mark123
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Post by mark123 on Nov 18, 2016 15:00:20 GMT
Mark 8 Nov:
Ratesetter 10 Nov:
Mark 10 Nov:
No comment from Ratesetter after a week.
Just in case I haven't explained my question properly: suppose my loan portfolio contains a £5,000 loan to a borrower which was made a year ago and is being repaid on time. Under the rules in place when I made the loan, all interest and repayments go to me. Under the proposed rules, interest (and potentially capital repayments) may go to the provision fund instead. The provision fund was once a Trust but is now owned by RS.
Old rules - repayments belong to me. New rules - some repayments can be paid to a RS subsidiary instead
Have I misunderstood?
Am I alone in thinking that a general provision to change the Terms would not allow RS to retrospectively divert repayments from me to RS?
I would welcome comments from somebody with a legal background. Or at least a reply from RS on their blog.
All the best, Mark
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Post by geoffrey on Nov 19, 2016 8:42:58 GMT
All this retrospective changing of rules smells bad and is very worrying. Time to run down my investment here. I haven't been able to reinvest at a half-way decent rate for a long time anyway.
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Post by davee39 on Nov 19, 2016 10:25:39 GMT
New rules - some repayments can be paid to a RS subsidiary instead RS have not explained the change very well. You have misunderstood the old rules. The original idea was that all loans would be covered by the provision fund so a £5000 investment could go to a single borrower and would be repaid on default. This is what happens now. The rules also indicated that if the provision fund was likely to be unable to repay all defaults in full a resolution event would pool all loans, sharing the defaults equally, and use the provision fund to compensate lenders equally, but not fully. It was expected that such an event would require RS to close the platform for new business and wind down. The new rule pools potential losses in a similar way but carries a degree of spin. Firstly the losses are dressed up as potentially only losing a small amount of interest, secondly the platform would stay in business and adjust operations to restore normal conditions. At the same time we are seeing the apparent cover for expected losses reduced significantly. My conclusion is 1) In a low interest environment RS is struggling to grow and needs to reduce provision fund contributions to make the loan APR attractive 2) With the reduced growth the loan book enters a more mature profile with an increased risk of loss showing over any period 3) RS have identified an increased risk to the overall strength of the provision fund 4) Zopa have applied for a Banking licence, indicating that that they are also struggling with the current P2P model I was overweight in RS and am gradually withdrawing repayments, these are actually going elsewhere at lower rates to reduce my overall risk. At the same time I am still encouraging newcomers to make modest investments, moving out of zero paying savings accounts.
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alender
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Post by alender on Nov 19, 2016 11:38:53 GMT
The problem as I see it is RS is taking investor funds to place in the PF (without asking), there are no legally binding rules on the PF (as far as I know) and RS directors control the PF. The PF has already been used by RS to fund its own loans to reduce rates to investors (only stopped due to the outcry), the question is can we trust RS to do the right thing or will they get desperate and use this money as they see fit propping up RS. They may use the money to avoid a lock in of funds in the rolling market as this would probably end RS, in other words it could be used to help an RS policy of reducing rates to investors by using low cost short term funds for longer term higher rate loans.
If RS cannot keep the PF properly funded and their borrowers properly checked for credit worthiness I would feel more comfortable with the old rules where all activity is stopped and the funds are pooled to repay all investors. This change looks like throwing good money after bad to help keep RS in business for a bit longer.
This is just one in a long number of things which have stopped me investing in RS and I am running down my funds.
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james
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Post by james on Nov 22, 2016 8:58:30 GMT
RS have not explained the change very well. I think that is unsurprising. First they make a business decision that instead of some sell out gain if done after interest rate drops going to the provision fund RateSetter will take that money instead. Then they say that lenders, including on past loans, may be forced to pay a cut of interest or capital because the provision fund is under-funded. To some extent it seems that the under-funding is just because RateSetter decided they would rather have the money and make all lenders pay the bill for their extra cut. What to do? Bury it, of course, and hope that nobody notices that there's a connection between the two events. Meanwhile it's normal in the financial services world for a substantial change in terms and conditions in an investment product to allow a no charge exit from the product. So now appears to be the time for some who dislike things to exit at no cost and take them to the FOS if they decline, as I expect they will.
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Post by ruralres66 on Nov 22, 2016 11:06:09 GMT
Please see my other post on this thread about RS Sellout!
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jlend
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Post by jlend on Nov 22, 2016 13:28:49 GMT
RS have not explained the change very well. I think that is unsurprising. First they make a business decision that instead of some sell out gain if done after interest rate drops going to the provision fund RateSetter will take that money instead. Then they say that lenders, including on past loans, may be forced to pay a cut of interest or capital because the provision fund is under-funded. To some extent it seems that the under-funding is just because RateSetter decided they would rather have the money and make all lenders pay the bill for their extra cut. What to do? Bury it, of course, and hope that nobody notices that there's a connection between the two events. Meanwhile it's normal in the financial services world for a substantial change in terms and conditions in an investment product to allow a no charge exit from the product. So now appears to be the time for some who dislike things to exit at no cost and take them to the FOS if they decline, as I expect they will. It was a strange thing to change. They say it was not a material amount. So that begs the question what amount was it and why change it? It does seem some changes are not well thought through in terms of communication and at least the perception of reducing the funding/governance of the provision fund. This change wasn't communicated at all from what I can see unless you happened to read the small print of the lender terms and asked the question. It was similar with the taking away of the £500k loan that Ratesetter gave to the provision fund that was recently removed. This also reduced the money in the provision fund and I assume impacted the coverage ratio. Whether the loan served much useful purpose is difficult to know without knowing the terms of the loan - e.g. would ratesetter have written off the loan if the provision fund got into trouble. There just seems to be quite a few things that at least appear to weaken the fund and governance that start to mount up - Back tracking on the appointment of the independent director - Removing a funding stream from the provision fund - Removing the Ratesetter loan from the provision fund - Now the change to reduce lender interest in times of stress in the provision fund - with no corresponding reduction in the borrower fees paid to Ratesetter so they take a hair cut in income as well and put extra money in the provision fund I am still a big fan of Ratesetter and have a large amount with them. It would help if they got all the changes done and we had a period of stability :-)
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wapping35
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Post by wapping35 on Nov 22, 2016 14:51:49 GMT
I see the Coverage Ratio has slipped another 1% to 118% today...A new low... And the Actual Default rates on the 2014 & 2015 continue to rise to now 3.306% and 2.503%. I also see the projected lifetime default rates for 2014,15 & 16 have also been upped... Now 3.92%, 3.63% & 3.43%.. www.ratesetter.com/aboutus/statisticsWith this in mind I guess RS will shortly increase the 2.8% overall Projected default rate for the PF and thus further reduce that 118%. Indeed the 118% implies the maximum default rate the PF can take is 3.304% (1.18x2.8%) which is short of the 3.43% Projected lifetime default rate for 2016 written loans, let alone the rate for 2014 & 2015 ones. W35..
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jlend
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Post by jlend on Nov 22, 2016 16:03:22 GMT
I see the Coverage Ratio has slipped another 1% to 118% today...A new low... And the Actual Default rates on the 2014 & 2015 continue to rise to now 3.306% and 2.503%. I also see the projected lifetime default rates for 2014,15 & 16 have also been upped... Now 3.92%, 3.63% & 3.43%.. www.ratesetter.com/aboutus/statisticsWith this in mind I guess RS will shortly increase the 2.8% overall Projected default rate for the PF and thus further reduce that 118%. Indeed the 118% implies the maximum default rate the PF can take is 3.304% (1.18x2.8%) which is short of the 3.43% Projected lifetime default rate for 2016 written loans, let alone the rate for 2014 & 2015 ones. W35.. We may well see the amount of money in the provision fund fall around month end if a few more borrowers struggle to make their end of month payment or are a little late paying. We have seen it happen before. Any bets for the coverage ration this time in December ? I don't think we'll see another drop like we have from 131% to 118% but nothing is guaranteed.
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wapping35
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Post by wapping35 on Nov 22, 2016 17:00:16 GMT
Well my guess would be it will drop to 115% late December and 110% late January/Feb.
I expect that 2.8% will be rising to 3.0% over the next 3 months.
However there is a possibility that the number on the website is incorrect, since RS have emailed to me they are in the auditing the statistics and gradually correcting them. I can only hope that might mean the default rate is in fact lower (not higher).
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mark123
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Post by mark123 on Nov 27, 2016 10:48:08 GMT
Hi, I would be grateful if somebody could help me understand RS bad debt data. The first 4 rows of the table below shows data in £000 published by RS here. I have multiplied the actual and expected debt rate by the total lent to estimate the debt in £000. The last row shows the "expected debt" less the "actual debt", which should be the debt still to materialise. And the last column expresses these three rows as a percentage of the total amount lent ... a weighted average of the percentages by year RS publish. Year | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 YTD | Total | Percent of total | Lent
| 11,813
| 32,805
| 104,781
| 293,405
| 517,987
| 600,244
| 1,561,036
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| Actual debt
| 0.58% | 0.90%
| 1.76%
| 3.31%
| 2.51%
| 0.70%
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| Expected debt | 0.59%
| 0.92%
| 1.93%
| 3.92%
| 3.65%
| 3.43%
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| Actual debt % x lent
| 69
| 295
| 1,844
| 9,712
| 13,001
| 4,202
| 29,123
| 1.87%
| Expected debt % x lent
| 70
| 302
| 2,022
| 11,501
| 18,907
| 20,588
| 53,390
| 3.42%
| Expected - actual
| 1
| 7
| 178
| 1,790
| 5,905
| 16,387
| 24,267
| 1.55%
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So my questions are: 1. What do RS mean by "Expected bad debt rate <2.8%" - is it the expected debt in total (which appears to be 3.42%) or the debt which yet to materialise (which only 1.55%) or something else? 2. What do RS mean by "Expected losses £18,690,301" as they appear to have already suffered 29,123 and expect another 24,267 to come. Just to be clear, I do not doubt the accuracy of the figures RS quote. I am trying to understand what the figures published on the Provision Fund Data page represent. Thanks, Mark
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wapping35
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Post by wapping35 on Nov 28, 2016 8:29:44 GMT
I have questions emailed to RS on the PF coverage ratio and 2.8% expected bad debt, but on your questions I believe RS's current position is: (if we had an RS rep they of course could provide an exact answer). 1) The 2.8% "expected bad debt" is computed using the actual bad debt seen on loans around the 18-30 month period of maturity. i.e. It is not the same as the eventual bad debt on the existing loan book to maturity. 2) The 2.8% relates to the current loans outstanding of around £666m x 2.8%.. The page you are looking at are all bad debts since 2011-2016, which includes bad debt already paid by the PF not expected BD on just the current loan book (£666m current loans v the £1, 561m total loans written since 2011). You will note that the expected bad debt approaches the actual when the 5 years is up (e.g. Expected for 2011 nearly equals Projected). So my question to RS is why use the actual bad debts "mid term" rather than the expected bad debt for the PF. That is around 3.4-3.6% not 2.8% ? Really only RS can answer this... W35 Edit: Please see RS's email answer as well on the Statistics thread: p2pindependentforum.com/thread/6409/statistics?page=2&scrollTo=154824
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Post by ruralres66 on Nov 30, 2016 11:07:44 GMT
Hi, I would be grateful if somebody could help me understand RS bad debt data. The first 4 rows of the table below shows data in £000 published by RS here. I have multiplied the actual and expected debt rate by the total lent to estimate the debt in £000. The last row shows the "expected debt" less the "actual debt", which should be the debt still to materialise. And the last column expresses these three rows as a percentage of the total amount lent ... a weighted average of the percentages by year RS publish. Year | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 YTD | Total | Percent of total | Lent
| 11,813
| 32,805
| 104,781
| 293,405
| 517,987
| 600,244
| 1,561,036
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| Actual debt
| 0.58% | 0.90%
| 1.76%
| 3.31%
| 2.51%
| 0.70%
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| Expected debt | 0.59%
| 0.92%
| 1.93%
| 3.92%
| 3.65%
| 3.43%
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| Actual debt % x lent
| 69
| 295
| 1,844
| 9,712
| 13,001
| 4,202
| 29,123
| 1.87%
| Expected debt % x lent
| 70
| 302
| 2,022
| 11,501
| 18,907
| 20,588
| 53,390
| 3.42%
| Expected - actual
| 1
| 7
| 178
| 1,790
| 5,905
| 16,387
| 24,267
| 1.55%
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So my questions are: 1. What do RS mean by "Expected bad debt rate <2.8%" - is it the expected debt in total (which appears to be 3.42%) or the debt which yet to materialise (which only 1.55%) or something else? 2. What do RS mean by "Expected losses £18,690,301" as they appear to have already suffered 29,123 and expect another 24,267 to come. Just to be clear, I do not doubt the accuracy of the figures RS quote. I am trying to understand what the figures published on the Provision Fund Data page represent. Thanks, Mark
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Post by ruralres66 on Nov 30, 2016 11:11:07 GMT
From Notices on RS website 11th November;
...."For the avoidance of doubt, we are making this update because it is always important to consider adverse scenarios, however remote – but we are not anticipating such scenarios! The purpose of this update is to introduce a structure that allows stability in the event of worse than expected outcomes. We believe this is in the overall interest of our investors.
Our intention is for the new Lender Terms to be effective from 1 March 2017. We will post further information in advance of that date.
Illustration Provision Fund contributions 16,000,000 Provision Fund Contractual Future Income (discounted) 6,100,000 Provision Fund total value 22,100,000 Expected losses 18,400,000 Provision Fund coverage ratio 120%
Provision Fund total value 22,100,000 Lifetime interest on existing loans (discounted) 31,700,000 Provision Fund + interest buffer 53,800,000 Expected losses 18,400,000 Capital coverage ratio 292%"
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mark123
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Post by mark123 on Nov 30, 2016 14:12:55 GMT
Hi Questions I asked here, whether bad debts are running at "<2.8" or 3.4% (the calculation I made from the RS statistics page), are answered in this excellent FT article: Defaults gather, and now our Ratesetter watch begins
My calculation of £24m apparently includes £3m of loans not covered by the provision fund so it should be £21m. The question that started this thread back in September was: "Provision fund cash below anticipated bad debts?" The question now should be: "Provision fund cash plus expected future income below anticipated bad debts?" The answer is: just. The actual coverage ratio could be 1.04x and dropping. Well below RS's 1.25x to 1.50x target and the 1.19x quoted in the provision fund page. They say "At RateSetter, we are big believers in transparency" but their quoted bad debt rate and coverage ratio, based on obscure calculations, have to make one question that. As ever, I apologise if I have got any of this wrong. I have been a big fan of RS but they have only themselves to blame if lenders post opinions here in good faith and they chose not to post corrections and explanations. Still waiting for Kevin2.Best wishes, Mark
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