New P2P Structure - T & Cs for review

Dear savingstream

I think the new structure is excellent but I see one problem. Selling a loan unit on the SM will be more difficult when the loan is about to expire and especially difficult after expiry. If all interest after expiry were to pass to the new lender then these loans would be very liquid.

For example; PBL999 is available on the SM but expired 10 days ago. To encourage that part to be sold the owner would relinquish all interest after expiry. The new owner would get the extra 10 days interest on repayment. If the new owner then sold the unit 8 days later they would relinquish 18 days interest.


Essentially what I'm saying is, the owner of the loan part at repayment should get all the interest paid after expiry. I wonder if you would consider this option, I think it represents a fair risk for loans in default.

For the purpose of this example, I would class that as a rollover. The loan wouldn't get a 3 month extension unless interest to date was paid. So whoever owned the loan when the extension was granted gets the interest from the original date of expiry.

Expiry or negative days does not mean DEFAULT.  Default means when the borrower is not bothering to provide information, not willing to offer further interest and not repaying the loan.  The lender then has to resort to legal action to recover.  As the T&Cs relate to defaults, none of the negative days loans are defaults.  If SS is doing their job (which they seem to be doing) when a loan is due they will be chasing for the money or expecting further interest.

Loans running over are common in bridging loans.  SS should still be paying interest until they classify it a default and if the underwriting is good these should be uncommon.

I'd understood you were suggesting that accrued interest should pass to the new buyer on all loans that were "after expiry": "Selling a loan unit on the SM will be more difficult when the loan is about to expire and especially difficult after expiry".

If your suggestion was applied only to loans formally declared in Default then I'd have few concerns; personally I wouldn't consider buying a loan that was in Default, even if I acquired the right to some potential additional post-Default interest (unless perhaps it was a very long-running Default that SS suddenly announced would benefit from full recovery!).

However the vast majority of SS loans that go beyond their original term are either repaid soon after or formally extended, without ever getting near to being Defaulted.

One of the things that the recent posts highlight more than anything is the need for savingstream to define exactly what is meant by default and when interest will start to be accrued rather than paid.

Given that the purpose of the new structure seems to be that lenders directly participate in payments made by borrowers and interest is paid in advance, then I propose that the end date of the loan is set to be the date up to which interest has been paid.  If further interest is paid towards the end of the term so that repayment may be deferred then the end date is automatically put back to the date to which the further interest has been paid.  If the borrower passes the end date without paying any further interest then the loan is automatically placed in default for the purposes of interest payment.

I recognise that this is not the same as legally notifying the borrower that they are in default and starting recovery procedures but at least it would be clearer to lenders what the interest position is.

At the moment there are several loans in negative territory where updates have indicated that further interest has been paid however the loan hasn't been extended. But without some digging around in emails (or on this forum) it is unclear what the position is.  Given the changes to T&Cs, all relevant information about each loan must be available in an easily accessible and clear manner on the website.

You could assume that, but I'm not convinced that's always the case.  If a borrower is in the process of selling or refinancing the property -- or even just trying to -- at the time the initial term expires then I'd expect SS would likely be willing to extend the term to allow that to happen even if the borrower doesn't pay the interest for the extension period in advance.  Not cooperating with the borrower in such a situation is likely to cause more problems for SS than it would solve.  Aside from potential problems with rules about treating customers fairly, experience from other platforms suggests that calling in the receivers is unlikely to produce a rapid resolution of the situation, so involving receivers is unlikely to happen until all efforts to bring about a consensual settlement have failed.

Under the old SS Ts&Cs, an extension under those circumstances would have had minimal effect on lenders -- interest would continue to be paid (out of Lendy's working capital), and any lender who wanted to exit generally had/has no problem selling their parts on the SM.  With the removal of Lendy's commitment to pay that interest, the impact on lenders is very different, and I'd expect SM buyers for those parts will become extremely hard to find.  I don't know if savingstream have thought through the implications of this and whether they're considering making any adjustments to their proposed practices in an effort to keep the SM operating smoothly -- having large chunks of loans for sale and few buyers does not send positive signals to lenders, whether existing or potential.