dorset
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Post by dorset on Oct 16, 2016 9:00:43 GMT
You have my sympathies hor1997 but the problem is FC assuming a given level of finance knowledge among its lenders. FC should point out at commencement on say a six month loan that this is the expected term although it is not a term loan but a line of credit that could (and probably will) extend beyond six months. Thankfully I exited the FC property loan sector some months ago - the interest rates simply do not come close to covering the risk. But it is a term loan. This is p2p and the contract between the lender and the borrower is for a term loan and their system is designed for amortising term loans. The problem comes from FC trying to use a term loan to extend a line of credit, because their systems cannot cope. Most of FC's lenders do not need any knowledge and do not care. It's the ones with the knowledge (or some knowledge) who expect the loan to be managed as a term loan, who are unhappy when FC tries to manage it as if it were a different animal. I don't disagree however the product is described as a term loan to the lender but the borrow is treating it as a line of credit and FC are allowing them to. You can call something a chicken if you wish but if it waddles, quacks and swims on the pond then it is probably something else. As an aside I do think that defaulting a late loan creates massive problems. I have three loans with Assetz that were defaulted many many months ago and there is still little prospect of an early settlement. I am of course getting 18% default interest but may never see it.
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blender
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Post by blender on Oct 16, 2016 11:32:03 GMT
Yes we agree. When there is a disparity between what a loan or a lender (noting the post title) claims to be and how the loan or lender behaves, it is the behaviour which is important and leads to trouble. Another factor. Suppose FC decided to default a property loan they would have a problem because the whole amount would go immediately to loss, by their systems, and I do not think that they can distinguish between tactical default/loss and irrecoverable loss (as I think tax rules might require). Lateness on a secured property loan is clearly not an irrecoverable loss. They would have to find another way without defaulting. It's a mess, borrower can continue indefinitely.
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jayjay
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Post by jayjay on Oct 16, 2016 12:52:09 GMT
Certainly the administration is a mess. They have promised to tell us what the policy on late property loans is in two weeks time! ie they do not have a policy yet!!!! We simply don't know whether all or some of the underlying late loans are a mess as well.
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blender
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Post by blender on Oct 16, 2016 16:17:23 GMT
Certainly the administration is a mess. They have promised to tell us what the policy on late property loans is in two weeks time! ie they do not have a policy yet!!!! We simply don't know whether all or some of the underlying late loans are a mess as well. Maybe they are trying to develop a way of extending the loans within the system so that they are not late. Perhaps it will involve collecting the extra interest from the lenders so that they can pay it back to us monthly. Problem solved.
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Post by oktaeder on Oct 16, 2016 19:20:51 GMT
There have been some delayed repaid loans from FC Germany and there weren't paid any interests for the weeks they have been late. The borrowers paid only the same interests as if they had to pay in time.
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am
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Post by am on Oct 16, 2016 19:52:48 GMT
There have been some delayed repaid loans from FC Germany and there weren't paid any interests for the weeks they have been late. The borrowers paid only the same interests as if they had to pay in time. Property or SME? On FC UK, interest is paid on overruns on late property loans, even if it is paid as a bullet after capital repayment, is not at a penalty rate, and involves a loss to the lender due to loss of compounding. But a late payment at any point during a SME loan doesn't seem to result in increased interest charges, at least as paid to lenders. (Naively I'd expect an extra payment of interest at the end of the loan to cover interest on arrears. That's would be difficult with FC's inflexible scheduling of repayment amounts, but if they can do it with property loans presumably they could do it with SME loans. There's also the problem of assigning any such terminal interest payment when parts are traded on the secondary market in between. That could be avoided by taking the extra interest due from the capital repayment element, but that breaks the repayment schedule.)
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Post by Deleted on Oct 16, 2016 19:57:21 GMT
There have been some delayed repaid loans from FC Germany and there weren't paid any interests for the weeks they have been late. The borrowers paid only the same interests as if they had to pay in time. Yes, delays are commonly known. Few weeks (say up to two months) might be still acceptable, if the extra accumulated interest still does not push the LTV too high. But allowing the delay to run 6+ months without a clear path to repayment and without forcing an additional security in (the latest FC message was basically: it is out of our hands) is totally crazy.
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Post by oktaeder on Oct 16, 2016 19:58:22 GMT
In germany there are no property loans. And no 2nd market.
So if the last rate was paid i.g. after 3 instead of after 1 month I guessed the interrest would triple. But I was wrong.
And I own a loan what is > 250 days overdue (no repayment this year) but still overdue and not defaulted.
I don't spend any more penny in FC.
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Post by Deleted on Oct 16, 2016 20:03:21 GMT
Yes we agree. When there is a disparity between what a loan or a lender (noting the post title) claims to be and how the loan or lender behaves, it is the behaviour which is important and leads to trouble. Another factor. Suppose FC decided to default a property loan they would have a problem because the whole amount would go immediately to loss, by their systems, and I do not think that they can distinguish between tactical default/loss and irrecoverable loss (as I think tax rules might require). Lateness on a secured property loan is clearly not an irrecoverable loss. They would have to find another way without defaulting. It's a mess, borrower can continue indefinitely. I disagree and honestly don't understand how you can justify FC or think it is a tax problem. Every single decent Platform I know of defaults loans when necessary. SS defaulted, FS defaults. In one case SS was so confident of a good sale of a security for a loan where the borrower was not capable of paying anymore the interest that nominated a receiver to ensure the sale was swift, but did not default the loan and is paying on its own pocket the interest (this is honesty...) They strike a line, nominate a receiver and sell the security. It is all very well known territory. In theory if you default in a correct timeframe (not letting interest run too high) you have a very good chances to recover in full everything with the sale, given the LTV of 65%. Of course if you are craxy enough to allow interest to build up and the LTV to grow to 80% then you are practically burning lender's money.
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blender
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Post by blender on Oct 16, 2016 21:39:45 GMT
I am not intending to justify FC - just pointing out another area in which their systems are probably not up to the job. Being late is not a sufficient justification for a tax loss. I agree the late property loan situation is a mess. Other platforms may be able to default a secured property loan and provide a correct tax statement, I do not have experience of that but it makes sense that they can run systems which can cope. FC should either be able to mange these loans properly or should not be in that sector.
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Post by paul123 on Oct 17, 2016 6:47:17 GMT
Is (a small) part of the problem that, given the new tax break regarding P2P lending, we need the platform to declare the loan as in default so we can offset the loss as soon as possible?
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Post by easteregg on Oct 17, 2016 10:04:44 GMT
I did speak to Funding Circle during LendIt about these property loans. The marketing team couldn't really comment but I was told someone would contact me to discuss this. To date I've not had any contact, so I will try again later today.
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Post by Deleted on Oct 17, 2016 11:13:31 GMT
Is (a small) part of the problem that, given the new tax break regarding P2P lending, we need the platform to declare the loan as in default so we can offset the loss as soon as possible? To me the problem is not related to the taxation system, but to the increased risk of the loan itself. You all talk as if you knew 100% the loan will repay at some point in the future. I am not sure at all it will repay. I, as a lender, place probabilities and create small simulation models, to allocate money in different loans, so that overall I get to reach my goals. When I invested in 14978, now 187 days late with 217 days of unpaid interests, this was an A-rated loan reasonably secured with a 65% LTV on a easy-to-sell property. So, this was part of my 'secure' share of investment, with a slightly lower interest than other loans, but with a reasonably good guarantee. So I expected either a smooth run with repayment as stated OR a default with 'secured' Landing (i.e. with a likely easy 100% recovery on its 65% LTV). Now, we have lost the smooth run, but we also are, day after day, loosing the path to a defaulted secured landing, as the costs of maintainance (capital+ extra unpaid interests+ penalty interests) are increasing massively the (implicit real) LTV and the longer we wait to default it and sell the security, the lower will be the total ratio of (recovered sums)/(needed sums not to create a loss). So every single extra day of free and uncontrolled run (loan let run) is diminuishing the chances of lenders to get out of this loan with all their capital and interests paid. If the borrower is not capable or willing to repay this loan and FC give him say 15 months of free credit line before defaulting, in the moment FC defaults the loan, sells the property and recovers the sums, what recovered will likely NOT be sufficient to cover the capital+15 months of unpaid interests+penalty interests. So, my thinking when we lend against an hard solid asset (not a development loan), is that in a down-(or constant) market it is convenient to default as soon as possible. 2-3 months are ample time to take these sorts of decisions. Allowing a loan to overrun 6+ months simply shows total lack of management control. And given the risks associated with this loan today are not even remotely related to those presented to me with the original 65% LTV or the original A-band assigned by FC, the same fact of keeping the loan alive (not defaulting it) and keeping this information hidden from me, as a lender, is a clear financial misconduct by FC. In addition to the above, keeping the loan alive and giving more and more credit to the borrower without additional security is lowering the chances for recovery and this is also definitely not what I would expect from a responsible financial company.
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pip
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Post by pip on Oct 17, 2016 12:43:21 GMT
Hor I do understand your concerns. As I have raised before I am concerned that these loans are sold with a fixed date, when in reality that seems to be nothing more than a wild guess. I have seen many of my property loans repay either very early or very late.
I am also concerned where the loan is not as simple as it may first appear. For example the loan where the borrower was intending on buying unspecified properties and securing the loans on properties they were selling, with no clear indication of when or how the loan would be repaid.
I do think that there are problems but I also think these loans in comparison with other loans are fairly attractive. There are risks but then again you are getting 8-10% interest, so you shouldn't be surprised that there are some risks.
I agree when these loans are late in repaying, the security over the extra interest is at a lower LTV (assuming valuation stays the same) as the loan increases with no corresponding increase in security. But compare this to other loans. I had one recently where the businesses went into liquidation and on the same day the guarantor went bankrupt! Nothing to sell off at all I assume. Makes your position seem rather enviable.
I get your points I honestly do, personally I think these loans should not be sold with fixed dates, but more like (6 months scheduled, potential for up to 18 months with overrruns). I also think that FC should have pretty severe penalties for late payments, although I guess you don't want to chop off the hand that feeds you!
However I also think you need to understand when lending to property investors, the plans will be subject to severe delays and also the odd unscrupulous borrower! Thats the downside of lending at 8-10%. But for me, even taking this into account, the property development loans are the best bet. That takes into account everything (the downside of bullet payments, risk of property market, risk of dodgy developers, risk that for whatever reason development never gets finished, very uncertain repayment dates etc etc).
As always I make sure I am pretty diversified with property loans just like anything else. There are real risks, but as I say in return for this you get the excellent interest rate.
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Post by Deleted on Oct 17, 2016 13:44:56 GMT
Hor I do understand your concerns. As I have raised before I am concerned that these loans are sold with a fixed date, when in reality that seems to be nothing more than a wild guess. I have seen many of my property loans repay either very early or very late. I am also concerned where the loan is not as simple as it may first appear. For example the loan where the borrower was intending on buying unspecified properties and securing the loans on properties they were selling, with no clear indication of when or how the loan would be repaid. I do think that there are problems but I also think these loans in comparison with other loans are fairly attractive. There are risks but then again you are getting 8-10% interest, so you shouldn't be surprised that there are some risks. I agree when these loans are late in repaying, the security over the extra interest is at a lower LTV (assuming valuation stays the same) as the loan increases with no corresponding increase in security. But compare this to other loans. I had one recently where the businesses went into liquidation and on the same day the guarantor went bankrupt! Nothing to sell off at all I assume. Makes your position seem rather enviable. I get your points I honestly do, personally I think these loans should not be sold with fixed dates, but more like (6 months scheduled, potential for up to 18 months with overrruns). I also think that FC should have pretty severe penalties for late payments, although I guess you don't want to chop off the hand that feeds you! However I also think you need to understand when lending to property investors, the plans will be subject to severe delays and also the odd unscrupulous borrower! Thats the downside of lending at 8-10%. But for me, even taking this into account, the property development loans are the best bet. That takes into account everything (the downside of bullet payments, risk of property market, risk of dodgy developers, risk that for whatever reason development never gets finished, very uncertain repayment dates etc etc). As always I make sure I am pretty diversified with property loans just like anything else. There are real risks, but as I say in return for this you get the excellent interest rate. This is the typical reasoning that makes me mad. I am fully aware of the potential (excellent rates) and the risks of P2P lending. I have invested in P2P for over 5 years, also with the most untrusted borrowers (yes-secure). I have let money to over 300 companies in FC alone (at peak, now have been downscaling for two years), I know perfectly well what is a default (I have had over 30 at FC alone) and I had some piloted, some hidden frauds (4 defaults from lawyers studios almost all at the same time....) and I know pretty well that secured loans are better than unsecured ones. In fact I have written it for months and months on the FC forum suggesting everyone to look at the secured loans companies around. The point is not what percentage I make 'in general', but if the risk is adequate to my expectation and adequate to what is told me when I invest. FC, as any other investment company, cannot simply sell a product rating it A, highly secured 65% LTV and then, without alerting me or without taking any action whatsoever for months and months, let it run and become an unrecoverable EEEE--- loan with LTV over 100%. This is financial misconduct and it is so even if, on the rest of my portfolio, for my skills, attention, due diligence or whatever, I manage to stay afloat and reach my goals. So the 'average' return that the network offers to me means NOTHING, when I analyse this A-rated loan and see that is 214 days late on interest and is running towards 80% LTV, without FC even noticing 'there is a danger here' or thinking to call in a receiver for securing the lenders' position. Wake up people. Don't be deceived by the good rates you get. Always fight for your 0,5% extra and always keep awake. And most of all: don't let the slack of not-interested companies like FC put down your goals. I work hard to model scenarios and make sure my returns are above a certain threshold with controlled risks. I introduce a lot of pessimism in my models, but will not accept not reaching the goals because of incapacity of FC to deal with fraud, to do full DD, to control property borrowers. My aim is not 'beat the savings club' (ah, ah), but to achieve what my model predicts as feasible for the risk I am taking. For FC my goal was 10% AER net of fees, but with the huge number of defaults (most clear fraud) where FC was unable to recover anything... I am not close enough to it. And definitely I cannot accept a negative contribution from a property loan like 14978, which in my scenarios was low-interest but secure (!). Finally: it is NOT the missing repayment on the due date in itself that worries me (I have enough flexibility in my Investments to allow even this). I would be ready to let this loan run for another two or more years, IF (and only IF) the LTV was kept constant (or slightly improved, given the generally descending market conditions), so if the borrower for example brought in an additional security, a charge on another property, a cash partial repayment etc. at least to keep the repayment risks under control. That would not only show goodwill, but most of all that we have a property team using their brain... What is totally unacceptable to me is the current situation, i.e. FC doing nothing at all and let this, once secure, loan become a total disaster.
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