Funding Circle change lending model

I don't know why January 2014 has been used as a yardstick for how little it will affect people. Maybe people that crunch numbers harder than me will spot why that month is good to use when making that comparison?

From my point of view, I'm looking at the actual rates I'm matching in loans for the 6 months from March to August 2015. Conclusion ...

The new rate bands are partly below the rates at which I would bother bidding AT ALL.

The rest are at the bottom end of the range I would actually achieve.

So my reaction is -- worse (A+/A), mostly worse  (A/B/C/C-), and no change (rarely see short C-/D loans, and never see E loans anyway).

This is before we count extra £££ made from flipping loan parts down to churn the loan book. Two positive effects: Reducing risk by not holding, and making a small markup on each loan. This helps offset/reduce the bad debt.

That will now stop. All I see is returns falling -- so now FC offer a worse prospect (i.e. lower rates) for unsecured loans, compared to other sites.

It must make sense to FC, but makes little to me. Rather extreme way of sorting out their neverending IT issues, I suppose.

Yes its going to be very interesting.  There is zero incentive for people to bid early in a 7 day auction tying up funds unless the loan is close to filling.  The first couple of weeks will probably be okay given the market has been starved of supply recently, but when things normalise there are likely to an lot of failed auctions unless they throttle back supply, increase rates or add cash back.  The problem is that these are all pretty blunt tools versus letting an auction balancing supply and demand on each individual loan which will be influenced by absolute loan size (which apparently doesn't affect the credit assessment and thus price on the supply side, but has a large impact on the demand side).  Some of these issues are evident in the property loans and even these do not have set interest rates across the credit bands.

I'm sure them have though this through and modelled likely outcomes, I just wonder their assumptions regarding the elasticity of demand from non-active and active investors are realistic.  In any event it will be fun to see it all pans out despite the massive adverse impact on my own returns!

Hopefully, for everyone's sake, the auctions that fill will draw down quickly, much as the property loans do currently.

My concern too is that there will be virtually no incentive for borrowers to answer lenders' questions now.  Previously, FC has claimed that they did indeed try to encourage borrowers to engage with lenders as it improved their eventual rate.  Now, it'll be far more binary - whether or not the loan fills at all.  However, for smaller loans, and probably for all A+ and A rated loans, there is likely to be enough Autobid money to fill every loan.  This means that those of us who want to do proper due diligence before investing will only have the paltry information FC chooses to share to go on.

Maybe the only option will be Autobid and trust FC not to cock up the rate bands.  Don't fancy that much.

I can't see £250k A+ loans filling quickly at 8% / 8.3% !! Look at how slowly some of the summer auctions filled when Baz and co were playing elsewhere for a while.

But unless Fiddling Caesars tweak the autobodge rules again, that is (currently) only allowed to eat 65% of any auction .. so where are the other 35% of actively stupid investors going to come from??

Letting autobid have first dibs, before the loan is listed (as has been suggested before), would go a fair way to solving the flipper problem.