondered about the Secondary Market - read the FAQ and still not much further on: Why would I pay the sellers interest? Why do I have to have cleared funds sitting there earning no interest while I wait for my bid to be excepted? Why are you allowing people to sell for a premium, rather than at face value? Why can't you just keep it simple like SS - Seller wants to sell x amount of a loan, puts for sale and buyer pays x for it You pay the seller interest to cover the amount accumulated to date of sale, you get the full interest payment on the due date. It saves having keep track of who is due what interest. You can buy loan parts immediately if parts are availiable (like SS) paying the advertised price. If you want a different price then you have to wait until a seller comes along who accepts your price. Its not surprising you need to have funds available to complete the transaction. SS are unique in offering a short term credit facility (interpretation of FCA rules varies) A lot of people like the ability to sell popular loans at a premium, it encourges liquidity, otherwise some loans would never be available post drawdown. Similiarly the ability to sell at a discount allows a potential quick exit. FC have always done this, AC used to ( discount only) and there is demand for it to return, particularly regarding distressed loans. Edit must type faster, crossed with Steve
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Post by ablrateandy on Aug 28, 2015 12:51:20 GMT
Beaten to it... but from our point-of-view
1. If someone wants to sell a loan they should be able to exit all of the risk at point-of-sale. On a platform where you sell the capital but have to wait for the accrued interest to be divided up, you still have a measure of risk.
2. The cleared funds issue is a bit of an irritant for us too. We need people to be fully funded for their bids so that if someone sells then the trade occurs immediately. However, we may (subject to credit provision regulations) look at letting people have unfunded bids up to say 50% of their holdings on the platform at some point soon.
3. I personally don't believe that a loan should have the same interest rate/price throughout its life and people should be able to ascribe their own value. In my experience so far, most offers at 100p in the pound have been taken up pretty promptly. In particular, if you had an amortising loan of 5 year term with only 3 months left to run, your risk is substantially lower than it was 4 years ago. Therefore, you should be willing to accept a lower interest rate to purchase it and therefore pay a higher number of pence in the pound.
It isn't to everyone's taste, I know BUT we feel that it offers the best balance of transparency and execution that is possible on P2B loans.
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james
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Post by james on Aug 28, 2015 12:57:28 GMT
Why would I pay the sellers interest? You're paying for the accrued interest from the last monthly payment until the time of purchase and excess will be refunded. You'll get the accrued interest back with the next monthly interest payment from the borrower. Why do I have to have cleared funds sitting there earning no interest while I wait for my bid to be excepted? Because Ablrate doesn't want to offer credit facilities at the moment, not even some days for settlement. Partly out of concern for regulatory licensing issues related to it. It's irritating because I'd bid far more than I do now if I didn't have the money sitting idle. Why are you allowing people to sell for a premium, rather than at face value? A loan is worth much more than the current outstanding balance so it is unfair to a seller to limit them to selling at face value. Instead a seller can be expected to want some premium to cover part of the future interest flow. Or if a loan is impaired, to be willing to sell at some discount to allow for that, though Ablrate doesn't plan to allow sales of impaired loans at present, hopefully this may change sometime. Why can't you just keep it simple like SS - Seller wants to sell x amount of a loan, puts for sale and buyer pays x for it Simple isn't very good for sellers or buyers. It gives sellers no opportunity to get any value at all from the future income stream that they are selling. So they are less likely to be willing to give up on that income stream and sell. For buyers this means there will be a lower supply of loans to buy. I think that SavingStream is even worse than this, with the seller even losing the accrued interest up to the point of sale to the buyer and having to pay SavingStream a fee.A disadvantage of being able to sell at a premium is the possibility of doing new loan buys just to make a profit from flipping loans in the short term, days typically. I've very strongly against this. On the other hand, for a newish platform, I accept for the moment Ablrate's reasoning that it's market-making that helps with loan liquidity, so I've been doing some of it on some loans, though on a longer timescale than the days that flipping usually involves because I'm still an investor at heart. I'll still welcome the time when anything close to flipping is not possible, though. For SavingStream the effect is reduced loan supply and a repeat of the initial loan offering land grab when a seller is forced to sell at far below the real value if they want to sell at all.As I understand it SavingStream don't allow premiums and discounts in part because that complicates the interest calculations for buying and selling and they haven't wanted to get into that so far. While Ablrate has at least one key person who's intimately familiar with how normal bond markets work, with both bid and offer prices available for immediate trading and the chance to make your own bids and offers if you want to.
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james
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Post by james on Aug 28, 2015 13:01:54 GMT
Beaten to it by Ablrateandy but left my post up anyway. ... from our point-of-view 2. The cleared funds issue is a bit of an irritant for us too. We need people to be fully funded for their bids so that if someone sells then the trade occurs immediately. However, we may (subject to credit provision regulations) look at letting people have unfunded bids up to say 50% of their holdings on the platform at some point soon. Good to read that! I may well offer bid prices on most loans as soon as it's possible.
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Post by ablrateandy on Aug 28, 2015 13:23:33 GMT
re impaired loans, I don't think that we have ever (intentionally) said that we would never allow trading in them. The important thing with impaired loans is to make sure that there is equality of information. If one of OUR buffers got eroded, we would notify lenders about that and simultaneously pause the loan. This automatically kills all live bids and offers. Should the situation continue, we would at some point re-admit it to the secondary market.
We aren't planning on having any though..!
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webwiz
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Post by webwiz on Aug 28, 2015 17:12:25 GMT
I think that SavingStream is even worse than this, with the seller even losing the accrued interest up to the point of sale to the buyer and having to pay SavingStream a fee. I think there are two errors in this sentence.
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james
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Post by james on Aug 28, 2015 20:03:35 GMT
I think that SavingStream is even worse than this, with the seller even losing the accrued interest up to the point of sale to the buyer and having to pay SavingStream a fee. I think there are two errors in this sentence. What do you think the errors in the sentence are, given that it seems to be saying pretty much the same as stevet did earlier in the discussion: ...There are no seller fees (like SS) and no loss of interest whilst parts are offered for sale (unlike SS)... If I've misunderstood some aspect of how SavingStream works I'd love to be corrected!
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james
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Post by james on Aug 28, 2015 20:06:03 GMT
re impaired loans, I don't think that we have ever (intentionally) said that we would never allow trading in them. The important thing with impaired loans is to make sure that there is equality of information. If one of OUR buffers got eroded, we would notify lenders about that and simultaneously pause the loan. This automatically kills all live bids and offers. Should the situation continue, we would at some point re-admit it to the secondary market. We aren't planning on having any though..! Yes, information asymmetry is a big potential issue with that and one that causes me to think pretty carefully about it also. Particularly with underwrites, say, who may have enough money invested to seek independent information. Or maybe just big non-underwriting investors. I hope your plan works.
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SteveT
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Post by SteveT on Aug 28, 2015 20:06:59 GMT
Indeed. There is no selling fee on SS, and interest is only lost from the point the loan part is offered for sale (which currently is usually about 5 minutes before it sells!). Accrued interest for the part month prior to that is still paid to the original holder at month end.
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james
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Post by james on Aug 28, 2015 20:24:57 GMT
Thanks for the corrections webwiz and stevet! I've struck out my mistakes in the original post.
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stevio
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Post by stevio on Aug 28, 2015 22:21:23 GMT
Indeed. There is no selling fee on SS, and interest is only lost from the point the loan part is offered for sale (which currently is usually about 5 minutes before it sells!). Accrued interest for the part month prior to that is still paid to the original holder at month end. Good to know how SS works too and in comparison
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stevio
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Post by stevio on Sept 2, 2015 18:50:20 GMT
So buyer pays the seller the interest accrued to date of sale, then Ablrate pays the buyer the full months interest when due (which effectively includes the interest paid to the seller by the buyer)?
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Post by ablrateandy on Sept 2, 2015 19:35:39 GMT
Yup!
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