SS Secondary Market

Thanks for the prompt reply SS. I've dipped my toes in your recent property loans & will now certainly be looking out for more of your upcoming & secondary market opportunities to increase my investments on your platform

My experince with the AC AM is that -- with the exception of a lender wanting to sell loan parts in one of the loans that underwriters are trying to exit, and which have lots of loan parts offered for sale -- it's working for me. Whenever I've wanted to sell any loan parts, they've been bought by others within minutes of being listed for sale on the AM.

And, like MONEY, I've managed to pick up some loan parts in the AM, though nothing like the amount MONEY has bought. And that's not for want of trying. What's your secret MONEY?

Anyone simply looking at the AM info on the AC website could be forgiven for thinking that nothing's happening except for a few underwriter parts that are being sold. The introduction of AutoInvest, however, has made that AM web page somewhat misleading. Any loan parts offered for sale are pretty much instantly processed and won't ever show up on the AM page because they disappear again so quickly.  So parts are being sold and bought, but it's happening so quickly that it isn't clear that's what's going on unless you happen to be in the selling or buying side of one of the indicated 'specials'.

The ability to sell at a profit is useful. Consider the tax implications. A 40% tax payer could sell a loan at a price that is profitable for them compared to their future income tax liability and it could be bought by a 20% tax payer at a price that is still profitable for them just due to the income tax differences. Same for 20% selling to 0%. It's particularly interesting for loans to individuals because those are apparently "simple loans" and not liable to either income tax or capital gains tax on sale. But even for loans for a business purpose the switch from income tax to CGT can be lucrative. What it takes to benefit from this tax treatment is the ability to set a premium over the balance remaining that is sufficient to provide a return reasonably equivalent to the after income tax return of keeping the loan, at some point before the loan ends.

It's not likely to be desirable to allow a sufficiently high premium to make it very profitable to flip a loan by investing and selling on day one. That would distort the market a lot. A little profit for liquidity would be OK but a little would have to be enough to ensure that the annualised return from flipping is below the annual return from holding. That means well under 1% permitted on day one because if a loan could be obtained and sold in a week that's 52 weeks of 1% profit and a very approximate 52% a year return. Rather greater than the interest return. That does assume sufficient loan supply to make this viable, of course. Probably won't be enough supply here for quite a while. A minimum holding period of a month or two eliminates much of the gain from a 1% premium, with an allowance for some "free" sales for non-flipping purposes that most investors would be doing. But a 1% premium isn't enough later in a loan for the tax advantage so some escalating allowable premium may be useful. and investors who really are trying to build their loan books do deserve some payment in lieu of interest for the time it takes to sell unless they get pro-rated loan interest on the loans they sell for the time from offering to sale.

At Bondora this is one reason I look to sell a loan somewhere into the last twelve months of say a 60 month loan. The maximum profit from resale there is 3.5% on the whole balance sold (5% premium less 1.5% seller fee). That has to be compared to the interest to be paid after tax on the loan capital balance that is rapidly declining towards the end of the loan. There's a point where 3.5% with no income tax beats the remaining taxable interest income. Flipping is an issue at Bondora, the 3.5% premium is available from day one. Most investors are still trying to increase their amount lent and the supply doesn't allow flipping of very large amounts so that limits the flipping scope but it's still sub-optimal early on.

Another thing to consider is whether impaired loans can be sold. It's very common at Bondora to sell loans that are late, including loans that have missed one whole payment. Not possible after 60 days when the loan enters default status. The state is very clearly indicated to buyers, who get to see the whole payment and debt collection history. What this does is allow those who want to speculate on collection to buy from those who don't. It's quite likely at Bondora the defaulting loans will turn out to be profitable, particularly if purchased at a discount before default. Not certain but that's how the trend is looking.

One of the main points of difference and attractiveness for SS to date, for me, is the extreme simplicity and the fact it just "does what it says on the tin".  Money in or out takes a matter of minutes, investment takes seconds, I know what return I'm going to get and at least up until now that's always what I've got.  I really welcome the fact that there will soon be a way to potentially exit loans early if I find myself needing the money, but more importantly to diversify my loans into some of those I was unable to be involved with when they were initially made.  From a purely personal point of view, I want that to remain just as simple as the inital investment - with no having to think about premiums or any other complexity.  There are other platforms that allow fancy footwork, arbitrage, flipping, etc, some of which I am also involved with, but I'd hate to see the SS vanilla system get messed up with complexity.

With the exception of the two recent property bridges, which will be paying interest monthly.  Your point still stands though, of course.

If it took a long time to sell the loan part then the seller would obviously have dead money in limbo for all that time.  Is there any reason that interest can't accrue to the seller until the point it is actually sold?  As it is proposed above I would call that interim period of interest a variable charge for the service, since SS get to keep the interest from that time, and the seller doesn't know up front how much time their money will be dead for.

I think the question is - say I offer a part for sale today, and someone buys it in a week. Where does the interest for that week go? To me, to the buyer, or to Saving Stream?