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Post by loontik on Dec 28, 2016 18:19:52 GMT
Hi guys, i'm hoping someone will help me to understand these terms.
What is skin in the game and what is (Loan originators) share? Why is it that these two numbers are diff?
Ex: I came across a loan.
Loan amount = 333.33
Skin in the game : 16.66% (16.67)
Loan Originators Share: 36% (121.41)
I understand that the LO has a 36% share in the loan, but I can't figure out the skin in the game detail.
Thanks in advance.
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adrianc
Member of DD Central
Posts: 10,031
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Post by adrianc on Dec 28, 2016 19:00:19 GMT
"Skin in the game" is where a platform's own money forms part of the loan - so the platform is lending 16.66% of the total from their own funds. The loan has got to the platform via an originator - a broker company - who have funded another 36% of the loan themselves.
I'm not sure about the numbers in your brackets, though - 36% of £333.33 (£333,330?) is about £119, not £121, and 16.67% is about £55, not £16.
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Post by loontik on Dec 28, 2016 19:11:24 GMT
"Skin in the game" is where a platform's own money forms part of the loan - so the platform is lending 16.66% of the total from their own funds. The loan has got to the platform via an originator - a broker company - who have funded another 36% of the loan themselves. I'm not sure about the numbers in your brackets, though - 36% of £333.33 (£333,330?) is about £119, not £121, and 16.67% is about £55, not £16. Thanks. Sorry about the numbers. Typo. Just to clarify: I'm looking at a loan from Creamfinance: The loan is 333.33 In the investment breakdown I see: Creamfinance skin in the game - 5%/16.67 Creamfinance share - 5%/16.66 9 Investors share - 90%/300 So why is Skin in the game showing only 5%, when it should be 10%? Or is the 5% skin in game something else? Also, for this loan I see that amount available for investment is 16.66. So if I had to buy this loan, I get it that CF's share will now be 0, while Skin in game remains at 5% yes? Meaning that the 5% is purely allocated to Creamfinance. Or in other words, the risk of the loan is now 95% onto the investors while CF has only 5% skin left. Correct me if i'm wrong here or if I have understood this correctly. Edit: Ok, I think I get it now. When a loan is listed, the loan originator (LO) has a fixed %age of skin in the game through out the tenure of the loan and the remaining %age of shares held will decrease as more and more investors invest in the loan. So hypothetically speaking if a loan was for 100, then the LO's skin in the game is 5%/5, then the remaining share are at 95%/95. Day 2 of the loan being listed 9 investors invest 10 each, thus bringing LO's Skin to 5%, share to 5% and investor share to 90%. Optionally, if the 10th investor invests 5, then the skin in game is just 5% for the LO while the 95% risk is shared across other investors.
Is that right?
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JamesFrance
Member of DD Central
Port Grimaud 1974
Posts: 1,323
Likes: 897
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Post by JamesFrance on Dec 29, 2016 7:37:00 GMT
Yes you are correct, the originator keeps the skin and assigns the rest to investors, having already made the loan to the borrower.
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