nsinvestor
Member of DD Central
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Post by nsinvestor on Oct 20, 2015 17:02:43 GMT
It appears that a lot of investors sell older loan parts in the secondary market in order to reinvest in new loans going live.
What is the rationale for this?
The loan rate remains at 12% and there is no information to suggest the default risk of the new loans is lower than the old.
Is this simply a case of investors not being able to diversify as much as they wanted initially due to a limited supply of funding opportunities.
Thanks.
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ramblin rose
Member of DD Central
“Some people grumble that roses have thorns; I am grateful that thorns have roses.” — Alphonse Karr
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Post by ramblin rose on Oct 20, 2015 17:17:25 GMT
It appears that a lot of investors sell older loan parts in the secondary market in order to reinvest in new loans going live. What is the rationale for this? The loan rate remains at 12% and there is no information to suggest the default risk of the new loans is lower than the old. Is this simply a case of investors not being able to diversify as much as they wanted initially due to a limited supply of funding opportunities. Thanks. Hi nsinvestor and welcome to the fray. It is a combination of many things. 1) Some of it is, as you suggest, investors diversifying over time. 2) I don't know what your p2p experience is, but mine tells me that loans will not tend to get into difficulties near the start of the loan term, but more typically towards the end when the need to pay it back looms closer. Ammortising loans will have less of a problem in this regard, but bridging loans (which is what we are dealing with here) do not ammortise. So, whether rightly or wrongly, lenders tend to assume that older loans are more likely to default, so they sell them before the end of the term. If the security is good and the LTV low enough then the provision fund will likely make good any problems with smaller loans, so they aren't so much of a worry. 3) Lenders who aren't in need of their money back won't necessarily want to hold a loan until it pays back because it might pay back when they have nowhere else to put it, so they'll recycle at some suitable time when it is under their control. HTH
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Post by pepperpot on Oct 20, 2015 17:28:34 GMT
It appears that a lot of investors sell older loan parts in the secondary market in order to reinvest in new loans going live. What is the rationale for this? The loan rate remains at 12% and there is no information to suggest the default risk of the new loans is lower than the old. Is this simply a case of investors not being able to diversify as much as they wanted initially due to a limited supply of funding opportunities. Thanks. Hi nsinvestor and welcome to the fray. It is a combination of many things. 1) Some of it is, as you suggest, investors diversifying over time. 2) I don't know what your p2p experience is, but mine tells me that loans will not tend to get into difficulties near the start of the loan term, but more typically towards the end when the need to pay it back looms closer. Ammortising loans will have less of a problem in this regard, but bridging loans (which is what we are dealing with here) do not ammortise. So, whether rightly or wrongly, lenders tend to assume that older loans are more likely to default, so they sell them before the end of the term. If the security is good and the LTV low enough then the provision fund will likely make good any problems with smaller loans, so they aren't so much of a worry. 3) Lenders who aren't in need of their money back won't necessarily want to hold a loan until it pays back because it might pay back when they have nowhere else to put it, so they'll recycle at some suitable time when it is under their control. HTH Not only the first and second, but all three rules of fight club. Shame on you. Hopefully there's enough of the 5000 lenders not lurking around here that are still willing to buy my pre-loved parts...
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ramblin rose
Member of DD Central
“Some people grumble that roses have thorns; I am grateful that thorns have roses.” — Alphonse Karr
Posts: 1,370
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Post by ramblin rose on Oct 20, 2015 17:43:07 GMT
Not only the first and second, but all three rules of fight club. Shame on you. Hopefully there's enough of the 5000 lenders not lurking around here that are still willing to buy my pre-loved parts...  Lucky for me there isn't a 'Dislike Intensely' button available. Don't worry - I think there'll still be a ready market for your pre-loveds - I don't have THAT much effect on the world  It's just one of the reasons I battled in vain (and alone at the time I might add, even though a few dissenters are crawling out of the woodwork after the event) against the new structure - it was obvious that it was going to make more recycling work, which I could have well done without, and that the SM would be likely to start getting 'sticky' in parts. If the pre-funding system hadn't come in to make the recycling easier to manage I'd be on my way out already.
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gc
Member of DD Central
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Post by gc on Oct 20, 2015 18:09:11 GMT
It appears that a lot of investors sell older loan parts in the secondary market in order to reinvest in new loans going live. What is the rationale for this? The loan rate remains at 12% and there is no information to suggest the default risk of the new loans is lower than the old. Is this simply a case of investors not being able to diversify as much as they wanted initially due to a limited supply of funding opportunities. Thanks. Depending on an individuals situation (or personal strategy investing method), but yes, you have covered some reasons. I dare not go into any more information as judging by previous comments, I doubt I will make it out of here in one piece ;-)
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star dust
Member of DD Central
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Post by star dust on Oct 20, 2015 18:40:44 GMT
Hopefully there's enough of the 5000 lenders not lurking around here that are still willing to buy my pre-loved parts... I've actually completely re-purchased some of my pre-loved's on announcement of loan extensions. I must be on my third or fourth iteration of the Super Yacht. .
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mack
Posts: 85
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Post by mack on Oct 20, 2015 19:06:27 GMT
It appears that a lot of investors sell older loan parts in the secondary market in order to reinvest in new loans going live. What is the rationale for this? The loan rate remains at 12% and there is no information to suggest the default risk of the new loans is lower than the old. Is this simply a case of investors not being able to diversify as much as they wanted initially due to a limited supply of funding opportunities. Thanks. Depending on an individuals situation (or personal strategy investing method), but yes, you have covered some reasons. I dare not go into any more information as judging by previous comments, I doubt I will make it out of here in one piece ;-) Even though there is always risk SS has the provision fund in its favour. The assets would have to sell for lower than 70% for it to kick in so chances of a large loss are in relative terms reasonably low. Market collapse or poor underwriting are the main risks. I don't mind picking up any loan part so long as I am not too heavily weighted.
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Post by pepperpot on Oct 20, 2015 22:25:54 GMT
Not only the first and second, but all three rules of fight club. Shame on you. Hopefully there's enough of the 5000 lenders not lurking around here that are still willing to buy my pre-loved parts... Lucky for me there isn't a 'Dislike Intensely' button available. Don't worry - I think there'll still be a ready market for your pre-loveds - I don't have THAT much effect on the world It's just one of the reasons I battled in vain (and alone at the time I might add, even though a few dissenters are crawling out of the woodwork after the event) against the new structure - it was obvious that it was going to make more recycling work, which I could have well done without, and that the SM would be likely to start getting 'sticky' in parts. If the pre-funding system hadn't come in to make the recycling easier to manage I'd be on my way out already. I can see both sides of the argument and it was definitely a consideration when deciding which side of the fence to fall on. But on balance I thought that in the (heaven forbid) scenario of SS winding up (or being wound up) their pledges and even the provision fund might not be worth jack, but a separate company holding all the titles just might. So I wanted my comfort blanket, the one with teddy bears sewn on, who would do their utmost to frighten all the bad things away! The amount of 'green' on the SM, going off the last few weeks, has more to do with over supply and if SS keep the balance just right we won't get to the dreaded situation of listing parts that never sell then getting irate, impatient and demanding that we want our parts de-listed so they can at least start accruing again. If it ever looks like being a problem to sell loan parts, then I think there will also be a problem filling loans initially because the 'churn money' won't be available with only buy-to-hold amounts being pledged. Smaller loans shouldn't be affected, but anything over the (very) rough average pf level of £1.5-2m might start to look quite large. ...'Dislike Intensely' ?? Sorry, not possible.  (oops, I let a wink slip out) Ahem, there's something in my eye, honest there is.
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Post by lb on Oct 21, 2015 10:26:40 GMT
It appears that a lot of investors sell older loan parts in the secondary market in order to reinvest in new loans going live. What is the rationale for this? The loan rate remains at 12% and there is no information to suggest the default risk of the new loans is lower than the old. Is this simply a case of investors not being able to diversify as much as they wanted initially due to a limited supply of funding opportunities. Thanks. the main rationale is that bridging loans cannot default during the term of the loan as all interest is deducted from the loan advance. therefore a 12 month bridging loan cannot default or get into arrears of interest in the initial 12 months.
therefore for 12 months you are guaranteed interest as it is held in reserve. After 12 months you are not guaranteed interest or capital. so why would anyone not want to sell it on before expiry of the term and pass all the risk on is beyond me. if the loan goes bad at 13 months there is no claw back of interest from the investors that received it
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webwiz
Posts: 1,133
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Post by webwiz on Oct 21, 2015 10:55:02 GMT
It appears that a lot of investors sell older loan parts in the secondary market in order to reinvest in new loans going live. What is the rationale for this? The loan rate remains at 12% and there is no information to suggest the default risk of the new loans is lower than the old. Is this simply a case of investors not being able to diversify as much as they wanted initially due to a limited supply of funding opportunities. Thanks. the main rationale is that bridging loans cannot default during the term of the loan as all interest is deducted from the loan advance. therefore a 12 month bridging loan cannot default or get into arrears of interest in the initial 12 months.
therefore for 12 months you are guaranteed interest as it is held in reserve. After 12 months you are not guaranteed interest or capital. so why would anyone not want to sell it on before expiry of the term and pass all the risk on is beyond me. if the loan goes bad at 13 months there is no claw back of interest from the investors that received it
That logic does not apply to any of the existing loans, although it may apply in the future, so cannot be an explanation of the current SM. The answer is simply that investors want maximum diversification but also want to be fully invested ASAP so they invest up to their limit in a few loans and then diversify as opportunities arise.
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Post by lb on Oct 21, 2015 10:57:34 GMT
the main rationale is that bridging loans cannot default during the term of the loan as all interest is deducted from the loan advance. therefore a 12 month bridging loan cannot default or get into arrears of interest in the initial 12 months.
therefore for 12 months you are guaranteed interest as it is held in reserve. After 12 months you are not guaranteed interest or capital. so why would anyone not want to sell it on before expiry of the term and pass all the risk on is beyond me. if the loan goes bad at 13 months there is no claw back of interest from the investors that received it
, although it may apply in the future, so cannot be an explanation of the current SM. The answer is simply that investors want maximum diversification but also want to be fully invested ASAP so they invest up to their limit in a few loans and then diversify as opportunities arise. why not?
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Post by reeknralf on Oct 21, 2015 11:28:56 GMT
1) Some of it is, as you suggest, investors diversifying over time. 2) I don't know what your p2p experience is, but mine tells me that loans will not tend to get into difficulties near the start of the loan term, but more typically towards the end when the need to pay it back looms closer. Ammortising loans will have less of a problem in this regard, but bridging loans (which is what we are dealing with here) do not ammortise. So, whether rightly or wrongly, lenders tend to assume that older loans are more likely to default, so they sell them before the end of the term. If the security is good and the LTV low enough then the provision fund will likely make good any problems with smaller loans, so they aren't so much of a worry. 3) Lenders who aren't in need of their money back won't necessarily want to hold a loan until it pays back because it might pay back when they have nowhere else to put it, so they'll recycle at some suitable time when it is under their control. I disagree with rule 2. Where interest is with held, for the first part of the loan we are in an information vacuum. We have no way of telling whether the loan is going well or not. The news, good or bad, we typically find out towards the end, so it is towards the end we are best positioned to differentiate good loans from bad. All else being equal, Loan A: 'planning granted, bank X offered to take us out' is preferable to loan B: 'we'll let you know in a few months'. Rules 1 and 3 can conflict with 2, but I've gobbled up lots of loans nearing expiry. Better still, they routinely get delayed, so you often get your 12% for 2 or 3 months rather than 2-3 weeks. I appreciate that one day I'll get caught by one where the news turns from good to bad, but I still maintain good news is better than no news.
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webwiz
Posts: 1,133
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Post by webwiz on Oct 21, 2015 12:09:16 GMT
That logic does not apply to any of the existing loans, although it may apply in the future, so cannot be an explanation of the current SM. The answer is simply that investors want maximum diversification but also want to be fully invested ASAP so they invest up to their limit in a few loans and then diversify as opportunities arise. why not? See the thread on new p2p structure.
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Post by lb on Oct 21, 2015 12:38:32 GMT
See the thread on new p2p structure. because its a loan to lendy so it doesn't matter? That is not correct.
It is a loan to Lendy Limited - but its a non-recourse loan secured against only that particular loan. I don't see anywhere that Lendy guarantees to make up any losses (other than PF)
If loan under previous structure takes a hit, it isn't Lendy that will take the loss but lenders
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Post by lb on Oct 21, 2015 12:47:29 GMT
Ok I am wrong on this.
Lendy do commit to all payments
sounds like a terrible business model - crikey!
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It's just one of the reasons I battled in vain (and alone at the time I might add, even though a few dissenters are crawling out of the woodwork after the event) against the new structure - it was obvious that it was going to make more recycling work, which I could have well done without, and that the SM would be likely to start getting 'sticky' in parts. If the pre-funding system hadn't come in to make the recycling easier to manage I'd be on my way out already.
(oops, I let a wink slip out) Ahem, there's something in my eye, honest there is.
