jlend
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Post by jlend on Nov 9, 2015 21:50:47 GMT
This is the RateSetter same thoughts. Whenever this split (between the Provision Fund and RMM Ltd) is discussed it's pointed out that really there is no difference. Without the Provision Fund there is no RateSetter, so it will always be the priority to try and ensure sufficiency through the cycle capital. Remember though, Capital at Risk. The Provision Fund is not a guarantee, it is an attempt to reduce risk that has to date been 100% successful for both capital and expected interest. Kevin. That's interesting - my thoughts in raising the query about trustees were quite different about thinking of the separation of the provision fund trust and RMM ltd. Without the provision fund trust there is no RMM Ltd, but the provision fund trust should be there to pick up where there is no RMM ltd if defaults turn out to be higher than expected and lenders stop lending any more money for example, although it is not a guarantee of capital or interest in this situation I agree with your comments on 2nd Nov that lender trustees could provide "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." I do think there is a conflict of interest if things get tough for RMM ltd in terms of the provision fund value at any time, e.g. difficult conversations around deficit calculations etc. I would find it difficult if I were Rhydian and Peter as the only trustees of the fund and also the CEO/CCO/Founders of RMM ltd. There are lots of examples in the recent history of financial services where independent oversight was lacking and a problem occurred. As I have said I am not questioning the integrity of anyone, but feel some independent oversight would be good for ratesetter in terms of marketing and for lenders. This could come from a few lenders or others. My initial thoughts were lenders as it would be minimum cost. The provision fund is already £16m+ and it is likely to get materially bigger once P2P ISAs are launched. Other P2P lenders also have provision funds of some sort, this potential challenge isn't limited to Ratesetter and I am not looking to single them out. I have written to the P2PFA to ask if they might consider it as a topic for discussion with their members who have some sort of provision fund and whether they think it would be useful to add something to their Transparency Standards (they issued new standards for their members on 21st Oct 2015) in the future.
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Liz
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Post by Liz on Nov 9, 2015 22:47:05 GMT
Not sure this would add very much. The overall size of the provision fund in relation to the size of the outstanding lending book would seem to be more useful. Spot on, the cover ratio is what should monitored not the total PF figure.
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Post by westonkevRS on Nov 10, 2015 6:34:40 GMT
jlend , I think your message sums it up perfectly. I'll certainly feedback this email just as it is, especially as I agree with the sentiment. Kevin.
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pip
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Post by pip on Nov 10, 2015 12:15:01 GMT
Not sure this would add very much. The overall size of the provision fund in relation to the size of the outstanding lending book would seem to be more useful. Spot on, the cover ratio is what should monitored not the total PF figure. Agreed. The two metrics to track are:
1) Cover ratio - The provision fund balance as a % of total outstanding debt 2) The bad debt as a % of repayments ratio.
Once number 2 passes 1 it means based on past trends the provision fund would not be able to meet future liabilities. Of course the future is as always unpredictable.
My one concern with the way that the provision fund operates is the decision to call a resolution event would seem to be one that ratesetter would want to leave as late as possible (to protect their business model and claim of nobody losing a penny of interest). This would be to the detriment of longer term borrowers who will have less money left in the provision fund to meet their claims. I think somebody independent to make sure a resolution event is called in the interest of all lenders, rather than ratesetters desire to promote their business model would be a good thing.
One more question, I noticed that on the provision fund page they said that ratesetter put more money into the provision fund in 2015. Why was it felt necessary to do this and will ratesetter do this in the future if the fund looks like it may need to have a resolution event. Obviously you are not going to provide a guarantee, but an indication would be nice.
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Investor
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Post by Investor on Nov 10, 2015 12:33:42 GMT
Agreed although there are other interesting metrics which you can make your own determinations on November 2014 November 2015 Average age of borrower 40 38 Average borrower income £33,850 £30,148 Homeowners? (Borrowers) 70% 56% % in bad debt 0.63% 0.81%
Using a simple linear trend, in 10 years time the average borrower will be an 18 year old, who has been homeless for 6 years, paying an employer £6,872 for the right to work for them. 'But you try to tell the young people of today that, and they won't believe ya'
p.s and the first resolution event will be October 2020
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Post by westonkevRS on Nov 10, 2015 21:14:14 GMT
One more question, I noticed that on the provision fund page they said that ratesetter put more money into the provision fund in 2015. Why was it felt necessary to do this and will ratesetter do this in the future if the fund looks like it may need to have a resolution event. Obviously you are not going to provide a guarantee, but an indication would be nice.
RateSetter put more in, in 2015 for a number of reasons. Certain segments wee not priced accordingly and prices increased and decreased based on my segmentation. Remember we are growing daily and new data and loans provides additional insight constantly. RateSetter also slightly increased it's qualifying borrower segment, segments that were higher risk and therefore required higher payments. Please don't ask specifics, I won't provide detail here, but this was only marginal. We are always challenging the Provision Fund contributions every day of our working lives, it's a lever we constantly change to try and maintain our 100% performance. But the primary reason is simply absolute volumes of loans increased, this led to higher absolute contributions. Same risk loans have broadly always paid in the same percentage, it just depends on what segments I quantify as x risk. Kevin.
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jlend
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Post by jlend on Nov 11, 2015 9:10:11 GMT
jlend , I think your message sums it up perfectly. I'll certainly feedback this email just as it is, especially as I agree with the sentiment. Kevin. Sam at the P2PFA has put the topic on the agenda for the next board meeting on 12th November.
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Post by westonkevRS on Nov 14, 2015 8:42:11 GMT
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pip
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Post by pip on Nov 14, 2015 8:50:58 GMT
Agree with that Kev, you are definitely right that's it always better to know the score than to guess it and get it wrong.
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agent69
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Post by agent69 on Nov 14, 2015 13:20:29 GMT
Knowing what's in the fund is good. Some boxes alongside saying what was coming out (last week / month / year) would be better.
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jlend
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Post by jlend on Nov 14, 2015 16:49:49 GMT
Publishing a few words at the end of every month on how the provision fund is doing would be nice. A link could be included in the monthly interest email sent to lenders. I would find this re assuring to go with the figures that are available and updated every day.
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Post by settersam on Nov 17, 2015 13:45:34 GMT
Coverage ratio has fallen from 1.6 to 1.5 since I last checked - for how long was it 1.6? (hopefully it isn't falling every month!)
I'm relatively new to this platform - should I be concerned?
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Post by westonkevRS on Nov 17, 2015 19:04:39 GMT
I'm relatively new to this platform - should I be concerned? As an employee and RateSetter lender I'm certain to say no, you shouldn't be worried. But I'm bound to say that, and if you work through the threads you'll see many arguments for and against. Not least the historic 100% record over 5 years and the industries largest Provision Fund of over £16m. We've been rated the safest platform by several external reviewers including 4th way and Which! The government through the BBB continues to lend with us. But low risk is not no risk. Platform failure and defaults over-hauling the fund is a risk for every lender. If you are concerned at all perhaps you've miss-judged your own risk appetite. An anonymous Internet forum is not a good place to get reassurance. I'd rather anyone that was overly stressed didn't lend with RateSetter. P2P should be considered one asset part of a diversified portfolio. Kevin.
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Post by settersam on Nov 17, 2015 20:39:36 GMT
Kevin, thanks for your considered response. I realise that all investments carry a degree of risk and although being somewhat risk averse still feel that ratesetter is the appropriate home for some of my savings.
Since opening my account I have veered towards the 3 year market and have an average rate of 5.7%. Even if the default rate was three (or possibly 4) times the maximum anticipated by ratesetter (i.e. 3*2.2 or 6.6 %) my capital should still be secure (when the provision fund is added in) so I'm happy with that.
I will keep adding to my position but will definitely keep my eye on things!
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Post by westonkevRS on Nov 17, 2015 21:52:33 GMT
Since opening my account I have veered towards the 3 year market and have an average rate of 5.7%. Even if the default rate was three (or possibly 4) times the maximum anticipated by ratesetter (i.e. 3*2.2 or 6.6 %) my capital should still be secure (when the provision fund is added in) so I'm happy with that. This is something overlooked by many lenders. Although RateSetter is very proud of it's record of delivering 100% capital and interest, we monthly run " scenarios" looking at doomsday outcomes and the impact on lender capital and returns. For example, a lender in the 5 year market earning 6%, would have to suffer 6% annual defaults before they started to lose capital after foregone interest - I know this is obvious but an oft overlooked fact. This level of default is far higher than that attained to date (in relatively benign conditions, admittedly). Although in truth, if defaults did ever get this high and the Provision Fund was depleted to the level that trustees were concerned about it's viability, a "resolution event" would be called to manage collectively all the loans. But the theory above still rings true. Kevin.
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