mikes1531
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Post by mikes1531 on Mar 28, 2014 0:17:44 GMT
This isn't strictly a default yet, but FS have notified me that the borrower of a loan due today is unable to pay the accrued interest and fees necessary to renew their loan. They claim that they'll be able to pay off the whole debt and redeem their security -- a diamond ring -- when they receive their annual bonus in the next few weeks. As a result, they have asked for a 30-day extension, and FS have told me that they intend to grant the request, partly because it would take at lease 30 days to schedule an auction to sell the ring.
As long as the borrower can do what they say they can, everyone will be happy with the extension. If, however, it turns out that they can't, and they let the loan default at the end of the extension, then it could be close whether or not the auction proceeds would cover the outstanding debt. The LTV was 72% when the loan was made. By the end of the extension, the accrued interest and FS fees will have put the LTV up to 87%. If the loan then defaults, and it takes another month to organise an auction, then the LTV will be 90% at the time of the auction. After the costs of going to auction are accounted for, is it realistic to think that the net auction proceeds would be enough to cover the entire amount owing to FS and its lenders? I hope so, but it could be tight.
Meanwhile, I have my fingers crossed for the success of the auction scheduled on 1/Apr for the defaulted loan that started this thread.
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ramblin rose
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“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 Mar 28, 2014 16:38:27 GMT
Me too - on all of that  Not long to go till April 1st now. |
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mikes1531
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Post by mikes1531 on Apr 2, 2014 15:06:32 GMT
Slightly curious as to how the auction went on yesterday, my thumbs are a twiddlin'. Any news fundingsecure? Looks like there might have been a missed opportunity here. If the auction was held at a large enough auction house, we might have been able -- through the wonder of the internet -- to watch it as it happened!
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Post by mrclondon on Apr 2, 2014 18:28:19 GMT
FS advised me in advance of the auction that due to borrower confidentiality concerns they would not be publicising details of auctions such as this one. In my view, definitely a missed opportunity as the more publicity gained the more chance the item(s) will sell. Hopefully fundingsecure will re-consider this approach for future auctions. The probability of the inadvertent identification of the borrower on the day of the auction is almost zero. FS emailed the five of us with stakes in this first default to say that two of the four assets sold at auction yesterday, but the other two didn't. However they say that they have since arranged a private sale of these items, and although the total raised is slightly less than capital + fees + charges + interest due, the five of us will receive (which we now have) the full capital & interest due upto yesterday. Perhaps it is too much to hope that fundingsecure will be transparent, and share on here the amounts raised on each of the four assets compared to a) the auction estimate range, and b) the security value placed on the item c. 7 months ago. I confess I am a little unsettled by what I have observed (but I'm reluctant to comment in any greater detail on an open forum). However to be fair, FS did end the email with the comment "This was one of the very first loans to be placed on the FundingSecure platform - our aim is that the valuation process will ensure any future defaults, should they occur, would return sufficient funds to cover all costs."
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Post by elljay on Apr 2, 2014 21:44:33 GMT
the total raised is slightly less than capital + fees + charges + interest due Any idea how slightly as a percentage of the amount expected? "This was one of the very first loans to be placed on the FundingSecure platform - our aim is that the valuation process will ensure any future defaults, should they occur, would return sufficient funds to cover all costs."
It is concerning because it's the first default that has gone to auction. Are FS saying they've offered lower LTVs since this loan or was there some other one off reason this raised less than expected?
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mikes1531
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Post by mikes1531 on Apr 3, 2014 2:10:16 GMT
the total raised is slightly less than capital + fees + charges + interest due Any idea how slightly as a percentage of the amount expected? "This was one of the very first loans to be placed on the FundingSecure platform - our aim is that the valuation process will ensure any future defaults, should they occur, would return sufficient funds to cover all costs."
It is concerning because it's the first default that has gone to auction. Are FS saying they've offered lower LTVs since this loan or was there some other one off reason this raised less than expected? Whilst I must admit that I haven't followed every auction, and particularly not this very early one, I don't get the feeling FS have lowered their LTV limit over time. I expect most borrowers are trying to borrow as much as they can, and while limiting LTV to 50% would be nicer for lenders, I expect it would put a lot of borrowers off. So with a few exceptions -- usually a single substantial asset where the borrower only wants a loan for a specific amount -- FS loans are 70% LTV. Where a borrower has multiple smaller assets, if they want a specific amount I'd expected them to simply keep adding items to the security collection until 70% of the value reaches the amount they're wanting. While they could add more security and lower the LTV, why should they? It might make lenders more willing to lend, but that hasn't been a problem at FS. And it might result in a lower interest rate, but FS's fees are the bulk of the borrowers' costs, so lowering the interest rate from 13% to 9%, as has happened occasionally, produces a big percentage drop in lenders' earnings but only a small percentage drop in borrowers costs. From the borrower'spoint of view, more security means putting more assets at risk, so I'd expect them to resist a push in that direction. There is, however, one way FS can increase loan security without lowering LTV, and that's by instructing valuers to produce more conservative valuations, so that it's more likely that if FS have to go to auction to repay lenders they'll be able to convert the security into the necessary amount of cash. I expect that if FS have changed anything since their early days, this is what they will have changed. Finally, IMHO FS have done the right thing by subordinating their return to their lenders return. It's what at least one other platform is committed to doing, and it's very good for PR. In this case, with a relatively small loan, it won't have cost FS a lot. Whether they'll be able to do the same for future loans is unknown, but it would be a good goal to aim for. Hopefully there won't be too many occasions in the future where the issue comes up.
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ramblin rose
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“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 Apr 3, 2014 11:18:02 GMT
Hmm. I decided to sleep on this one, but I must say it's left me rather uneasy. Whilst I do applaud FS for paying us our full interest payment, they made it clear in their email that this was a one-off decision, so they have not committed to doing it in future. Right back at the start last summer I questioned whether 70% LTV was too much (over on the Zopa forum where discussions took place at the time) and we were assured by FS that their valuation estimates were very conservative, and that 70% gave a comfortable margin. I recall Mike doing some calculations shortly afterwards that, however, indicated it would be a close thing. It would appear that in this case the valuation wasn't conservative enough to have warranted a 70% LTV - we can't draw any further conclusions than that from this single case, but it's definitely not a good omen. A sentence that kind of hints that maybe their valuations are now even more conservative isn't exactly a clear indication that this is in fact the case.
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Post by elljay on Apr 3, 2014 11:18:09 GMT
Amount raised only fell short of fulfilling capital/interest/fees by £13.27 on a loan of £500 (LTV 68.49%). There was an extra period for it to cover as the loan was live for 225days, but this should be anticipated, as any auction is unlikely to happen the day after a loan defaults. Agreed. Only 2.5%, but 2.5% of £600k is £15k. fundingsecure, has your valuation policy changed since this loan? (I guess I should email FS direct...)
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mikes1531
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Post by mikes1531 on Apr 3, 2014 12:03:00 GMT
Amount raised only fell short of fulfilling capital/interest/fees by £13.27 on a loan of £500 (LTV 68.49%). There was an extra period for it to cover as the loan was live for 225days, but this should be anticipated, as any auction is unlikely to happen the day after a loan defaults. Agreed. Only 2.5%, but 2.5% of £600k is £15k. Yes, but... the LTV on the current £600k loan is a bit lower than 70%.
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Post by elljay on Apr 3, 2014 17:02:42 GMT
fundingsecure, has your valuation policy changed since this loan? (I guess I should email FS direct...) Have just emailed FS and invited them to comment here.
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Post by elljay on Apr 3, 2014 17:05:23 GMT
Agreed. Only 2.5%, but 2.5% of £600k is £15k. Yes, but... the LTV on the current £600k loan is a bit lower than 70%. Quite true, but confidence (mine at least) has been dented none the less.
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Post by elljay on Apr 3, 2014 17:06:18 GMT
And another default just come to light, bottle of brandy. A bit of googling shows a more favorable price range for this (£2k - £4k (on a loan of £1k)) so hopefully the recent uneasiness will soon be a distant memory! Fingers crossed. If not maybe there's enough brandy to share around the borrowers to drown our sorrows... 
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mikes1531
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Post by mikes1531 on Apr 4, 2014 3:17:03 GMT
And another default just come to light, bottle of brandy. A bit of googling shows a more favorable price range for this (£2k - £4k (on a loan of £1k)) so hopefully the recent uneasiness will soon be a distant memory! Fingers crossed. If not maybe there's enough brandy to share around the borrowers to drown our sorrows... Nah! I'd save it all for the lenders. 
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Post by oldnick on Apr 4, 2014 3:36:57 GMT
Fingers crossed. If not maybe there's enough brandy to share around the borrowers to drown our sorrows... Nah! I'd save it all for the lenders. Neither borrower nor lender bee, It's all on tick for them you see!
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Post by elljay on Apr 4, 2014 6:27:01 GMT
Fingers crossed. If not maybe there's enough brandy to share around the borrowers to drown our sorrows... Nah! I'd save it all for the lenders. Oops!
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