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Post by valueinvestor123 on Nov 10, 2016 12:05:16 GMT
A quick question:
does a buyback guarantee mean that the loan is transferred onto the balance sheet of Mintos (or is it the loan originator?)
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art
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Post by art on Nov 10, 2016 12:53:23 GMT
A quick question: does a buyback guarantee mean that the loan is transferred onto the balance sheet of Mintos (or is it the loan originator?) Its a guarantee from the loan originator. Essentially it makes your investment a direct loan to the originator. Keep in mind that you are relying on the platform to do continuous due diligence, because there is very little public information about these companies and zero requirements for information disclosure - they are all private. I feel there is still a lot to be said about risk/return proposition of such loans, but this would be a good starting point: blackmoonfg.com/site/pdf/bm_retail_discount.pdfThe terms on Mintos or Twino are a lot less favorable then if you simply buy corporate bonds of larger payday loan originators with a lot more protection and credit ratings. However, buying corporate bonds requires a lot larger investment, so little retail investors like me and you have to suffer a lot more risk often in exchange for less return.
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Post by valueinvestor123 on Nov 10, 2016 13:04:32 GMT
"Essentially it makes your investment a direct loan to the originator."
Yes, this is exactly what I was wondering about. So if you are diversified across 1,000 loans at Mintos and all have a buyback guarantee from one loan originator, is it reasonable to view it as an investment in ONE single company, from the risk perspective? (the loan originator)
This is quite depressing.
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fric
Member of DD Central
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Post by fric on Nov 10, 2016 13:07:01 GMT
Wait, so having a buyback option is a bad thing?  This is a big improvement over unsecured high risk loans with no collateral.... |
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Post by valueinvestor123 on Nov 10, 2016 13:26:17 GMT
IIUIC it's just a transfer of risk.
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art
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Post by art on Nov 10, 2016 13:30:16 GMT
"Essentially it makes your investment a direct loan to the originator." Yes, this is exactly what I was wondering about. So if you are diversified across 1,000 loans at Mintos and all have a buyback guarantee from one loan originator, is it reasonable to view it as an investment in ONE single company, from the risk perspective? (the loan originator) This is quite depressing. Correct. In this case you are not loaning money to a 1000 end-users, you are loaning money to the originator.
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Post by valueinvestor123 on Nov 10, 2016 13:32:41 GMT
A theoretical example:
if you hold 100 unsecured personal loans directly and 30% of them default, you then have to rely on the platform trying to recover the rest of your funds.
If you hold 100 unsecured personal loans, all with a buyback guarantee and all dependant on the solvency of the loan originator, what happens in the event of the loan originator going under?
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art
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Post by art on Nov 10, 2016 13:37:01 GMT
Wait, so having a buyback option is a bad thing? This is a big improvement over unsecured high risk loans with no collateral.... It's not an improvement, simply different risk profile. Improvement or not will depend on how are you compensated for taking additional risk by holding unsecured debt. Instead of "buying" buy-back loans you could buy some corporate bonds from same originators or other payday loan companies. Its very different from actually buying loans themselve like you would do on Prosper or LendingClub or Bondora. However, both investments can be profitable or not. For unsophisticated retail investor with very little to invest "buying" buy-back loans from variety of originators is probably the best risk/return proposition proving he is very very well diversified across multiple originators and platforms.
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art
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Post by art on Nov 10, 2016 13:40:05 GMT
A theoretical example: if you hold 100 unsecured personal loans directly and 30% of them default, you then have to rely on the platform trying to recover the rest of your funds. If you hold 100 unsecured personal loans, all with a buyback guarantee and all dependant on the solvency of the loan originator, what happens in the event of the loan originator going under? If the loan originator goes under we are likely to be somewhere closer to the back end of the pecking order. The truth is we don't even know what other liabilities all these originators have, they all might have a load of senior debt notes that will get paid in front of marketplace investors. I am not scaremongering, its normal that double-digit returns come with very very high risk, no free lunch here!
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Post by valueinvestor123 on Nov 10, 2016 13:48:03 GMT
There is another potential risk of cross-contamination so I am not sure diversifying across different loan originators actually removes this risk?
It really is becoming so complicated to understand what's going on...
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art
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Post by art on Nov 10, 2016 13:54:12 GMT
It reduces the risk, but don't remove it completely of course. There will be very high residual risk even after all the contingency measures - hence you get paid 10% plus for it. Just be conscious that this is your play-money, not you retirement fund!
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Post by extremis on Nov 11, 2016 0:46:08 GMT
I feel there is still a lot to be said about risk/return proposition of such loans, but this would be a good starting point: blackmoonfg.com/site/pdf/bm_retail_discount.pdfThe terms on Mintos or Twino are a lot less favorable then if you simply buy corporate bonds of larger payday loan originators with a lot more protection and credit ratings. However, buying corporate bonds requires a lot larger investment, so little retail investors like me and you have to suffer a lot more risk often in exchange for less return. Excellent point, art and very good reading indeed. Unfortunately, what seemed to be a great investment at first, actually it is not really that good. If we assume that institutional investors know what they are doing (and probably are), then they are getting the appropriate returns for the risk taken and we, obviously, are not. Thus, on the long run we could suffer losses. We are still in the booming stage of p2p lending and quite possibly one day the whole payday loan industry could collapse.
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This is a big improvement over unsecured high risk loans with no collateral....