teddy
Posts: 214
Likes: 90
|
Post by teddy on Oct 29, 2015 17:39:45 GMT
Yes, the provision fund acquires the impaired loan. The reported Provision Fund is depleted 100% by the balance, and any recoveries are 100% bonus (almost like a new loan contribution). These assets of impaired loans is obviously growing with the defaults of recent years, and the income from the debt management plans and other recoveries will be considerable. All recoveries goes to the Provision Fund. So what does a lender see? An "early repayment"? I've had a noticeable increase in these in the last few weeks, and most of them for small amounts. .nothing much over £1k, which makes me think it's small time borrowers hitting the wall. I'm not at all surprised that defaults have risen. The economy seems to be slowing across the board. It's not in anything like the shape that Osborne would like us to think. Purely based on observation, there seems to have been a drop off in borrowing. My small daily orders around 6.1%/6.2% in the 5 year are taking for ever to match.
|
|
|
Post by westonkevRS on Oct 29, 2015 18:07:42 GMT
What makes RS decide a loan has to go to the provision fund? Is this done automatically on the fly or is there a sort of Friday Review meeting kinda thing? No we don't have a "Friday Review" type of meeting. Defaults are performed by the Head of Collections or a Senior Collector. Although I'm not going to go into detail - they happen early - nearly always within 60 days of the first missed direct debit.
|
|
agent69
Member of DD Central
Posts: 5,644
Likes: 4,214
|
Post by agent69 on Oct 29, 2015 19:54:52 GMT
So what does a lender see? An "early repayment"? My small daily orders around 6.1%/6.2% in the 5 year are taking for ever to match. Can't understand why. I managed 2 matches at 6.5% yesterday. Just need to be prepared to wait for a day or two
|
|
teddy
Posts: 214
Likes: 90
|
Post by teddy on Oct 30, 2015 12:10:59 GMT
Had yet another "early repayment" this morning. I'm starting to get itchy feet TBH. As long as the PF can cope, I don't have much of a problem, but the increasing regularity of defaults is starting to concern me.
|
|
bigfoot12
Member of DD Central
Posts: 1,817
Likes: 816
|
Post by bigfoot12 on Oct 30, 2015 16:05:12 GMT
Had yet another "early repayment" this morning. I'm starting to get itchy feet TBH. As long as the PF can cope, I don't have much of a problem, but the increasing regularity of defaults is starting to concern me. Are you sure that it isn't an early repayment. On Zopa it is (or at least used to be) easy to spot the difference between early repayments and defaults. A high proportion of loans made some sort of early repayment. And as an aside - if you get itchy feet when you get your money back you really are in the wrong game.
|
|
|
Post by Deleted on Oct 30, 2015 19:04:19 GMT
Had yet another "early repayment" this morning. I'm starting to get itchy feet TBH. As long as the PF can cope, I don't have much of a problem, but the increasing regularity of defaults is starting to concern me. I think you can see the bad debt as a % of paid back in the loan books?
|
|
|
Post by Deleted on Oct 30, 2015 19:18:55 GMT
Had yet another "early repayment" this morning. I'm starting to get itchy feet TBH. As long as the PF can cope, I don't have much of a problem, but the increasing regularity of defaults is starting to concern me. I think you can see the bad debt as a % of paid back in the loan books? Hmmm, don't think that column means what I thought it meant. I wonder if there a way to extract this info from the full loan book.
|
|
markr
Member of DD Central
Posts: 766
Likes: 426
|
Post by markr on Oct 30, 2015 22:19:12 GMT
I had 4 "early payments" today, although at least 2 of them are likely to be chunks from the same loan. For me, this is a good thing; if they were defaults, the provision fund worked exactly as designed, and a chunk of funds that were languishing at 5.1-5.2% are now ready to go at 6.3%
|
|
|
Post by westonkevRS on Oct 31, 2015 8:01:31 GMT
I think you can see the bad debt as a % of paid back in the loan books? I wonder if there a way to extract this info from the full loan book. The downloadable account-by-account loan book includes bad debt data. So you can work it our for the portfolio, if not for your own loan book.... ....Although you could compare loan size, date and current balance.... Kevin.
|
|
pip
Posts: 542
Likes: 725
|
Post by pip on Oct 31, 2015 11:50:26 GMT
I can't really see why any of this is a surprise. The default as a % rate has risen dramatically over the past 1.5 years from around 1% to over 2.3%. For loans in the past year this rises pretty consistently to over 3%, although I note that defaults are higher at the start of a loan than the end.
The provision fund has risen in real terms however not as a % of loan amount.
Should people be concerned, well I would say an investor should ALWAYS be concerned about the risk of their investments and should keep on top of it to decide if the risk reward ratio is a) within their appetite or b) a competitive proposition.
The ratesetter model to me is a pretty simple model, it lends money, puts a cut into a provision fund which covers any defaults.
The question I have is what % of defaults as a % of repayments would make the fund go from growing to declining. This of course depends on the cut taken from borrowers which I understand changes with the risk.
Now I have always thought that the % for the provision fund to decline is about 3%. In that case if the bad rate continues to climb beyond that then eventually there will be some haircuts to lenders return as the provision fund would need to be managed.
My next question though is has the risk profile of borrowers increased in the last year and a half to explain the rise in default. If so this is fine as the amount going in the provision fund should rise to counter the rise in defaults. Or has the quality of borrowers remained the same but the defaults risen?
So my next question to westonkev that I don't expect to be answered is what is the current % of defaults as a % of repayments that would mean the provision fund stays static (I.e. The defaults and payments in balance).
|
|
jlend
Member of DD Central
Posts: 1,817
Likes: 1,444
|
Post by jlend on Nov 1, 2015 18:58:02 GMT
It would be good if there were a couple of lenders as trustees of the provision fund, to join the existing provision fund trustees.
A bit like company pension funds have employee trustees.
It should be possible to setup a NDA (non disclosure agreement) if ratesetter are concerned about giving about giving away secrets. These sort of agreements are common in the business world and i have signed many of them over the years.
Having some lenders as trustees seems logical given the provision fund has been setup for the benefit of lenders.
I dont know if any of the trustees are independent of ratesetter at the moment? Perhaps some of them already are?
|
|
|
Post by westonkevRS on Nov 1, 2015 20:31:40 GMT
It would be good if there were a couple of lenders as trustees of the provision fund, to join the existing provision fund trustees It sounds good in theory. But in truth the trustees don't really do anything. They decide annually if the fund is in surplus (all lenders get an email annually) and will be active should the apocalyptic resolution event be required. There is no meeting of trustees on a regular basis to determine fund contributions, that's my job! Besides, I suspect it would be more trouble that it's worth - how to decide which lenders? A forum vote? @ westonkevRS
|
|
jlend
Member of DD Central
Posts: 1,817
Likes: 1,444
|
Post by jlend on Nov 1, 2015 21:31:05 GMT
The role of lenders trustees would need more discussions with ratesetter and the current trustees.
As you say i wouldn't expect them to replace you or take away your role in any way.
Pension trustees also dont meet very often in my experience. There are also many companies with larger numbers of pension members than ratsetter lenders currently. A simple ballot is used to elect members. Ratesetter could do something similar.
A level of lender oversight of the provision fund might be a great differentiator and marketing tool for ratesetter. I dont think ratsetter or you would have anything to fear. Quite the opposite.
|
|
|
Post by westonkevRS on Nov 2, 2015 10:43:40 GMT
Thinking about this more and speaking with other large lenders (that have actually joined RateSetter), perhaps it isn't such a bad idea. Personally I prefer to increase the Provision Fund rather than the RMM ltd bank balance, as my reputation rests with the credit and fraud risk of our retail lending (not commercial or real estate, these aren't my areas of expertise). But this will always be a balancing act. Ultimately some independent members could provide some additional challenge, not just in terms of deciding resolution events but also aspects such as the validity of claims on the fund (i.e. some collections related expenses are claimed) but also the calculation of surplus/deficit methodologies. Let's see. @ westonkevRSP.S. edited with reference to "expenses", as the PF isn't used for generic "expenses". There are some related costs that are charged, e.g. court costs.
|
|
registerme
Member of DD Central
Posts: 6,234
Likes: 6,038
|
Post by registerme on Nov 2, 2015 11:08:02 GMT
I think it's a good idea if only because it would give lenders more confidence that their interests were represented. Even if in reality trustees rarely have to do very much. I agree with jlend that it could also be a good marketing tool.
|
|