blender
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Post by blender on Jan 25, 2017 17:32:47 GMT
Curious that this is happening with the C*mb*rl*y project. It was an A+ at 9% with an LTV of 77% (ouch), and today the first tranche should have repaid, and is processing. Now a refinance is launched at 10% as a B loan - two grades reduced, but with LTV at 75%. Must be the result of changed standards since the post Brexit review was completed, and sensitivity to a property revaluation was worried about. But I think I would need 12% to play.
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acky
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Post by acky on Jan 25, 2017 17:40:07 GMT
Extraordinary - a B grade property loan! How can this be two grades higher risk that some of the unsecured A+ SME crud they serve up? And this follows on from 31599 earlier today which was a 10% A property loan for £446k secured as first charge against 2 properties about to be completed which will EACH sell for around £570k. They seem to have had a rethink about the grading of property loans - I think both would have been A+ last year. In relation to the A+ SME loans at much lower rates, this makes zero sense to me.
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blender
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Post by blender on Jan 25, 2017 18:21:07 GMT
That's because they do not price to risk, they price to the market, to get funded, and some of those A+ SMEs should be higher interest for the risk. It may mean that the later tranches of the B loan will need cash back to get funded - the trust is no longer buying property and Autobidders are restricted to one small part per project. This is £1.75M. There used to be B property loans, but at 12% and sometimes with cash back. I can dream.
Has anyone else noticed that the analysis by risk band seems all to have gone from the stats page? Risk band distinctions not to be aired in public.
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metoo
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Post by metoo on Jan 25, 2017 18:47:00 GMT
Has anyone else noticed that the analysis by risk band seems all to have gone from the stats page? Risk band distinctions not to be aired in public.
Now they're just publishing the minimum information required by the p2pfa. So much for their long vaunted transparency! Convenient to hide those big late projects and any other warts. And no need for too much information to confuse or worry lenders. Regarding risk bands on property projects, we may be cynical, but I think Furled Cloak take risk banding seriously according to their model. They just don't reveal the reasons for the band. Whereas we tend to look at the LTV on property loans, FC also consider the borrower's finances because they rely on director's guarantees to ensure the equity contribution to costs is there when it's needed. LTV only becomes a possible reality once the building work is finished. In this case, the company borrower is not an SPV and their previously published accounts look tight. The IR says the work is on budget, but not finished. Completion will rely on the borrower to find the money or manage the funds already borrowed. At this LTV, FC won't want to lend any more against the security. The properties can't be marketed until they are finished, and if they are not sold by the end of 12 months, refinancing would be a problem with extra interest to add to the loan even if the new increased valuation still holds. If prices fall back and the sale also needs to be rushed, it may be difficult to cover the sum lent. A+ to B may reflect the financial risk in the building work, as well as the borrower's time management. The original 12 months was unrealistic to achieve sales but the borrower hasn't even finished the works.
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blender
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Post by blender on Jan 25, 2017 19:02:05 GMT
Thanks metoo - wise words.
I imagine the borrowers woke up this morning, looked at the calendar, and said cripes! we are supposed to pay back our first tranche to FC today and we still have a year to go before we can complete and sell. Quick call to FC. No problem sir, we can refinance, but since Brexit it needs to be 10% plus fees, due to our internal gradings, which you don't need to worry about. Otherwise we will have to increase your 9% to 11% until you repay.
So it's currently 10% filled, and will the first tranche make it?
Some time later - Sorry mate, it did not fly at 10% but we could try at 12%. Otherwise you must pay that £1.75M back now, and if you don't it's going to be 11% until you do, but we can roll that up, and the late fees, until you have sold.
(Or just possibly they have failed to refinance somewhere else.)
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metoo
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Post by metoo on Jan 25, 2017 19:23:53 GMT
Having said all that, I can't imagine why 31599 is an A. Is it a penalty for not living up to the company name? Or it could help with arm twisting to extract the 10% rate... The +2% late penalty must also help with refinance negotiations.
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blender
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Post by blender on Jan 25, 2017 20:10:59 GMT
Having said all that, I can't imagine why 31599 is an A. Is it a penalty for not living up to the company name? Or it could help with arm twisting to extract the 10% rate... The +2% late penalty must also help with refinance negotiations. Yes, makes no sense. I put my spare cash into 31599 with confidence, but expecting early repayment. Maybe with the 'difficult' refinance of a London project, now about 9 months late and due for a showdown in March, FC are anticipating life after the first property default.
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am
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Post by am on Jan 25, 2017 21:52:05 GMT
Having said all that, I can't imagine why 31599 is an A. Is it a penalty for not living up to the company name? Or it could help with arm twisting to extract the 10% rate... The +2% late penalty must also help with refinance negotiations. The rule of thumb is that development loans are A+ and bridging loans (and commercial mortgages when FC did them) are A. Now to wonder whether it's worth paying the premium on the SM considering it may repay in 3 to 4 months time. (It had sold out before I logged in this evening.)
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am
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Post by am on Jan 25, 2017 21:53:28 GMT
Extraordinary - a B grade property loan! How can this be two grades higher risk that some of the unsecured A+ SME crud they serve up? And this follows on from 31599 earlier today which was a 10% A property loan for £446k secured as first charge against 2 properties about to be completed which will EACH sell for around £570k. They seem to have had a rethink about the grading of property loans - I think both would have been A+ last year. In relation to the A+ SME loans at much lower rates, this makes zero sense to me. The B grade isn't reflected by any additional interest - nearly every A grade property loan is at 10%.
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blender
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Post by blender on Jan 25, 2017 23:21:33 GMT
FC have a new blog which explains that some property loans will now be listed as B and some rates will be higher. There does not seem to be a risk-based reason for a move from A to B at 10%. My guess is that the property loans have distorted the A+ band so much, that they now plan to use them to distort the A and B bands. That is, they have used the property loans so far to let more risk into the A+ SME loans, and now they will use the property loans to let risk into the A and B SME loans. As I suggested above, it matters not to the borrower what the band letter is, just what the interest rate is, and the property loans are priced individually, not at a rate per band. So they can put these property loans in the band that suits the statistics. And we noted that the statistical analysis by band has disappeared. Got to keep Fiddling Creatively. It matters not to me. If it's secured and the interest is pre-funded then just the rate matters, as long as it can be sold without a loss before the fun starts. FC salesman "Dear Computer, what band should this loan be using all your risk assessment knowledge and the data I have supplied?" FC Computer " What band would you like it to be, sir?"
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SteveT
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Post by SteveT on Jan 26, 2017 8:29:19 GMT
Taken at face value, this quote entirely underlines blender 's conclusions: " Are you widening your assessment criteria?
We are not widening our assessment criteria and there are no changes to our estimated loss rates for property loans. We expect all new property loans to perform as well as A+ and A loans in current market conditions." Put another way, " These loans are no riskier than the others. It just suits us to mix some of them into bucket B instead" |
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metoo
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Post by metoo on Feb 2, 2017 17:49:43 GMT
Taken at face value, this quote entirely underlines blender 's conclusions: " Are you widening your assessment criteria?
We are not widening our assessment criteria and there are no changes to our estimated loss rates for property loans. We expect all new property loans to perform as well as A+ and A loans in current market conditions." Put another way, " These loans are no riskier than the others. It just suits us to mix some of them into bucket B instead" They probably expect all property loans to repay in full in current market conditions. Thus, A+, A, and B would perform equally as well for now. However, if property prices drop markedly, there are likely to be partial losses on higher LTV loans. Putting those loans in higher risk bands would make sense. It will be interesting to see how they use the risk bands and what interest rates are offered.
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Joss
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Post by Joss on Feb 10, 2017 16:03:47 GMT
Hi, sorry to invade this intelligent thread with a naive newbie question... but, well, we all have to start somewhere, right? I'm looking to diversify as much as poss, obviously, but the property developments seem to be so much better than the rest in terms of security vs %... can anyone explain to me why it WOULDN'T be wise to put a large proportion of my cash into - say - Uxbridge 1, which is tempting me. Here goes... please correct me if I'm wrong as politely as you can. First Charge Asset Security - this means it's almost a done deal in terms of risk of not paying. The only real question is WHEN they repay - have I got that right? From reading this thread I've seen hints that when these developments overrun their deadlines, they then extend their loans... extend their deadlines... annoy the investors... but ultimately everyone gets paid PLUS EXTRA INTEREST for late payment - have I got that right? (remember - as politely as you can, please!) I can see that time is money in this game and for all of you experienced FC'ers, delayed payment can mean the difference between a good choice or a bad choice. But for ME, I really just want something safe that I can chuck my money into and then forget about it. This Uxbridge 1 is @10%...minus fees and risk, well it's good enough for me. I feel stupid putting £20 on it when there's so little better options that I can see. Would I be mad to put £200? (my total in FC is £1000 by the way - for the referral bonus as much as anything). If it pays me back late, I don't mind a bit as long as I earn interest on the late payment. I don't foresee needing the money for years. It's really burning a hole in my pocket. I guess my question boils down to - what else can/does go wrong with these tempting property developments and do any of you abandon the diversification wisdom and just chuck it all in (say) Uxbridge 1.  (politely... because I'm new... I can get away with being stupid)  |
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blender
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Post by blender on Feb 10, 2017 16:21:34 GMT
It is for each of use to choose a strategy. On the SME unsecured loans you will find a lot of comment about how difficult it is to select those which will repay, even for very experienced lenders. For this category diversity is very important. For the secured property loans, some of use think a 10% loan with a first charge on property is a better deal, and safer, both on the track record of FC loans, and the fact that the interest is pre-funded and cannot fail to be paid. The risk on these loans grows towards the end, and you have the option to sell before you get locked in, which happens a month before the scheduled end. Some of us invest heavily in these 10% property loans, some even exclusively, and might forego diversity to a greater or lesser extent. It has to be your choice, in your circumstances. If a loan is looking bad to FC, then they may remove the risk band - which means you get locked in for the duration. But this happened only once, in the early days, because of delay. Shall we say that delay is tolerated more now? There is a large London project that is 300 days late and worrying those who remain in it. Those who sold early are not so worried, except for the general impact.
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Joss
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Post by Joss on Feb 10, 2017 16:24:34 GMT
Thanks Blender.
But interest is charged (and paid) on any such delayed pay-back, right? I'm not worried about the time to get my money back, as long as it's earning interest all the while...
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