r00lish67
Member of DD Central
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Post by r00lish67 on Apr 19, 2016 7:36:38 GMT
Dear LendingCrowd,
After reading many of the recent threads on this forum and being an active LC investor myself, I really feel in need of a steer here. My concerns are, mainly:
a) Due diligence (with a worrying number of distressed loans in recent weeks). Do you see there as being anything that needs to be improved in your DD processes? Are you actively changing anything? Or do you see these recent issues as being very unfortunate but beyond your control?
b) Secondary Market: Which is widely regarded as expensive to use, opaque, and mostly lacking liquidity. Are there any plans to change this?
I'm not expecting you to have solved these areas overnight, but what I think we'd all appreciate is a statement of intent. What are you going to do on these two fronts, if anything, and when by?
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Post by lendingcrowd on Apr 19, 2016 17:01:49 GMT
Hi r00lish67, Thank you for your post. Having had an unblemished run for over 18 months, the recent cases going into default are disappointing. As you will appreciate, we have re-examined each case comprehensively and taken appropriate learning points into consideration in re-evaluating our policies and procedures. Each case has different characteristics and we are hopeful that in continuing to engage with the relative Borrowers, our recovery processes will minimise any losses that might ultimately be incurred. Our secondary market differs in operation to that of other platforms, and we believe that it is simpler and more transparent. However, we have not sufficiently communicated how it works nor the benefits. The Loan Exchange works by aggregating sellers’ loan parts and offering the weighted average to new investors. As such, rather than a long list of available loan parts, new investors have a simpler and more transparent choice to make: does the price/interest rate offered meet their expectation of return for the level of risk on that loan? The seller receives the outstanding capital plus accrued interest from the previous repayment date, at the interest rate originally accepted. Over time and as LendingCrowd grows, we believe that this method will improve liquidity on the secondary market given the attraction of a simple, transparent price for each loan. With regards to being expensive to use, managing a secondary market has a cost and taking advantage of the Loan Exchange to come out of a loan contract has a transaction cost. Therefore, we believe that the associated cost is reasonable. At this time, we have no plans to change how the Loan Exchange operates nor the pricing. However, we will be making changes to the website to make how the Loan Exchange works clearer. Thank you, LendingCrowd |
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pip
Posts: 542
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Post by pip on Apr 19, 2016 19:39:15 GMT
Hi r00lish67, Thank you for your post. Having had an unblemished run for over 18 months, the recent cases going into default are disappointing. As you will appreciate, we have re-examined each case comprehensively and taken appropriate learning points into consideration in re-evaluating our policies and procedures. Each case has different characteristics and we are hopeful that in continuing to engage with the relative Borrowers, our recovery processes will minimise any losses that might ultimately be incurred. Our secondary market differs in operation to that of other platforms, and we believe that it is simpler and more transparent. However, we have not sufficiently communicated how it works nor the benefits. The Loan Exchange works by aggregating sellers’ loan parts and offering the weighted average to new investors. As such, rather than a long list of available loan parts, new investors have a simpler and more transparent choice to make: does the price/interest rate offered meet their expectation of return for the level of risk on that loan? The seller receives the outstanding capital plus accrued interest from the previous repayment date, at the interest rate originally accepted. Over time and as LendingCrowd grows, we believe that this method will improve liquidity on the secondary market given the attraction of a simple, transparent price for each loan. With regards to being expensive to use, managing a secondary market has a cost and taking advantage of the Loan Exchange to come out of a loan contract has a transaction cost. Therefore, we believe that the associated cost is reasonable. At this time, we have no plans to change how the Loan Exchange operates nor the pricing. However, we will be making changes to the website to make how the Loan Exchange works clearer. Thank you, LendingCrowd Hi, Thanks for responding. Only time will tell if lessons have been learned. Some of the reasons for the businesses closing were pretty disappointing...a restaurant being closed down by environmental health within a month of the loan, a director having 3 other non disclosed businesses. It would be great if the director guarantees on these are rigorously persued. From a point of view of the platform it's a pretty much requirement in my opinion. In my position my losses are over twice my interest. Now I'm not into p2p as a way of giving my money away, so from my perspective hard to see why I should lend more unless the defaults are recovered. Big moment for LC, I am sure a lot of lenders will be really upset with the last few weeks and a lot will be needed to restore confidence.
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r00lish67
Member of DD Central
Posts: 2,691
Likes: 4,048
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Post by r00lish67 on Apr 20, 2016 6:15:09 GMT
Thanks for your reply, LendingCrowd.
Re: the secondary market, your comment:
"The Loan Exchange works by aggregating sellers’ loan parts and offering the weighted average to new investors. As such, rather than a long list of available loan parts, new investors have a simpler and more transparent choice to make: does the price/interest rate offered meet their expectation of return for the level of risk on that loan"
I agree the choice is very simple for the new investor, but in my view not in a positive way. Since the point at which each loan has been issued, the market will have moved on. General sentiment, investor circumstances, the age of the loan, and plenty of other factors will have altered - positively or (more likely negatively), the perceived value of the loan.
To take one aspect in particular as an example, there is I think general recognition (and probably hard evidence somewhere on the FC section of this forum), that buying aged loans (say, 6 months or over) affects the overall return for the investor, simply as any defaults are then more likely to happen sooner rather than later. An experienced P2P investor therefore may choose only to take on that perceived additional risk if the loan is appropriately discounted.
In another example, I sold some loan parts yesterday on FundingSecure. I could only sell them by discounting them slightly, because the market over there has been recently saturated. That was my choice based on my perception of the market, and it allowed me to exit from some loans I wished to reduce my exposure to. I know they would not have sold for a significant amount of time at par.
Final one - I want to sell my hypothetical 2 year old car, I could absolutely opt to try and sell it at a weighted average of the price people generally buy them new for, but how well do you think I'd generally do in the marketplace? A cheeky example I know, but i think the principle is the same.
In LendingCrowd, the selling investor does not have control. We have to sell at an artificial historic rate. So, the choice is, mostly, very simple for the new investor - i.e. no, thanks!
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