Post by mrclondon on Nov 9, 2013 17:02:56 GMT
I caught some bits of the Thincats conference webinar earlier in the week and some of the issues that were discussed also have relevance to Assetz Capital.
It was stated that despite in general Thincats having at present more availability of lender funds than loan requests, in practice loans above say £500k-£750k struggle to fill without underwriter involvement. Thincats are intending running very large loan auctions in future in 2 stages - an underwriting stage with cashback incentives and a large minimum bid [FIFO participation] followed by a retail auction with the max bid rate set a small amount below where the underwriting auction finished [normal LIFO participation].
I've frequently commented that AC need underwriting involvement to get large loans away during this start up phase, but this approach from Thincats could imply AC also need a long term strategy for underwriting. With two large loans currently listed on AC, now is a good point to consider how the Thincats approach might work in practise. The Cambrian Hotel might well have failed to fill at the underwriting stage, flagging up much quicker that the incumbant lender [Bank] needs to take a haircut for progress to be made. On the otherhand the Leeds Commercial Property would probably fill rapidly at underwriting and the retail auction would back-fill to the extent of lender liquidity within the space of a week. [I've made one slight over simplification here because on a good proposition Assetz can fill £600k with minimal underwriter involvement if at all]
Any one from Assetz like to comment on the potential flaws in this approach beyond the obvious one that use of underwriting when not strictly necessary is not a good use of money ?
The second fascinating insight was the comment that Thincats lenders are "pricing to liquidity not risk". It was explained (and I have observed this myself recently) that most lenders are "expecting" a gross yield of c. 10% from a Thincats offering. This has created a strange effect where by fixed rate loan requests > 10% fill very quickly, variable rate loans with a starting rate >> 10% get bid down to c. 9.5-10%, and good well secured offerings < 10% are shunned as not worth the effort. The net result is riskier loan requests are being bid down below a sensible risk determined rate by the liquidity on the platform, whilst lower risk loans are junked. This is a real shame from my perspective as Thincats minimum bid of £1000 means I am looking for good security rather than high rates.
I wonder if it is worth AC testing the waters again with the bog standard 50% LTV apartment Lend to Let offering at c. 6.5%. Not great demand earlier in the year - I added a few thousand to one of them to get it away, but I soon found a buyer for these parts on the aftermarket and other more recent aftermarket listings at 6.5% have been snapped up.
I have to say I have a preference for the fixed rate approach adopted by AC for most of the listings (a decision aided of course by the few rough edges on the reverse auction website software) even though it can create a feeding frenzy for good small loans such as we saw in the middle of the week.
