poppyland
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Post by poppyland on May 10, 2016 18:53:29 GMT
Found it! Thank you. I think it's a great strategy, and in the long-term I am aiming for something similar. At the moment though, with so little available to buy on SS, I'm probably going to end up holding some loans through to completion. I also agree with you about avoiding second-charge, which seems really dodgy. How do you select among the loans that FS offers? I have only a little invested with them at present, but somehow don't like the jewellery loans etc. Good old bricks and mortar seem more secure to me.
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Post by earthbound on May 10, 2016 19:03:48 GMT
Found it! Thank you. I think it's a great strategy, and in the long-term I am aiming for something similar. At the moment though, with so little available to buy on SS, I'm probably going to end up holding some loans through to completion. I also agree with you about avoiding second-charge, which seems really dodgy. How do you select among the loans that FS offers? I have only a little invested with them at present, but somehow don't like the jewellery loans etc. Good old bricks and mortar seem more secure to me. I tend to use a strategy based on criteria i always followed when working (property investment and renovation etc etc) sorry (bit of a secret gained over 35yrs) i got caught out with the boatyard due to the fact that no SM on FS (then) and i broke a few of my own strict rules, so when this came to fruition i found myself stuck with it, to be honest i am seriously thinking about winding down my position in FS , i just do not think the platform is set up to deal with large property bridging loans, its a pawn broker platform, and i think there is going to be a glut of defaults in 6 months or so time. Bricks and mortar for me as well..... but no commercial (very important)  SS .. SM.. patience and perseverance (plus a few late nights, 1 min after midnight) Its there if you want it bad enough. 
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mikes1531
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Post by mikes1531 on May 10, 2016 19:05:16 GMT
How much is invested... enough to buy a nice 3 bed semi round these parts. : Perhaps you've said it somewhere and I missed it, but your comment above tells me nothing because I haven't a clue where "these parts" is! Then again, perhaps it was deliberate! 
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Post by earthbound on May 10, 2016 19:10:37 GMT
How much is invested... enough to buy a nice 3 bed semi round these parts. : Perhaps you've said it somewhere and I missed it, but your comment above tells me nothing because I haven't a clue where "these parts" is! Then again, perhaps it was deliberate! You are correct 
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Post by GSV3MIaC on May 10, 2016 19:11:48 GMT
Attached is a spreadsheet I put together using a few of the functions available. I've constructed a simple discount curve, default probability curve and some loan cashflow objects. Given a recovery rate assumption, loan NPVs can be extracted, both in the "credit risky" and "risk-less" scenario. For simplicity, I've used flat term structures for both the interest rate curve and default curves. . This probably isn't of interest to most so I apologize but a few may be interested. Obviously this is just a simple example of what can be done and is not to be used "in anger" E&OE etc etc Fascinating, thanks .. I understood at least half of it at least half as well as I ought to .. but why does your (imaginary?) portfolio have varying amounts into each of the loan types .. or does it actually represent some snapshot of where you are actually at in the real world? It was also not immediately obvious (but my neurons are getting old) what 'recovery' scenario you are assuming (i.e. you get 50% back .. but 'when'? .. although with your 3% discount rate I guess that's not quite so critical as it might be if we return to larger numbers. 'Sometime in my lifetime' would be good though. 8>. ).
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Post by dualinvestor on May 10, 2016 19:14:50 GMT
Default correlation is notoriously hard to model (and even harder to calibrate given the paucity of the observable data). The standard technique in quant finance is to use a copula (multivariate probability distribution). However, applying that with a Gaussian distribution will not allow for correlation asymmetries in the upside vs. downside regimes. Canonical pair (vine) copulas can be used to remedy this is when combined with a initial Monte Carlo simulation. With regard to the broader issue of modelling loan defaults, my view is that ideally one would attempt to leverage the infrastructure available. Unfortunately most finance analytics are either proprietary or expensive. Last night I played for a couple of hours with QuantLibXL. link. QuantLib is a (free!) open source analytics library (static C++ object classes). The QuantLibXL spreadsheet addin allows the user to access around 1000 wrapped financial functions. It's similar in spirit to the one I use day to day though less well documented and rather clunky. To be fair that might be because I played with it for just a few hours, rather than almost 20 years for the one I use most days! Attached is a spreadsheet I put together using a few of the functions available. I've constructed a simple discount curve, default probability curve and some loan cashflow objects. Given a recovery rate assumption, loan NPVs can be extracted, both in the "credit risky" and "risk-less" scenario. For simplicity, I've used flat term structures for both the interest rate curve and default curves. . This probably isn't of interest to most so I apologize but a few may be interested. Obviously this is just a simple example of what can be done and is not to be used "in anger" E&OE etc etc Like a few others I must admit that I understood the methodology only superficially (and then I am probably only making a spurious claim) and appreciate the effort put in by everyone making a stab at the calculations and special thanks to littleoldlady for starting it all off. I fully accept that these are likely to be approximate Bad Debt outcomes for the SS loan book as a whole; however the danger with trying to be so prescise is that no-one is going to have a perfectly weighted portfolio matching that. Just as everyone's attitude to risk differs so does their portfolio. It may just be luck that earthbound has not sufferred any losses, but as Jack Nicklaus (amongst others) said "the more I practise the luckier I get," substitute due diligence for practise and that might be the reason, I, on the other hand, agree with mikes1531 that the rates of interest charged by SS (1.5% per month, c. 19.5% APR) to borrowers are far above those offerred by conventional sources for secured lending and for that very reason alone there are likely to be defaults. Turning to SS on its own their valuations are at OMV and a large proportion are at their maximum 70%. I really hope that their confidence in this being a sufficient margin is correct but I would point out that even before costs Forced Sale valuations are often a greater discount than 30% to OMV. Adding in the probability, as mentioned by others, of less benign economic conditiions at an undetermined time in the future there is the potential for wholesale default there is a possibility that some individual investors might lose a significant proportion of their portfolio, on the other hand others may suffer hardly at all. Although SS has a stellar record so far and a Provision Fund it has not been "tested" and we will not know how it will fare in circumstances such as 1989/90, 2003 and 2008 until those circumstances occur agaain.
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mikes1531
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Post by mikes1531 on May 10, 2016 19:32:59 GMT
How do you select among the loans that FS offers? I have only a little invested with them at present, but somehow don't like the jewellery loans etc. Good old bricks and mortar seem more secure to me. An awful lot depends on the valuations. Sometimes jewellery is valued on scrap value, and in that case the loan probably ought to be OK, IMHO. Watches certified as genuine ought to be OK too as there's an established market in those, just like there is for used cars. Where I get concerned is where the item is a unique piece and its value depends on that, and on finding the right buyer at the right time. Where a market is thin, auction results can be very variable. (The same applies to works of art.) Valuations of bricks and mortar also can be quite variable, again depending on how unique the property is. One recent FS loan proposal was on property consisting of a flat over a former shop, where FS had received a quickie valuation from an estate agent. That looked OK on the surface, but a bit of Googling turned up another agent's withdrawn listing of the same property for sale at a price that was less than the amount of the proposed loan. Then questions were raised about the agent that had made the 'back of a fag packet' valuation. To their credit, FS delayed releasing the loan having "decided to postpone placing the loan for funding until we receive a full valuation from one of our regular RICS valuers and complete the legal due diligence." That was about four weeks ago, and there's been no further info since. This variability is part of the reason I expect I will have some losses -- and that's without trying to factor in the impact of a more general economic downturn.
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Post by earthbound on May 10, 2016 19:35:44 GMT
Default correlation is notoriously hard to model (and even harder to calibrate given the paucity of the observable data). The standard technique in quant finance is to use a copula (multivariate probability distribution). However, applying that with a Gaussian distribution will not allow for correlation asymmetries in the upside vs. downside regimes. Canonical pair (vine) copulas can be used to remedy this is when combined with a initial Monte Carlo simulation. With regard to the broader issue of modelling loan defaults, my view is that ideally one would attempt to leverage the infrastructure available. Unfortunately most finance analytics are either proprietary or expensive. Last night I played for a couple of hours with QuantLibXL. link. QuantLib is a (free!) open source analytics library (static C++ object classes). The QuantLibXL spreadsheet addin allows the user to access around 1000 wrapped financial functions. It's similar in spirit to the one I use day to day though less well documented and rather clunky. To be fair that might be because I played with it for just a few hours, rather than almost 20 years for the one I use most days! Attached is a spreadsheet I put together using a few of the functions available. I've constructed a simple discount curve, default probability curve and some loan cashflow objects. Given a recovery rate assumption, loan NPVs can be extracted, both in the "credit risky" and "risk-less" scenario. For simplicity, I've used flat term structures for both the interest rate curve and default curves. . This probably isn't of interest to most so I apologize but a few may be interested. Obviously this is just a simple example of what can be done and is not to be used "in anger" E&OE etc etc we will not know how it will fare in circumstances such as 1989/90, 2003 and 2008 until those circumstances occur agaain. Interestingly, i posted about this somewhere recently (quoting residential property) and the figures are actually far from alarming. the 2008 crash, which statistically was worse than the early 90's crash, quoted a UK wide average drop in property prices of 10% (ish), bear in mind that's a UK wide average, In london the average drop was 15.9%, from my research this was based broadly as 8% min drop up to 22% so averaged at 15.9% , up here in the midlands ( mikes1531 ) we saw only an average of 8% and in some cases, just a leveling off and no loss or gain for a couple of years, but importantly... no decrease. I personally think that if you have a solid investment strategy where property is concerned, even a downturn does not have to mean losses. The biggest worry?... The platform.
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Post by earthbound on May 10, 2016 20:01:43 GMT
I have absolutely no idea if this would be possible,(and no idea how to do it) but if the forum brains could produce a statistical graph or statement of gains/losses based on residential property only, then that would be interesting. Included can be commercials that will finalise as residential.
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Post by brianac on May 10, 2016 21:28:20 GMT
poppyland I tend to use a strategy based on criteria i always followed when working (property investment and renovation etc etc) sorry (bit of a secret gained over 35yrs) i got caught out with the boatyard due to the fact that no SM on FS (then) and i broke a few of my own strict rules, so when this came to fruition i found myself stuck with it, to be honest i am seriously thinking about winding down my position in FS , i just do not think the platform is set up to deal with large property bridging loans, its a pawn broker platform, and i think there is going to be a glut of defaults in 6 months or so time. Bricks and mortar for me as well..... but no commercial (very important) SS .. SM.. patience and perseverance (plus a few late nights, 1 min after midnight) Its there if you want it bad enough. earthbound, reagrds your strategy, does this still apply with "old" SS loans, surely it's Lendy that pay you back irrepsective of the viablity of the lender? or have I misunderstood that? Brian
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Post by earthbound on May 10, 2016 21:53:37 GMT
poppyland I tend to use a strategy based on criteria i always followed when working (property investment and renovation etc etc) sorry (bit of a secret gained over 35yrs) i got caught out with the boatyard due to the fact that no SM on FS (then) and i broke a few of my own strict rules, so when this came to fruition i found myself stuck with it, to be honest i am seriously thinking about winding down my position in FS , i just do not think the platform is set up to deal with large property bridging loans, its a pawn broker platform, and i think there is going to be a glut of defaults in 6 months or so time. Bricks and mortar for me as well..... but no commercial (very important) SS .. SM.. patience and perseverance (plus a few late nights, 1 min after midnight) Its there if you want it bad enough. earthbound, reagrds your strategy, does this still apply with "old" SS loans, surely it's Lendy that pay you back irrepsective of the viablity of the lender? or have I misunderstood that? Brian hi brian... not sure where you are... the above post is regards FS.
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mikes1531
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Post by mikes1531 on May 11, 2016 1:49:06 GMT
we will not know how it will fare in circumstances such as 1989/90, 2003 and 2008 until those circumstances occur agaain. Interestingly, i posted about this somewhere recently (quoting residential property) and the figures are actually far from alarming. the 2008 crash, which statistically was worse than the early 90's crash, quoted a UK wide average drop in property prices of 10% (ish), bear in mind that's a UK wide average, In london the average drop was 15.9%, from my research this was based broadly as 8% min drop up to 22% so averaged at 15.9% I don't know where earthbound's statistics come from, but I see a much worse crash when I look at the Halifax House Price Index for the 2008 crash. The HHPI was 650.8 in Aug.'07 and 508.3 in Mar.'09, and that looks like a 22% drop to me. AIUI, that's the HHPI 'national' number so, while there would have been variations around the country, it's telling me that the national average price drop was 22%, and that's more than double the 10% drop suggested above.
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littleoldlady
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Running down all platforms due to age
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Post by littleoldlady on May 11, 2016 7:02:17 GMT
Attached is a spreadsheet I put together using a few of the functions available. I've constructed a simple discount curve, default probability curve and some loan cashflow objects. Given a recovery rate assumption, loan NPVs can be extracted, both in the "credit risky" and "risk-less" scenario. For simplicity, I've used flat term structures for both the interest rate curve and default curves. . This probably isn't of interest to most so I apologize but a few may be interested. Obviously this is just a simple example of what can be done and is not to be used "in anger" E&OE etc etc I looked at your spreadsheet and it seemed very interesting but too difficult for me. Could you possibly provide a commentary?
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Post by dualinvestor on May 11, 2016 7:08:10 GMT
Interestingly, i posted about this somewhere recently (quoting residential property) and the figures are actually far from alarming. the 2008 crash, which statistically was worse than the early 90's crash, quoted a UK wide average drop in property prices of 10% (ish), bear in mind that's a UK wide average, In london the average drop was 15.9%, from my research this was based broadly as 8% min drop up to 22% so averaged at 15.9% I don't know where earthbound 's statistics come from, but I see a much worse crash when I look at the Halifax House Price Index for the 2008 crash. The HHPI was 650.8 in Aug.'07 and 508.3 in Mar.'09, and that looks like a 22% drop to me. AIUI, that's the HHPI 'national' number so, while there would have been variations around the country, it's telling me that the national average price drop was 22%, and that's more than double the 10% drop suggested above. The other major national survey of residential property prices, with data back to 1973, the Nationwide, records UK average declines as 20% between Q3 1989 and Q1 1993 and 18.7% between Q3 2007 and Q1 2009. When factoring in the potential difference between OMV and FS plus costs of realisation and time taken to enforce security it is very unlikely that ALL loans that default will have sufficient security to repay lenders IN FULL.
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Post by jackpease on May 11, 2016 7:53:07 GMT
we will not know how it will fare in circumstances such as 1989/90, 2003 and 2008 until those circumstances occur agaain. Interestingly, i posted about this somewhere recently (quoting residential property) and the figures are actually far from alarming. the 2008 crash, which statistically was worse than the early 90's crash, quoted a UK wide average drop in property prices of 10% (ish), bear in mind that's a UK wide average, In london the average drop was 15.9%, from my research this was based broadly as 8% min drop up to 22% so averaged at 15.9% , up here in the midlands ( mikes1531 ) we saw only an average of 8% and in some cases, just a leveling off and no loss or gain for a couple of years, but importantly... no decrease. I personally think that if you have a solid investment strategy where property is concerned, even a downturn does not have to mean losses. The biggest worry?... The platform. But these are average prices. The secured properties on the likes of SS are not average, they are by definition speculative (or else they'd get cheaper conventional funding) - and further it isn't what a person will pay for that property that will be the trigger - it's what people will pay for the parts on the platform - I think any property correction in the wider market will lead to a freezing up on the secondary market on the likes of SS so people will need to hold loans to term, warts and all. That's all supposition - we have evidence for distressed sales from the likes of hotels/caravan parks/Welsh stuff and the like over at Assetz where the market value is a distant dream - even in a stable wider property market. Once that sort of thing happens then all the people who assumed their investment was "safe" then direct their anger at the platform...... As ever like a Big Mac, SS is great but only as part of a balanced diet. Jack P
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