Hairbear
He who dares..wins (most of the time)
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Post by Hairbear on Feb 29, 2016 9:58:55 GMT
Thought id start this thread and see what others think.
question... Now that funding secure are moving into property bridging loans, should they also put in place a Provision fund.
Further to that are they obliged under FCA rules to put in place a Provision Fund?
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ben
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Post by ben on Feb 29, 2016 10:33:32 GMT
I doubt part of the FCA rules will say that they need a provision fund.
I am sure we would all like them to have one, but then that will lower the rates of return most likely as they will put part into the provision fund, personally I am happy for a little lower and the provision fund, I have recently started using unbolted as they have a provision fund but you get slightly less as part goes into that.
I am not quite sure how it would fit into FS model as they charge the interest after the loan has been repaid
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investibod
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Post by investibod on Feb 29, 2016 10:37:38 GMT
I would be interested to see what effect it would have on interest rates if a provision fund was implemented. If the cost of this "insurance" was low enough, then I too would be prepared to accept a slight drop in the rates paid, but it all depends on the price.
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ben
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Post by ben on Feb 29, 2016 10:41:57 GMT
I would be interested to see what effect it would have on interest rates if a provision fund was implemented. If the cost of this "insurance" was low enough, then I too would be prepared to accept a slight drop in the rates paid, but it all depends on the price. I would be happy with 2% in the short term to build it up then lower it once it built up
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Hairbear
He who dares..wins (most of the time)
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Post by Hairbear on Feb 29, 2016 11:00:03 GMT
Doesn't necessarily have to effect rates .... read below.
A provision/contingency/safeguard fund (the terminology differs platform-to-platform…) is a pool of money that partially covers private investors against the risk of bad debt.
The peer-to-peer lenders in the UK that currently feature such funds are RateSetter, Zopa, Wellesley & Co., Lending Works, Assetz Capital and SavingStream. The concept was coined by RateSetter upon launch back in 2010. The idea is that a very small portion of every transaction that takes place on a platform is sliced out of the total amount lent (typically from the fee paid by the borrower) and pooled on behalf of the investors.
That pool of capital is on hold in case of an instance of default. Should a default occur, the contingency fund may be drawn upon by the platform in order to make the affected lenders whole.
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ben
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Post by ben on Feb 29, 2016 11:16:31 GMT
Unless FS increases the fee charged to borrower or decreases there own profit then it will have to hit the interest rate and if it does not some will say then why can they not pay the extra as interest ie 13 or 14% and have no provision fund
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Hairbear
He who dares..wins (most of the time)
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Post by Hairbear on Feb 29, 2016 11:25:06 GMT
I would be happy to take a fixed 11% on every investment and charge the borrower 1% of the loan amount and FS contributing 0.5% of their loan profit.
Looking forward if FS want to move into the PBL market, I think it will have to look at this closely.
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ilmoro
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'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
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Post by ilmoro on Feb 29, 2016 11:57:39 GMT
I would be happy to take a fixed 11% on every investment and charge the borrower 1% of the loan amount and FS contributing 0.5% of their loan profit.
Looking forward if FS want to move into the PBL market, I think it will have to look at this closely. It could be pointed out that FS have been operating a sort of informal provision fund as several loans have been convered from FS own resources when they have fallen short of full recovery. Nothing to say a formal discretionary PF would be anymore generous, though it would give the perception of lessening risk slightly. AC dont provide a provision fund on their unrestricted loan book (MLIA), otherwise there is a 2-5% penalty on rate for the protection. SS fund is capped at 2% of loan book and waxes/wanes as loans drawdown/launch Apart from Zopa & RS where is an integral part of the offering on unsecured lending, I think provision funds can give a false perception of security to lenders, properly valued assets are infinitely preferable IMHO.
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ben
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Post by ben on Feb 29, 2016 12:09:07 GMT
I agree although with regards to the FS dipping into there pockets they might be able to for the smaller loans but if one or two of the bigger loans go bad they probably will not be able to.
I agree a provision fund is not always good a thing and gives lenders a false sense of security and how good they actually are is debatable
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Hairbear
He who dares..wins (most of the time)
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Post by Hairbear on Feb 29, 2016 12:49:17 GMT
I agree although with regards to the FS dipping into there pockets they might be able to for the smaller loans but if one or two of the bigger loans go bad they probably will not be able to. I agree a provision fund is not always good a thing and gives lenders a false sense of security and how good they actually are is debatable Quite right and this is where the future problem is going to lie, FS are taking on bigger and bigger and more and more loans, based around property, and their miniature provision fund will not cover the type of losses that could occur if one of the big ones goes pear shaped.
check out the Scottish boat yard thread... and this is now a small one compared to the loans taken out over the last few weeks and further loans in the pipeline.
I can see why a provision fund might create a false sense of security to some newby investors, but nevertheless a provision fund is a provision fund, and if it is funded correctly there is always a back up amount to alleviate default losses.
One of the reasons I invest far more heavily in SS is because of the provision fund, and I also agree with a previous comment around LTV% it is very important that these are conservative and accurate.
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Steerpike
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Post by Steerpike on Feb 29, 2016 13:25:01 GMT
R*****n is a biggie and is over 90% filled.
24 of the seemingly different investors in this loan have committed £5k or more, some much much more, one wonders how many of these are interested in a provision fund?
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Hairbear
He who dares..wins (most of the time)
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Post by Hairbear on Feb 29, 2016 13:58:40 GMT
More pertinent might be... how many of these investors wished there was a provision fund if it goes pear shaped.
Its not a matter of "if" its a matter of "when" an investment goes wrong, and it will.
Without seeming to be spiteful, I hope its not ANOTHER one of mine 
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mikes1531
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Post by mikes1531 on Feb 29, 2016 18:13:27 GMT
R*****n is a biggie and is over 90% filled. 24 of the seemingly different investors in this loan have committed £5k or more, some much much more, one wonders how many of these are interested in a provision fund? It's now fully funded. Three of those BHs have provided 45% of the total and are earning 16% as a result. With a rate like that, they can afford to take on a bit of risk.
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stevio
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Post by stevio on Feb 29, 2016 19:18:47 GMT
Sorry, was 16% a bonus rate? For how much invested?
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