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Post by marek63 on Oct 4, 2015 16:38:07 GMT
Having chatted to a couple of borrowers at conferences I was struck by the difference in the approach to borrowers between AC, TC and FK amongst other platforms. As I understand it from anecdotal views:
AC - make the borrower jump through legal hoops with external lawyers (at borrowers costs). Then jump through all the same hoops again with their in-house lawyers trying to understand and verify points agreed with external lawyers. This makes an AZ loan a somewhat painful process as the in-house legal team has to review everything after external review and becomes overloaded. Since AC cannot release loans without in-house legal approval that becomes the bottleneck in their process. A couple of borrowers highlighted this issue.
FK - won't list a loan until it is ready to drawdown and all legals are ready to sign, but only use one set of external legal review and use their in-house underwriting (GLI?) to ensure that they can take this faster approach
TC - use external legals and sponsor review of legals. No in house review but serious crowd diligence. Great for borrower, as long as there is appetite for the loan, or they can find external underwriting.
From a lender point of view, I love the double checked legals; but the problem is that the deal flow is blocked compared with the competition and the theoretical improvement (fewer defaults/losses from better legal review) does not seem to be there in practice. My suspicion is that it is rarely the legal documents that are the issue in P2P defaults. So far in two years investing, it is all about the business model and very little to do with legals. If the money has gone it has gone. There is always the odd bad egg, but that can happen with or without double legal review.
Fascinated if anyone else has input on these issues??
Edit: And of course will AC get a better recovery on defaults??
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kermie
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Post by kermie on Oct 4, 2015 17:06:40 GMT
What leads you to think AC have two sets of lawyers working for them?
I'd always assumed (or got the impression) that it was fairly standard: (i) borrower has solicitor, and (ii) AC has a solicitor, possibly in-house.
In Edit: ah - you're saying AC insist on the borrower having their own solicitors. Well, TBH, that is probably good practice - there's no potential conflict of interest in that case. I guess it could be cut out (I don't need my own solicitors when I take out a loan from my bank, say). Perhaps AC insist on it as a defensive position - later on they cannot be accused of taking advantage of the borrower?
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Post by andrewholgate on Oct 4, 2015 18:31:20 GMT
Back in the mists of time....
" No Mr Judge, I was never told to take independent legal advice. I was told it was just a formality and I never knew I could lose my house. My wife never consented to that charge. The nasty lender wants to take my house and I'll be homeless"
"lender can you prove you said he should take independent advice?"
Guess which way the case goes?
I've seen it all in lending. The borrower is signing documents that can have serious implications in the future. They should take independent advice. We will never enter a loan without the borrower being represented by their own solicitor. Not if you want your money back anyway.
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Post by marek63 on Oct 4, 2015 19:34:28 GMT
As a lender I like legal certainty. But I'd also like AC to move faster and get us more deals and wondered if this anecdote was part of the issue. Just a thought based on some conversations to provide some feedback. Nothing more. Borrowers do need independent advice; but is there a fixable bottleneck in the legal/drawdown process was the thought.
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Post by jevans4949 on Oct 4, 2015 20:18:22 GMT
marek63: The USP of Assetz is that loans are backed with solid security, as far as it's possible to tell. We've had a few where the security proved to be not what it was cracked up to be, and Assetz's due diligence has identified a few cans of worms over time as well. Yes, we would all like a bigger flow of deals, but we want them all to be properly secured.
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Post by andrewholgate on Oct 5, 2015 8:03:57 GMT
As a lender I like legal certainty. But I'd also like AC to move faster and get us more deals and wondered if this anecdote was part of the issue. Just a thought based on some conversations to provide some feedback. Nothing more. Borrowers do need independent advice; but is there a fixable bottleneck in the legal/drawdown process was the thought. I'm in the middle of a restructure as to how we do the loans. The QAA changes a lot for us and means we can progress legals much sooner.
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bigfoot12
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Post by bigfoot12 on Oct 5, 2015 8:34:59 GMT
AC - make the borrower jump through legal hoops with external lawyers (at borrowers costs). Then jump through all the same hoops again with their in-house lawyers trying to understand and verify points agreed with external lawyers. This makes an AZ loan a somewhat painful process as the in-house legal team has to review everything after external review and becomes overloaded. Since AC cannot release loans without in-house legal approval that becomes the bottleneck in their process. A couple of borrowers highlighted this issue. AC has been my favourite P2P platform for a while and has my largest investment. I think that in the past they have made mistakes, but I think that they are learning from them. However the lack of new loans over the last six months means that I have reduced my investment, and it is likely to fall further, which is boring because I still like AC. TC - use external legals and sponsor review of legals. No in house review but serious crowd diligence. Great for borrower, as long as there is appetite for the loan, or they can find external underwriting. I started out liking TC, but I have lost faith with their sponsor led model. Most of the loan documentation is handled by the sponsor, who is the borrowers agent, chosen and paid for by the borrower. In at least one loan, some of the conditions in the loan documentation were changed to be made more convenient to the borrower without any challenge. I really like some of the sponsors and trust them, others I would always avoid, but that leaves some I just don't know. There is only one sponsor with enough deals to form a statistically significant opinion. Yes there are some very knowledgeable lenders who put a great deal of effort into the loans, but there aren't that many. If a couple were on holiday and another two didn't invest in a few loans because they didn't have any spare money to invest I would feel very exposed on TC. I have exited nearly all my loans on TC, and have no further plans to lend on a new loan. Edit: And of course will AC get a better recovery on defaults?? The TC recovery process is also handled by the borrowers agent to a greater extent than it seems to be done on AC. And as with everything some of agents have done a fantastic job, for example, stepping in early to stop a failing business before everything is lost. On TC there is often talk that borrower might have to fund the recovery process, although I don't think that this has happened yet. How the different agents handle the recovery process is one of my concerns. I don't that that they are learning the lessons of other failed loans. Recently TC have started taking more control of the default process and now have an IP in house. But TC is going through big changes it will be interesting to see what emerges.
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pikestaff
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Post by pikestaff on Oct 5, 2015 8:56:17 GMT
I started out liking TC, but I have lost faith with their sponsor led model. Most of the loan documentation is handled by the sponsor, who is the borrowers agent, chosen and paid for by the borrower. In at least one loan, some of the conditions in the loan documentation were changed to be made more convenient to the borrower without any challenge.... My understanding is that the final loan documentation is handled by TC, and the specific change complained of was agreed by TC. Lessons have been learned since then and I don't think it would happen again. I'm still lending on TC and have over 3x as much on TC as on AC, with superior performance to date. I'd have a better balance if only AC had more deal flow. I don't rule out any of the sponsors but I do now rule out business turnaround situations which historically were a large part of Ludgate's deal flow.
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Post by chris on Oct 5, 2015 9:05:21 GMT
The TC recovery process is also handled by the borrowers agent to a greater extent than it seems to be done on AC. With AC the recovery process is handled by AC with our in house specialists. As I understand it where an agent is involved it would be limited to being the conduit of communication between AC's recovery team and the borrower.
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Post by marek63 on Oct 5, 2015 9:14:00 GMT
I am heavily invested in TC,AC and SS so I am very interested in this discussion. I would love to invest more in AC if deal flow permitted. Many thanks to andrewholgate and chris for the active participation and positive response. Keep looking after my cash guys! As pikestaff said, the TC model is almost totally sponsor dependent so pick sponsors and offers carefully. I would love AC to give more pre-deal documentation perhaps closer to the packs on TC - but the followup on AC has improved massively recently, probably the best of any platform so well done to them. I would really love SS to give any kind of business plan or cashflow at all  |
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mikes1531
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Post by mikes1531 on Oct 5, 2015 21:52:56 GMT
The QAA changes a lot for us and means we can progress legals much sooner. This would make the QAA even more valuable to AC. andrewholgate: Perhaps I'm just thick, but it isn't the least bit clear to me how the existence of the QAA can help legals progess sooner. Can you please explain?
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Post by andrewholgate on Oct 7, 2015 9:56:35 GMT
I'd rather not due to competitive advantage. Sorry.
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sl75
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Post by sl75 on Oct 7, 2015 13:33:07 GMT
The QAA changes a lot for us and means we can progress legals much sooner. This would make the QAA even more valuable to AC. andrewholgate: Perhaps I'm just thick, but it isn't the least bit clear to me how the existence of the QAA can help legals progess sooner. Can you please explain? My best guess: the QAA can act as an underwriter (using its uninvested cash), so that they don't need to wait for REAL underwriters before progressing legals to the stage where actual funds on deposit are required (as the QAA already has such funds). They'll then hope that real underwriters will displace the QAA and allow it to use its funds to underwrite the next loan, but if not, the QAA will have to offload any excess holdings in the market just like the real underwriters. In effect, it would make the QAA an "underwriter of last resort". If that is the case though, it's unclear how the same funds can be simultaneously ring-fenced to underwrite a particular loan and also ring-fenced to allow instant withdrawals from the QAA.
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SteveT
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Post by SteveT on Oct 7, 2015 13:38:31 GMT
Not a problem if there's a decent length queue to get into the QAA
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niceguy37
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Post by niceguy37 on Oct 7, 2015 13:44:18 GMT
This would make the QAA even more valuable to AC. andrewholgate: Perhaps I'm just thick, but it isn't the least bit clear to me how the existence of the QAA can help legals progess sooner. Can you please explain? My best guess: the QAA can act as an underwriter (using its uninvested cash), so that they don't need to wait for REAL underwriters before progressing legals to the stage where actual funds on deposit are required (as the QAA already has such funds). They'll then hope that real underwriters will displace the QAA and allow it to use its funds to underwrite the next loan, but if not, the QAA will have to offload any excess holdings in the market just like the real underwriters. In effect, it would make the QAA an "underwriter of last resort". If that is the case though, it's unclear how the same funds can be simultaneously ring-fenced to underwrite a particular loan and also ring-fenced to allow instant withdrawals from the QAA. My concern over the QAA being an underwriter is that, at present, all loans are vetted by the underwriters. As underwriters have lots of money I expect that most of them are good at evaluating loans before committing their cash, so this is an extra comfort to me in ensuring loan and security quality.
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