wapping35
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Post by wapping35 on Nov 7, 2016 8:01:41 GMT
For me the PF changes are/have been poorly timed/ communicated. I understand the rationale now and broadly accept it.
But they are occurring at the same time as the Coverage Ratio fell below 125%, which implied to me at least that the change indicated they were willing to accept a lower Coverage Ratio.
I think on their website they should make plain that this is not the case. I know they have said so in the Comments section (to others) and on email (to me) but only after prompting.
W35
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mark123
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Post by mark123 on Nov 7, 2016 20:05:02 GMT
Excellent detailed article on FT which explains the rationale behind the provision fund changes and the impact on the risk to lenders. ftalphaville.ft.com/2016/11/07/2178819/wake-me-up-when-online-lenders-are-done-turning-into-banks/As I read the changes, loans in 2014 and 2015 have performed less well than expected. The provision fund coverage has dropped steadily over the last year from 160% to 90% (on a cash basis) or 120% (including expected future contributions from current borrowers). This compares with the RS minimum target of 125%. With the existing contract RS might have to close the business (call a resolution event) if the provision fund drops below 100% of expected losses. RS appear to be in process of changing the contract so that, in the event of the fund dropping into a danger zone, lenders get a haircut - with our interest (and even our capital repayments) going into the fund owned by RS at their discretion. The proposed contract appears to mean that lenders bail out RS in this event. I don't mind that. It seems to me to make investing safer as we risk losing a few percent rather than a drastic resolution event. What I do mind is the apparent lack of transparency - quietly absorbing our trust into RS ownership - saying they will appoint an independent fund director then failing to do so for a year - using provision funds for loans (until the outcry) - counting expected revenue towards the fund target - and now lack of openness about this new contract. The FT article is clear. The RS blog seems to me far less so. And there is the new lock-down mentality of removing the informal insights they used to allow Kevin to post. I apologise if I have got any of the above wrong. But, of course, it is RS decision that they no longer comment on incorrect impressions posted here. So I am in the odd position of winding down my investment because of a change which I perceive makes lending safer... ... because of the steady erosion of trust. My message to RS, as a critical friend, is "if you make substantial changes to your business model, make sure you engage with your customers and communicate clearly and honestly - it is the worst time to go silent or appear to lack openness". Good luck, Mark
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jlend
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Post by jlend on Nov 8, 2016 8:07:13 GMT
Regarding my questions on the Provision Fund data I got this today. Good Morning, I thought I would get back to you regarding you email below. Firstly I’d like to let you know, that we are currently undertaking a significant review of the data provided both on the website and via the downloadable loan book. This review is likely to take some time due to the complex nature of the data a company such as ours deals with. We are acutely aware that accuracy of the data we provide, is of utmost importance to many of our lenders, who keep a close eye on the figures and use this to assess the risk of the current and future investments with us. We would politely ask you to bear with us until this review is competed and I will ensure we get back in touch once the review has been completed. In terms of my example of Institutional lending, this was simple an example to illustrate that some of our figures include certain data sets and some don’t. I was not intending to indicate this was a reason for the discrepancies we are currently looking at. The discrepancies are likely due to multiple factors, hence the need for the current review we are undertaking. We do appreciate your patience in this matter; if there is anything else I can help with in the mean time, please don’t hesitate to get in touch. Kind regards, JP Seaman Head of Customer Service | RateSetter Tel: 020 3176 7796 6th Floor, 55 Bishopsgate, London, EC2N 3AS Did they say when they were targeting to complete the review ?
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wapping35
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Post by wapping35 on Nov 8, 2016 8:53:25 GMT
No time lines are given and they have just asked that I am patient.
I originally flagged the issue 3 weeks ago.
I think it could be a month or so more..
I have told them that in the absence of reliable data I cannot evaluate the investment and thus even ignoring the reduced headline rates I am drawing down.
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Post by propman on Nov 8, 2016 17:33:07 GMT
Belt and braces, I have posted this here as well. 15 minutes ago jlend said: www.p2pfinancenews.co.uk/2016/11/03/ratesetter-interest-buffer/Just a news story on the recent announcement "In the event that the provision fund runs out, the firm estimates that there is a £30m “interest buffer” sitting beneath the fund. This figure equates to the lifetime interest owed on existing loans, with a discount ("discount"??) applied by predicting how many loans will repay early or not at all." So, how will that be calculated? How can you predict in a crisis? More info needed, but I am pleased the forum and industry pundit concerns at last being debated and responded to by RS. Will westonkev review his running for the hills threat?! I don't want to go into details of the calculations, because quite simply I don't know what they've done. However the logic of this capital buffer makes complete sense. It would be crazy to call a resolution event and probably wind down the platform because defaults increased so that some interest return expectations were not fully made, but capital was safe. I'd rather carry on getting reduced (say 3-4%) lender interest instead of losing the 6% totally and entering a resolution event with an unknown pay-down period. As an example, if Zopa had such a resolution event when not all expected capital was to be returned they'd have closed down during 2009-2010. And that would have been ridiculous, because they still kept most peoples capital safe and provide some interest. And are now in a much safer position. Kevin. I haven't checked the calculations, but one poster on the Z forum claimed that if the original bad debt expected had been deposited into a PF, then Zopa would have had sufficient funds to pay all of the defaults even from 2008-9 due to the low default rates in earlier years.
Personally I am very nervous of the changes. As I understand it, the new PF (which in short order will become all the remaining PF) is held by a company not for the benefit of investors, but which has a limited liability to pay out the investors in the event of a default. The profits of this company are due to its shareholders not the investors and there is no information as to what restrictions are placed upon its activities. It now appears that this company will be given the right to take whatever proportion of the income and, if it deems it necessary, the capital of RS investments so as to make it solvent. This transfer is to be absolute with no mention of any obligation to repay to investors if it over estimated its liability. It also appears that the charge will not only apply to the investments held while the PF is under threat, but in proportion to the interest earned (I am less clear re how the capital will be withdrawn, ie whether in proportion to capital repaid, loans held or otherwise). This would mean that those running down their loanbooks would bear a significant proportion of the losses even 'though there exposure may well be low (ie only loans that have made payments for a significant period with limited remaining payments).
Remember that we have no say in the management of the PF or RS and so in future we could see the PF controlled by an entity charging significant fees to the PF which we would be required to replace. I agree that RS has become safer in the person of RMM Ltd, but I do not think the investments provided by it have been.
Personally in line with the tone of the FTville article, I would prefer a more P2P solution. I have previously advocated the end of the resolution event, but I think it should have been replaced by a lowering of payouts consistent with the amount in the fund as a proportion of the estimate of bad debts (deferred if required to deal with the delay in realizing the PFs assets). A new PF could then be set up if required for future loans. This would retain an incentive to prudently fund the PF, while leaving the repayments due from borrowers to investors per the P2P concept.
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Post by ruralres66 on Nov 8, 2016 18:05:31 GMT
You make some very pertinent points which would be good to share with Kadhim Shubber <kadhim.shubber@ft.com>? I feel this needs a good Independent journalistic airing as well on this independent forum?
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mark123
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Post by mark123 on Nov 8, 2016 20:23:54 GMT
Jack101 posted on the blog about the proposed changes to Lender Terms:
The reply from RS was: Can anybody with some legal understanding comment on the ability of RS to materially change contract terms of existing lending?
Thanks, Mark
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adrianc
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Post by adrianc on Nov 8, 2016 20:34:01 GMT
For me the PF changes are/have been poorly timed/ communicated. I understand the rationale now and broadly accept it. But they are occurring at the same time as the Coverage Ratio fell below 125%, which implied to me at least that the change indicated they were willing to accept a lower Coverage Ratio. Add in a third bit of unfortunate timing - here at P2PIF, at least - with westonkevRS having gone quiet then resurfaced having parted company. It all starts to set our warning radar off, especially when it all happens at the same time.
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jlend
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Post by jlend on Nov 8, 2016 20:34:59 GMT
Jack101 posted on the blog about the proposed changes to Lender Terms: The reply from RS was: Can anybody with some legal understanding comment on the ability of RS to materially change contract terms of existing lending? Thanks, Mark I don't know. The change from a trust to a limited company was not retrospective. The existing loans remained protected by a provision fund in the trust rather than the new limited company fund
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jlend
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Post by jlend on Nov 16, 2016 13:55:33 GMT
There certainly seems to be a lot of changes going on related to the provision fund that Ratesetter are choosing to keep internal to themselves unless lenders ask questions. Of course they are free to do what they like - but it would be good if changes were more visible to those that are interested. It may be a sign of things to come as Ratesetter aims to be more of a mainstream product. I assume this changed some time ago - some of the sellout fee (if rates have fallen since the original loan) use to go to the provision fund. Does anyone remember this changing? "There is another potential cost as well. If rates rise, the contract must be refinanced at a higher rate. In this situation, the Lender will also incur an “Assignment Fee”. The assignment fee is used to compensate the new Lender (“the assignee”) for being matched with contracts with an interest rate that is less than his request. This ensures contracts can always be sold, though at potentially a higher cost if rates have moved against you – it also ensures there is no benefit to Sellout only to re-lend at better rates. If rates have fallen, the excess interest – rather than going to you or the new lender – goes to the Provision Fund." I see the money now goes to Ratesetter "Also, there is another potential cost: at the time of withdrawing your money, the rates available on RateSetter may have risen since you started to invest which would mean a gap needs to be filled between your rate and the rate needed for the new money matched to your loans. Our system instantly works out what that gap is and lets you know the amount to pay to fill that gap. It’s only fair and is usually a small price to pay to get early access your money. However, if rates have gone down you won’t get the benefit – that accrues to RateSetter in return for running and managing the early withdrawal service." Ratesetter reply to why it was changed "It was a commercial decision"
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jnm21
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Post by jnm21 on Nov 16, 2016 23:42:22 GMT
I see people complaining about how the changes were communicated - may I ask how they were communicated? As an investor they have not been communicated to me - I knew changes were afoot, but this March 2017 change is news to me.
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jnm21
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Post by jnm21 on Nov 16, 2016 23:45:58 GMT
Can anybody with some legal understanding comment on the ability of RS to materially change contract terms of existing lending? Thanks, Mark I would love to know how changes which affect my 5 year contracts can be made without offering me a fee free exit or better still compensation - is that not what a contract is? As for making them without telling me... I do wonder how that works too!
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jlend
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Post by jlend on Nov 17, 2016 6:44:02 GMT
I see people complaining about how the changes were communicated - may I ask how they were communicated? As an investor they have not been communicated to me - I knew changes were afoot, but this March 2017 change is news to me. They are on a Ratesetter blog and on the ratesetter notices when you log in. I can't remember they may also be on an email
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Post by ruralres66 on Nov 17, 2016 6:54:15 GMT
www.ratesetter.com/blog/article/responding-to-feedback-on-provision-fund-flexibilityThanks I see that Blog post has just appeared today. I will also however await their response since whilst the blog explains why they consider a ratio of well below 150%-125% as okay, due to this "discounted lifetime interest on existing loans" now being taken as a tangible PF asset (personally I am not convinced given it is illiquid, but it is an explanation), it does not answer: 1) Why the Projected Bad Debt increased from 2.6% to 2.8% on Monday 2) The Coverage Ratio falling 10% (129% to 119%) in 3 days. 9% of which on Monday. 3) Why on the PF page there are conflicting data sets (actual historic default rates 2014-16) . RS has previously indicated by email to me that they will confirm which of those numbers are correct and which are incorrect, presumably they will also correct the incorrect data. I have pasted the link to the blog. It took me at least a bit of time to find it. Thanks again, W35
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jlend
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Post by jlend on Nov 17, 2016 13:31:36 GMT
www.ratesetter.com/blog/article/responding-to-feedback-on-provision-fund-flexibilityThanks I see that Blog post has just appeared today. I will also however await their response since whilst the blog explains why they consider a ratio of well below 150%-125% as okay, due to this "discounted lifetime interest on existing loans" now being taken as a tangible PF asset (personally I am not convinced given it is illiquid, but it is an explanation), it does not answer: 1) Why the Projected Bad Debt increased from 2.6% to 2.8% on Monday 2) The Coverage Ratio falling 10% (129% to 119%) in 3 days. 9% of which on Monday. 3) Why on the PF page there are conflicting data sets (actual historic default rates 2014-16) . RS has previously indicated by email to me that they will confirm which of those numbers are correct and which are incorrect, presumably they will also correct the incorrect data. I have pasted the link to the blog. It took me at least a bit of time to find it. Thanks agai W35 I am not sure I do understand the answer. The discounted interest was already factored into the coverage ratio when it was 1.3. Now it is 1.19 they are assuming even less interest will be recovered. Albeit they think it may not be this bad.
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