jw01
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Post by jw01 on Oct 7, 2016 11:14:34 GMT
The Loans Overdue figure has increased dramatically in the last couple of months. Should we be concerned?
I know it says that it "includes 6 loans with agreed extension, pending refinance, totalling £3,895,000", but that still leaves £3m without agreed extension in September compared to £800K in July. And how many had agreed extensions in August?
It would be useful to have a separate "agreed extension" line.
But it would also be useful to have an explanation of the others' increase.
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lobster
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Post by lobster on Oct 8, 2016 10:24:37 GMT
The Loans Overdue figure has increased dramatically in the last couple of months. Should we be concerned? Is there an official definition by FS of when an "overdue" loan becomes a "defaulted" loan ? Obviously for marketing purposes, "overdue" looks a lot better than "defaulted", and without such a definition, I'm tempted to believe that quite a number of the "overdue" loans should be reclassified as "defaulted" .
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ilmoro
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Post by ilmoro on Oct 8, 2016 10:34:52 GMT
The Loans Overdue figure has increased dramatically in the last couple of months. Should we be concerned? Is there an official definition by FS of when an "overdue" loan becomes a "defaulted" loan ? Obviously for marketing purposes, "overdue" looks a lot better than "defaulted", and without such a definition, I'm tempted to believe that quite a number of the "overdue" loans should be reclassified as "defaulted" . 14 days after the demand letter is sent, unless the borrowers response persuades FS to allow more time, so actual answers once FS decides borrower really isnt going to pay. The pawn loans are the simplest in that respect, payment late, FS notices and sends demand letter, no response defaulted after 14 days.
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mikes1531
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Post by mikes1531 on Oct 8, 2016 12:06:43 GMT
Is there an official definition by FS of when an "overdue" loan becomes a "defaulted" loan ? 14 days after the demand letter is sent, unless the borrowers response persuades FS to allow more time, so actual answers once FS decides borrower really isnt going to pay. The pawn loans are the simplest in that respect, payment late, FS notices and sends demand letter, no response defaulted after 14 days. FS's action is no doubt affected by what they expect will happen after a default is declared. With small pawn loans, of readily marketable items, they can feel reasonably confident of achieving something close to the 'value' and wrapping things up in a reasonable time. (Though there always will be exceptions, such as the carpets.) And a borrower is unlikely to call in the lawyers and try to sue FS for failing to obtain a good price if the perceived shortfall is a relatively small amount. Property is a completely different kettle of fish. AIUI, appointing LPA receivers is a requirement, and that costs. Achieving a satisfactory price is more difficult in many cases. And if the borrower has a lot to lose then they're more likely to bring in the lawyers. So FS have to be a lot more cautious, and proceed very slowly and carefully. An amicable resolution is more likely to produce a good result than an adversarial one, so FS are more likely to refrain from calling in the big guns until they become convinced that the softly, softly approach isn't going to produce a good result.
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ashtondav
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Post by ashtondav on Oct 8, 2016 16:00:27 GMT
I will be quite happy with a gross return of 6% to 7%, so fully expect non recovery of a significant number of loans, and delayed payments also reduce the return. Let's face it if returns were 10% to 12% gross every hedge fund in the country would be at it.
Property is not easy to shift in our somewhat interesting times.
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Post by Deleted on Oct 8, 2016 17:22:32 GMT
I will be quite happy with a gross return of 6% to 7%, so fully expect non recovery of a significant number of loans, and delayed payments also reduce the return. Let's face it if returns were 10% to 12% gross every hedge fund in the country would be at it. Property is not easy to shift in our somewhat interesting times. The return you quote would be really extremely disappointing. You are talking about loosing 50% of your gains. Secured loans have a security behing them and LTV max is 70%. Even thinking to the possibility of some wrong valuations, I think it will be difficult to have a scenario where so many of your loans default and you have a recovery lower than 50%.That would be the absolute worst case scenario in my view and it is far in the current economic climate (yes, some properties are not easy to sell at full price, but start putting 15-20% discounts off the fair value...)
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mikes1531
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Post by mikes1531 on Oct 8, 2016 21:11:58 GMT
I will be quite happy with a gross return of 6% to 7%, so fully expect non recovery of a significant number of loans, and delayed payments also reduce the return. Let's face it if returns were 10% to 12% gross every hedge fund in the country would be at it. Property is not easy to shift in our somewhat interesting times. The return you quote would be really extremely disappointing. You are talking about loosing 50% of your gains. Secured loans have a security behing them and LTV max is 70%. Even thinking to the possibility of some wrong valuations, I think it will be difficult to have a scenario where so many of your loans default and you have a recovery lower than 50%.That would be the absolute worst case scenario in my view and it is far in the current economic climate (yes, some properties are not easy to sell at full price, but start putting 15-20% discounts off the fair value...) @hor1997: All it would take is one loan where 50% of capital is lost to reduce the return on a portfolio of 12 loans from the nominal 12% to less than 7%. (11 loans earn 12% in a year = 1.32 loans' worth of profit. Minus half a loan's worth of loss, leaving 0.82 loans' worth of profit. Spread over 12 loans = 6.83% profit per loan.) And that assumes all loans run a full 12 months. If the average term is 9 months, then one 50% loss would reduce the return on a portfolio of 15 loans from the nominal 12% to less than 7%. (14 loans earn 9% in 9 mo = 1.26 loans' worth of profit. Minus half a loan's worth of loss, leaving 0.76 loans' worth of profit. Spread over 15 loans = 5.07% profit per loan, which over 9 mo is 6.76% p.a.) One significant loss among a portfolio of 12-15 loans, where the other loans perform according to plan, doesn't seem unreasonably unlikely to me. And as a participant in a number of defaulted AC loans where the security sale proceeds are looking like they'll be significantly below the loan amount makes me think that a 50% capital loss isn't as extreme and unlikely as we might hope it is.
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SteveT
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Post by SteveT on Oct 8, 2016 22:10:21 GMT
Remember also that in some of the loans here, the "max 70%" LTV is against a notional value based on the expectation of planning being granted, or something else happening as intended, which is far from guaranteed. Caveat emptor.
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ashtondav
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Post by ashtondav on Oct 9, 2016 11:02:33 GMT
I really don't think it prudent to budget a return over 7%.
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Post by mrclondon on Oct 9, 2016 11:40:14 GMT
I really don't think it prudent to budget a return over 7%. Absolutely. I've said many times on this forum to expect more than 7% pa yield on p2p loans across a full economic cycle is pure fantasy, and it may be a lot lower than 7%. With the data available since zopa started in 2005 and Funding Circle, Ratesetter and ThinCats in 2010 ish, the mathematical modelling that platforms offering packaged accounts have done shows that 7% is just about the best yield than can be achieved after capital losses. There is a reason the ThinCats TLC recent issues have targetted 7% return, along with AC's GBBA & GEIA also at 7%, and the 6 to 7% yield on 5 year Ratesetter market, and Funding Circle's current prediction of just over 7% long run yield. There is currently no evidence from any UK p2p platform that a long run yield of significantly over 7% is achievable. Roughly half of a 12 to 13% yield is compensation for future capital losses.
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littleoldlady
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Post by littleoldlady on Oct 9, 2016 18:20:26 GMT
I agree to an extent. 7% is as good a figure as any for the average that might be achieved across all lenders across all platforms across all loans. But it is IMO a very dangerous figure to quote as it may lead to the impression that this is a likely return for any well diversified investor, when in fact it could be anywhere from 12% down to a very nasty negative number.
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phil
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Post by phil on Oct 10, 2016 7:18:21 GMT
@hor1997 : All it would take is one loan where 50% of capital is lost to reduce the return on a portfolio of 12 loans from the nominal 12% to less than 7%. (11 loans earn 12% in a year = 1.32 loans' worth of profit. Minus half a loan's worth of loss, leaving 0.82 loans' worth of profit. Spread over 12 loans = 6.83% profit per loan.) And that assumes all loans run a full 12 months. If the average term is 9 months, then one 50% loss would reduce the return on a portfolio of 15 loans from the nominal 12% to less than 7%. (14 loans earn 9% in 9 mo = 1.26 loans' worth of profit. Minus half a loan's worth of loss, leaving 0.76 loans' worth of profit. Spread over 15 loans = 5.07% profit per loan, which over 9 mo is 6.76% p.a.) One significant loss among a portfolio of 12-15 loans, where the other loans perform according to plan, doesn't seem unreasonably unlikely to me. Anybody who spreads their funds over a portfolio of 15 loans deserves to lose capital, the main advantage of P2P investing is the opportunity the investor has to mitigate risk by spreading their investment over as many loans as possible.
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Post by wickedxuk on Oct 10, 2016 7:48:38 GMT
@hor1997 : All it would take is one loan where 50% of capital is lost to reduce the return on a portfolio of 12 loans from the nominal 12% to less than 7%. (11 loans earn 12% in a year = 1.32 loans' worth of profit. Minus half a loan's worth of loss, leaving 0.82 loans' worth of profit. Spread over 12 loans = 6.83% profit per loan.) And that assumes all loans run a full 12 months. If the average term is 9 months, then one 50% loss would reduce the return on a portfolio of 15 loans from the nominal 12% to less than 7%. (14 loans earn 9% in 9 mo = 1.26 loans' worth of profit. Minus half a loan's worth of loss, leaving 0.76 loans' worth of profit. Spread over 15 loans = 5.07% profit per loan, which over 9 mo is 6.76% p.a.) One significant loss among a portfolio of 12-15 loans, where the other loans perform according to plan, doesn't seem unreasonably unlikely to me. Anybody who spreads their funds over a portfolio of 15 loans deserves to lose capital, the main advantage of P2P investing is the opportunity the investor has to mitigate risk by spreading their investment over as many loans as possible. This looks like a good thread topic!! Average loan numbers and spread within and across each platform.
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mikes1531
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Post by mikes1531 on Oct 11, 2016 20:04:33 GMT
@hor1997 : All it would take is one loan where 50% of capital is lost to reduce the return on a portfolio of 12 loans from the nominal 12% to less than 7%. (11 loans earn 12% in a year = 1.32 loans' worth of profit. Minus half a loan's worth of loss, leaving 0.82 loans' worth of profit. Spread over 12 loans = 6.83% profit per loan.) And that assumes all loans run a full 12 months. If the average term is 9 months, then one 50% loss would reduce the return on a portfolio of 15 loans from the nominal 12% to less than 7%. (14 loans earn 9% in 9 mo = 1.26 loans' worth of profit. Minus half a loan's worth of loss, leaving 0.76 loans' worth of profit. Spread over 15 loans = 5.07% profit per loan, which over 9 mo is 6.76% p.a.) One significant loss among a portfolio of 12-15 loans, where the other loans perform according to plan, doesn't seem unreasonably unlikely to me. Anybody who spreads their funds over a portfolio of 15 loans deserves to lose capital, the main advantage of P2P investing is the opportunity the investor has to mitigate risk by spreading their investment over as many loans as possible. : I can see how you might have interpreted what I wrote, but wasn't suggesting a 12-15 loan portfolio was appropriate. What I was trying to say was that I didn't think having one significant loss per every 12-15 loans in a portfolio was unreasonably unlikely. That's the equivalent of having 10 losses in a portfolio of 120-150 loans or 100 losses in a portfolio of 1200-1500 loans. Or, put another way, suffering a significant loss in 7-8% of the loans in a diversified portfolio.
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phil
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Post by phil on Oct 14, 2016 1:28:18 GMT
Anybody who spreads their funds over a portfolio of 15 loans deserves to lose capital, the main advantage of P2P investing is the opportunity the investor has to mitigate risk by spreading their investment over as many loans as possible. : I can see how you might have interpreted what I wrote, but wasn't suggesting a 12-15 loan portfolio was appropriate. What I was trying to say was that I didn't think having one significant loss per every 12-15 loans in a portfolio was unreasonably unlikely. That's the equivalent of having 10 losses in a portfolio of 120-150 loans or 100 losses in a portfolio of 1200-1500 loans. Or, put another way, suffering a significant loss in 7-8% of the loans in a diversified portfolio. I see, I think that's a sensible precautionary way of looking at it. Somewhat encouraging at the moment is FS's record of having no significant losses yet in any of the 800+ loans though that may change should the property market deteriorate given the amount of development loans on the platform.
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