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Post by GSV3MIaC on May 11, 2016 9:53:04 GMT
It's purely a test spreadsheet so I can try out the basic building blocks of the functionality The portfolio is completely imaginary, just a bunch of fixed rate IO loans from 6m to 5y in tenor. As is the always the case with these analytics, the recovery rate seems to be technically PV(recovery) at the instant of default Right, I think I understand that now - so when the recovery %age says '50%' that is either 50% 'right now' (when the loss happens), or some larger % recovered 'down the road' (e.g ~60% recovery 3 years later). I think the 50% is probably not unreasonable, except where the LTV is/was based on speculative planning gains (toxic rubbish dumps come to mind .. that one had a potential LTV that was negative. 8>.) or where the property is unique enough to be really hard to shift, and maybe has large ongoing cost of ownership.
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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 9:54:25 GMT
IMO the strategy of selling loans shortly before they are due for repayment and reinvesting in new loans (recommended above) does not eliminate the risk, it merely rolls up the risks. Apart from the ethics of taking most of the interest and passing all the risk onto someone else the strategy has a major flaw. Anyone doing this will never hold short term loans , only long term ones. In the event of a slide in prices the SM will immediately dry up and there will be no way out. Those not following the strategy, including those who bought those loans with little time remaining will be in a much better position in the rush to the exit. The strategy may appear to have worked so far but then it has not been necessary so far and no benefit has been obtained from following it.
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Post by GSV3MIaC on May 11, 2016 13:01:03 GMT
I tend to agree with that, if only because the 'remaining loan duration' is (so far) almost complete fiction. Some have repaid earlier, many/most have gone on well past the due date. Personally I'd rather be spread around more loans/borrowers, even if some are due to repay soon, than limit myself to the half (or whatever) with >x months to run. It really would be nice if SS was more like a proper stream though .. right now it's more like 'water bowsers full, delivered at irregular, unpredictable, and often inconvenient, times'. 8>.
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Post by brianac on May 11, 2016 16:35:43 GMT
hi brian... not sure where you are... the above post is regards FS. Oh sorry, I mistook that it was a general strategy. Brian
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poppyland
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Post by poppyland on May 12, 2016 4:46:27 GMT
Personally, I don't think there is anything unethical about selling a loan a few weeks before it is due to repay. No one is forced to buy any parts put up for sale, and if they do, it is clearly because they judged it to be a risk they are ok with.
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Post by earthbound on May 13, 2016 5:41:45 GMT
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Post by earthbound on May 13, 2016 5:50:25 GMT
Personally, I don't think there is anything unethical about selling a loan a few weeks before it is due to repay. No one is forced to buy any parts put up for sale, and if they do, it is clearly because they judged it to be a risk they are ok with. Couldn't agree more.. I was holding a chunk of pbl 33 sold a lump at approx 50 days remaining then found out they had extended for 3 months.. So who was the loser ... Me. 
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mikes1531
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Post by mikes1531 on May 13, 2016 14:37:50 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.  earthbound : Perhaps I'm reading it wrong, but the chart you included above doesn't seem consistent with the numbers you quoted earlier. It shows the average house price dropping from £185k in late 2007 to £150k in early 2009. That's a 19% drop, and a lot closer to my 22% drop than to your 10% drop. Am I misinterpreting the chart?
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Post by earthbound on May 14, 2016 5:55:51 GMT
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. : Perhaps I'm reading it wrong, but the chart you included above doesn't seem consistent with the numbers you quoted earlier. It shows the average house price dropping from £185k in late 2007 to £150k in early 2009. That's a 19% drop, and a lot closer to my 22% drop than to your 10% drop. Am I misinterpreting the chart? Hi mikes1531 all loans are 6 or 12 months , Q3 2007 c185k to Q2 2008 c175k 11. Months -c6%... 10k... Falls each 6 and 12 month fairly consistent...The 20+% drop is over a lot longer period than a standard SS loan.
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Post by earthbound on May 14, 2016 7:59:07 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% , 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) Hi jack... We must remember that loans are for 6 or 12 months only... Why would you consider the SS loans to not be average and therefor be speculative.. I think the speculation is not down to the asset but the borrower.. IMHO The funds-are being secured here because it's the borrowers who are speculative, banks are still known to borrow high volumes of money to trustworty institutions, and of course there is the most obvious reason ... We need the money now, not in 12 months. Not always the case I would concede but imo mostly the case. edit. After a quick look also on FS and MT there are plenty of straight forward residential property,s on bridging loans, not imo speculative at all, they obviously need quick bridging finance and p2p is where it is quickly available, SS in fact state loans sorted in 7 days. (Tho I would doubt that)
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mikes1531
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Post by mikes1531 on May 14, 2016 16:45:25 GMT
earthbound : Perhaps I'm reading it wrong, but the chart you included above doesn't seem consistent with the numbers you quoted earlier. It shows the average house price dropping from £185k in late 2007 to £150k in early 2009. That's a 19% drop, and a lot closer to my 22% drop than to your 10% drop. Am I misinterpreting the chart? Hi mikes1531 all loans are 6 or 12 months , Q3 2007 c185k to Q2 2008 c175k 11. Months -c6%... 10k... Falls each 6 and 12 month fairly consistent...The 20+% drop is over a lot longer period than a standard SS loan. : Yes, loans generally start out with 6 or 12 month terms. However -- and particularly when interest is prepaid -- the lender probably doesn't find out that the borrower isn't going to repay on time until the maturity day arrives and the repayment doesn't. Up to that point, if there's any contact at all, the borrower tends to 'assure' the lender that all is well and they're going to be able to repay on time. Lenders are required by law to treat their customers fairly, so they can't call in the receivers the day after maturity. The process then drags on for a while before the lender eventually decides they've been as reasonable/patient as is necessary, and starts the formal recovery process. Then then have to find a receiver willing to take on the job, sign them up, get them to go to work, and wait for their recommendations. Even if the recommendation is a simple 'sell the security', it won't be a quick 'fire sale'. There has to be a reasonable marketing plan designed to sell the property for as much as possible, as otherwise the borrower isn't being treated fairly. This whole process takes considerable time before the property even goes on the market -- as you're well aware from the FS boatyard, which is now four months past maturity and the receivers haven't even been called in yet! Once the property is put up for sale, it will be 3-6 months before the sale completes -- if you're lucky. The more unique the property, the longer it will take to find someone willing to buy it, and the bigger the discount to the 'market value' it will require to get it sold. Another thing to remember is that repossessed properties typically are sold at a discount to their 'value' to encourage their sale. If you've read enough valuations, you will have seen that the valuer often is asked for the market value, and the value under the special assumption that the sale is to be achieved within 90 or 180 days. The LTV quoted for the loan generally is based on the market price. The discount needed to achieve a 180-day sale usually is significant. (It's only small when the property is very common, there are lots like it for sale all the time, and they typically sell quickly.) The bottom line is that by the time a repossessed property is sold, it's questionable whether the lenders of a 70% LTV loan will achieve disposal proceeds covering all accrued interest and the costs of the recovery. (It's easier to achieve when interest is prepaid at the time the loan is taken out, as SS do, than when interest isn't due until maturity, which is the FS model.) Please note that all of the above presumes a stable property market. In a market that has declined since the loan was made, recovery results would be poorer, and full recoveries would seem to be quite unlikely.
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Post by earthbound on May 14, 2016 18:22:18 GMT
Hi mikes1531 all loans are 6 or 12 months , Q3 2007 c185k to Q2 2008 c175k 11. Months -c6%... 10k... Falls each 6 and 12 month fairly consistent...The 20+% drop is over a lot longer period than a standard SS loan. : Yes, loans generally start out with 6 or 12 month terms. However -- and particularly when interest is prepaid -- the lender probably doesn't find out that the borrower isn't going to repay on time until the maturity day arrives and the repayment doesn't. Up to that point, if there's any contact at all, the borrower tends to 'assure' the lender that all is well and they're going to be able to repay on time. Lenders are required by law to treat their customers fairly, so they can't call in the receivers the day after maturity. The process then drags on for a while before the lender eventually decides they've been as reasonable/patient as is necessary, and starts the formal recovery process. Then then have to find a receiver willing to take on the job, sign them up, get them to go to work, and wait for their recommendations. Even if the recommendation is a simple 'sell the security', it won't be a quick 'fire sale'. There has to be a reasonable marketing plan designed to sell the property for as much as possible, as otherwise the borrower isn't being treated fairly. This whole process takes considerable time before the property even goes on the market -- as you're well aware from the FS boatyard, which is now four months past maturity and the receivers haven't even been called in yet! Once the property is put up for sale, it will be 3-6 months before the sale completes -- if you're lucky. The more unique the property, the longer it will take to find someone willing to buy it, and the bigger the discount to the 'market value' it will require to get it sold. Another thing to remember is that repossessed properties typically are sold at a discount to their 'value' to encourage their sale. If you've read enough valuations, you will have seen that the valuer often is asked for the market value, and the value under the special assumption that the sale is to be achieved within 90 or 180 days. The LTV quoted for the loan generally is based on the market price. The discount needed to achieve a 180-day sale usually is significant. (It's only small when the property is very common, there are lots like it for sale all the time, and they typically sell quickly.) The bottom line is that by the time a repossessed property is sold, it's questionable whether the lenders of a 70% LTV loan will achieve disposal proceeds covering all accrued interest and the costs of the recovery. (It's easier to achieve when interest is prepaid at the time the loan is taken out, as SS do, than when interest isn't due until maturity, which is the FS model.) Please note that all of the above presumes a stable property market. In a market that has declined since the loan was made, recovery results would be poorer, and full recoveries would seem to be quite unlikely. Mikes1531 thanks for the extremely long reply... But loans are 6 or 12 months.. Hypothesis outcomes are welcome.. But we not there yet.. 
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mikes1531
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Post by mikes1531 on May 15, 2016 0:10:05 GMT
Mikes1531 thanks for the extremely long reply... But loans are 6 or 12 months.. Hypothesis outcomes are welcome.. But we not there yet.. : But we are there. It's not hypothesis outcomes -- it's what's actually happening. Look at the SS loans with negative terms remaining. Look at all of the SS loans that have positive remaining terms only because they've had their terms extended. All of those loans have run longer than they initially were expected to do. AIUI, that's typical for bridging loans.
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) 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. 