Can anyone explain underwriting to me please?

shimself
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Can anyone explain underwriting to me please? May 14, 2014 12:50:00 GMT

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Post by shimself on May 14, 2014 12:50:00 GMT

Assetz use underwriting a lot, but so do others sometimes

OK I gather people who underwrite have lots of money because they are putting in 6 figure sums or thereabouts.
I think but don't know that they are equally exposed to risk as are use ordinary mortal lenders?
I think but don't know that they get the same rate?
I think they say something like I'll meet any shortfall up to 100K (or whatever amount). Rather than saying I'll put in 100K full stop? Why would they do this.

I can see the advantage to the borrower, they know that the money will be raised, their project can proceed. And therefore to the platform.

What advantages do underwriters have over us (if any)? Why do they do it differently to the way we do?

Steve

Interests declared:
I have shares in Assetz, Syndicate Room, The Housecrowd.
They are as nothing compared to my investments on and reliance on the good health of many other platforms here.

marek63

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Can anyone explain underwriting to me please? May 15, 2014 15:00:31 GMT

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Post by marek63 on May 15, 2014 15:00:31 GMT

If you can get a 1%-2% underwriting fee 2-5 times a year then that is a nice extra bonus.
If you have a lot to invest, then £100k is a diversification - the risk is the same but you are diversifying out, just in larger blocks.
You get a known, potentially better rate rather than having to go through an auction time wasting process seeing the rate go down (eg TC system)
If you happen to have a lot to invest then you will have this asset class up at the risky end of your portfolio - so your attitude to this type of risk will be different as it will be balanced by lower yield investments or cash elsewhere in your portfolio.
If you happen to have a lot to invest then you are normally careful and make sure you get direct due diligence as AC say - access to the borrower/management and so on.
AFAIK the underwriting is irrevocable, and then a loan is offered to the borrower at a rate and signed up. After that , the underwriters then get to dispose of some/all of their extra investment on the SM at a profit (if they got their sums right).
For the rest of us, ringing up sponsors, googling and diversifying carefully will have to do.
And it is not necessarily 'they' as individual people per se. It can be representatives of institutional funds that have discretionary mandates and are dabbling in P2P with .1% of their funds. However, look at saving stream and Lendy Ltd which took on one HNWI who demanded a charge over the whole company but lent them 600k...

Ton ⓉⓞⓃ
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I used to be on A.C. & Zopa. Investor on SoMo & Seedrs

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Can anyone explain underwriting to me please? May 17, 2014 16:02:08 GMT

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Post by Ton ⓉⓞⓃ on May 17, 2014 16:02:08 GMT

I think another point is that generally u/wers get out relatively early on when an investment is normally at it's safest which is often immediately after the proposal has had everyone checking it over for viability. It unusual for a deal to go wrong quickly, often it take the passage of time and 'events' for risk to build up and overwhelm. AC has links to the NACFB National Ass.of Commercial Financial Brokers, or something similar. Of which I'm not a member and unlikely to...

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