jlend
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Post by jlend on Nov 19, 2015 14:21:03 GMT
I'm not quite sure I understand. If they fund a 60 month loan from 1 month lenders, then they have to pay the full amount to the borrower on loan acceptance. That means in month 2, RS has to pay back the 1 month lenders. Before they do so, they will need to borrow the money themselves from another market (possibly 1 month again). Is this correct? If so, it seems like a dangerous game. What happens if they can't find the funds in month 2? That is correct. This is an extreme example as ratesetter point out in the blog. In the example the lender rate was clearly very low at the time on the monthly market and the actual apr paid by the borrower was much higher for the 60m loan. As westonkev has pointed out before there is a liquidity risk with ratesetter but it hasn't been a problem to date. The worst case is your money on the one month market could be locked in for more than one month as per the terms and conditions.
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jlend
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Post by jlend on Nov 19, 2015 14:31:16 GMT
I'm not quite sure I understand. If they fund a 60 month loan from 1 month lenders, then they have to pay the full amount to the borrower on loan acceptance. That means in month 2, RS has to pay back the 1 month lenders. Before they do so, they will need to borrow the money themselves from another market (possibly 1 month again). Is this correct? If so, it seems like a dangerous game. What happens if they can't find the funds in month 2? You highlight my problem with the RS 1 month market - the lender is accepting a lower rate (for higher liquidity), but isn't being guaranteed that liquidity. This is because the first lender in your example is only paid back if RS can find a lender for the second month. In normal markets not a problem, but I wouldn't have wanted to be stuck in that at 3.5% in 2007. I didn't get the impression that they were doing lots of 5 year funded out of 30 days. I thought that it was mainly 18 month loans funded for the first 12 months in the 1 year and then in the 1 month thereafter. They do mention in the blog entry that 5 year loans are at least sometimes funded from the monthly, 1 year, 3 year, 5 year markets in order to offer competitive rates to borrowers. They don't say how often this happens
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jlend
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Post by jlend on Nov 19, 2015 14:36:46 GMT
I'm not quite sure I understand. If they fund a 60 month loan from 1 month lenders, then they have to pay the full amount to the borrower on loan acceptance. That means in month 2, RS has to pay back the 1 month lenders. Before they do so, they will need to borrow the money themselves from another market (possibly 1 month again). Is this correct? If so, it seems like a dangerous game. What happens if they can't find the funds in month 2? You highlight my problem with the RS 1 month market - the lender is accepting a lower rate (for higher liquidity), but isn't being guaranteed that liquidity. This is because the first lender in your example is only paid back if RS can find a lender for the second month. In normal markets not a problem, but I wouldn't have wanted to be stuck in that at 3.5% in 2007. I didn't get the impression that they were doing lots of 5 year funded out of 30 days. I thought that it was mainly 18 month loans funded for the first 12 months in the 1 year and then in the 1 month thereafter. In the example the lender rate was 1.88% not even 3.5% As ratesetter say this was a very low rate even for the monthly market
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Post by p2plender on Nov 19, 2015 15:12:43 GMT
The monthly is hugely liquid and even more so the last month or two. Quite often there is close to 3 mill on both sides. I'm sure RS has no issues regarding rolling monthly loans over - if that is what they do as implied above. Personally I don't mind how RS funds the market so long as they can offer me rates well above what can be achieved from BS's. Of course this view would change if rates collapsed or the PF started depleting. Otherwise I'm quite happy.
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registerme
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Post by registerme on Nov 19, 2015 15:22:55 GMT
I'm not quite sure I understand. If they fund a 60 month loan from 1 month lenders, then they have to pay the full amount to the borrower on loan acceptance. That means in month 2, RS has to pay back the 1 month lenders. Before they do so, they will need to borrow the money themselves from another market (possibly 1 month again). Is this correct? If so, it seems like a dangerous game. What happens if they can't find the funds in month 2? That is correct. This is an extreme example as ratesetter point out in the blog. In the example the lender rate was clearly very low at the time on the monthly market and the actual apr paid by the borrower was much higher for the 60m loan. As westonkev has pointed out before there is a liquidity risk with ratesetter but it hasn't been a problem to date. The worst case is your money on the one month market could be locked in for more than one month as per the terms and conditions. So I went and had a look at those Ts+Cs (well, actually the FAQ) and here's what I found:- "If a situation occurred where there are insufficient funds on the market to finance existing loans, the Lender would be 'locked-in' to the contract until the Borrower had repaid their loan.
This situation has never occurred before, nor do we envisage it happening in the future, but we feel it is necessary to clarify the procedure should this scenario arise.
If your loan contract is locked in for a longer term, the entire contract rate would be at the rate of the original contract. So if you had a 1 month loan at 3.5% which was locked in for 12 months, the entire contract rate would remain at 3.5%".That bothers me. I'm going to mull it over for a bit to see how much.
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locutus
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Post by locutus on Nov 19, 2015 16:20:58 GMT
So I went and had a look at those Ts+Cs (well, actually the FAQ) and here's what I found:- "If a situation occurred where there are insufficient funds on the market to finance existing loans, the Lender would be 'locked-in' to the contract until the Borrower had repaid their loan.
This situation has never occurred before, nor do we envisage it happening in the future, but we feel it is necessary to clarify the procedure should this scenario arise.
If your loan contract is locked in for a longer term, the entire contract rate would be at the rate of the original contract. So if you had a 1 month loan at 3.5% which was locked in for 12 months, the entire contract rate would remain at 3.5%".That bothers me. I'm going to mull it over for a bit to see how much. I never realised this at all. Thanks for highlighting it. I bet this comes as a surprise to a lot of people so should really be more prominent on the website.
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Post by westonkevRS on Nov 19, 2015 17:01:20 GMT
From what I can see this is not a market but game played by RateSetter whose strategy is to reduce the lending rate and to train lenders to accept a lowers rate. I'm not going to disagree that if rates were lowers we would write more business which would make RateSetter more profitable as well as attract better quality customers and improve platform stability. However we don't play a game, and if we did we are particularly bad at it. The Market Rates (https://www.ratesetter.com/lend/statistics) have increased over the last 18 months, so whoever is responsible for gaming the rates lower should be sacked! But let's not let the statistical evidence get in the way of a good conspiracy story. kevin.
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Post by westonkevRS on Nov 19, 2015 17:11:58 GMT
The majority of monthly money is used for 12, 18 and 24 month money. There are some examples of the monthly money being used for longer dated loans, but this are only for specific channels and are a marginal element of our business (which I'm not going to go into detail). But the concept elaborated here is correct, lenders do face a liquidity risk. That said, over 5 years of trading RateSetter has never had to restrict lender access.. RateSetter has a number of levers to pull when liquidity could be an issue. These range from Marketing gimmicks, friendly big lenders, institutions, forward flow analysis of customer habits and RateSetter own liquid funds. Ultimately, the markets seem to work very well - when the rates risk our lovely lenders pile in. The markets do a very effective job. Therefore there any many things we can do, because quite clearly if we ever did have to pull down the gates this would severely impact lender trust. Hence we have a strong reputational risk to maintain liquidity. But again, like most things P2P, it is a risk and arguably an untested risk. Kevin.
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jlend
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Post by jlend on Nov 19, 2015 17:34:43 GMT
The monthly is hugely liquid and even more so the last month or two. Quite often there is close to 3 mill on both sides. I'm sure RS has no issues regarding rolling monthly loans over - if that is what they do as implied above. Personally I don't mind how RS funds the market so long as they can offer me rates well above what can be achieved from BS's. Of course this view would change if rates collapsed or the PF started depleting. Otherwise I'm quite happy. Just as importantly the monthly market has been quite a bit less liquid at times over the last 5 years and there hasn't been any problems when this has happened so far at least.
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jlend
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Post by jlend on Nov 19, 2015 18:26:15 GMT
The majority of monthly money is used for 12, 18 and 24 month money. There are some examples of the monthly money being used for longer dated loans, but this are only for specific channels and are a marginal element of our business (which I'm not going to go into detail). But the concept elaborated here is correct, lenders do face a liquidity risk. That said, over 5 years of trading RateSetter has never had to restrict lender access.. RateSetter has a number of levers to pull when liquidity could be an issue. These range from Marketing gimmicks, friendly big lenders, institutions, forward flow analysis of customer habits and RateSetter own liquid funds. Ultimately, the markets seem to work very well - when the rates risk our lovely lenders pile in. The markets do a very effective job. Therefore there any many things we can do, because quite clearly if we ever did have to pull down the gates this would severely impact lender trust. Hence we have a strong reputational risk to maintain liquidity. But again, like most things P2P, it is a risk and arguably an untested risk. Kevin. Some might say some of the levers you describe are in fact market manipulation. Personally i think they are a good way of managing short term liquidity risks. Some might say using one month money to lend for what are in some cases quite long loans is market manipulation. Personally i think if used carefully it is a good way of meeting demand from high quality borrowers who might otherwise go else where for a cheaper loan. The important thing is to be as clear as possible about the features of the market like this without overloading people. Not easy ☺
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jlend
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Post by jlend on Nov 19, 2015 19:00:05 GMT
So I went and had a look at those Ts+Cs (well, actually the FAQ) and here's what I found:- "If a situation occurred where there are insufficient funds on the market to finance existing loans, the Lender would be 'locked-in' to the contract until the Borrower had repaid their loan.
This situation has never occurred before, nor do we envisage it happening in the future, but we feel it is necessary to clarify the procedure should this scenario arise.
If your loan contract is locked in for a longer term, the entire contract rate would be at the rate of the original contract. So if you had a 1 month loan at 3.5% which was locked in for 12 months, the entire contract rate would remain at 3.5%".That bothers me. I'm going to mull it over for a bit to see how much. I never realised this at all. Thanks for highlighting it. I bet this comes as a surprise to a lot of people so should really be more prominent on the website. I think that is a really good point. Ratesetter is a little more complex than it can first appear. And there is quite a bit of content on the website that could be better ☺
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registerme
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Post by registerme on Nov 19, 2015 20:15:01 GMT
The majority of monthly money is used for 12, 18 and 24 month money. There are some examples of the monthly money being used for longer dated loans, but this are only for specific channels and are a marginal element of our business (which I'm not going to go into detail). But the concept elaborated here is correct, lenders do face a liquidity risk. That said, over 5 years of trading RateSetter has never had to restrict lender access.. RateSetter has a number of levers to pull when liquidity could be an issue. These range from Marketing gimmicks, friendly big lenders, institutions, forward flow analysis of customer habits and RateSetter own liquid funds. Ultimately, the markets seem to work very well - when the rates risk our lovely lenders pile in. The markets do a very effective job. Therefore there any many things we can do, because quite clearly if we ever did have to pull down the gates this would severely impact lender trust. Hence we have a strong reputational risk to maintain liquidity. But again, like most things P2P, it is a risk and arguably an untested risk. Kevin. I'm still not sure that I have this clear in my head, so I'm happy to be corrected . I understand that it has never happened, and is unlikely to, and there might be other options to explore first, but.... I can lend short, RS lend long, and I can get trapped into lending long to solve RS / a borrower's funding problem at my original short rate. Sounds a lot like a bank to me., specifically HBOS or Northern Rock. At the least forcing me into a longer term than the original loan term I signed up to should be absolutely the last option explored. A slightly less worse option would be to increase my rate to that of the longer term (perhaps a volume average over the last 12 months or something). Better yet change the terms such that RS can never, ever do something like this.
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bigfoot12
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Post by bigfoot12 on Nov 19, 2015 21:01:05 GMT
I'm still not sure that I have this clear in my head, so I'm happy to be corrected . I understand that it has never happened, and is unlikely to, and there might be other options to explore first, but.... I can lend short, RS lend long, and I can get trapped into lending long to solve RS / a borrower's funding problem at my original short rate. Sounds a lot like a bank to me., specifically HBOS or Northern Rock. Except with a bank the short lender (to the bank) isn't trapped which is how bank runs are created. This way there can't be a run. What isn't clear is whether or not RS have to accept any monthly rate? If you are stuck in at 3.5% and you moan on this forum and I stick my offer in at 19% or 99% do RS have to accept it to release you from your 3.5%, or will certain high rates be treated as market having no effective offer?
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Post by Deleted on Nov 19, 2015 21:02:04 GMT
OK, I was aware that monthly lending could be locked in for 12-24 months during a liquidity crunch.
But 5 YEARS!?!?!? A duration mismatch of that magnitude is asking for trouble. And RateSetter is basically dumping that duration risk onto 1-month lenders with their terms and conditions
The risk of being locked in for 5 years at a 1 month rate if there is inadequate new money coming in is starting to sound quite dodgy.
Add the risk of getting low-balled using auto-reinvest market rates (like those who got matched at 1.3% a couple of weeks ago), with the risk of getting locked into this low-balled rate for several years, and there really are a lot of hidden risks that the shiny facade of RateSetter does not make clear at all!!!
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alender
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Post by alender on Nov 20, 2015 0:12:25 GMT
From what I can see this is not a market but game played by RateSetter whose strategy is to reduce the lending rate and to train lenders to accept a lowers rate. I'm not going to disagree that if rates were lowers we would write more business which would make RateSetter more profitable as well as attract better quality customers and improve platform stability. However we don't play a game, and if we did we are particularly bad at it. The Market Rates (https://www.ratesetter.com/lend/statistics) have increased over the last 18 months, so whoever is responsible for gaming the rates lower should be sacked! But let's not let the statistical evidence get in the way of a good conspiracy story. kevin.
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