DFL017 - ** H***r R*w, Old Marylebone Road DEFAULT

well thats a stationary SM for a while....one of the side effects of no SM prefunding......  wonder how much of this loan will not be paid up come Tuesday!

What happens if lots of investors have pre-funded this loan expecting to be able to sell existing loan parts on the SM to cover their losses and when that fails either can't or don't fund their accounts with cash? Does their loan part get cancelled such that even more of this loan hits the SM? Or do they get "punished" in some way for irresponsible pre-funding?

Not a position I find myself in, I am just genuinely curious given the current state of the SM as I suspect many investors could find themselves in that position. Could have a positive effect by further sharpening people's focus on their pre-funding levels. Yes the "no sale of unfunded loan parts" rule change helped, but I don't think it even came close to eliminating irresponsible pre-funding levels.

At present, if you you don't subsequently fund a pre-funded loan part it just gets cancelled after a few days and chucked on the SM heap without any further consequence.  It's basically a free option.  The same free option was given when buying loan parts on the SM when there was INPL.

I guess for now SS will fund it out of their float.  The end of INPL would have freed up £3M+ in funding on top of their existing sizeable float.

They have

It was a big problem on the SM before, but I don't think its much of an issue for the PM.  In the worst case where loans have been fully subscribed all it means is that people who wanted (and could fund) a higher allocation will be scaled back. The unpaid for loans will just be thrown on the SM a few days later and can be purchased by those who want it then.  If the loan wasn't fully subscribed, then it wouldn't have really affected anyone as the excess loans would have been placed on the SM in any case.  The bottom line is that SS is probably losing out on a few days interest if the loan could have been fully funded on the PM and SM than otherwise the case.  The issue was much bigger in the SM where lenders could perceptually run a deficit via INPL by churning loans and effectively monetise the free credit INPL offered. 

Cracking down on PM prefunding isn't going to benefit SS much and will only make some lenders more conservative about assessing their ability to liquidate existing loans to fund new purchases which will significantly adverse SM liquidity to the detriment of most lenders, particular new lenders who are seeking to quickly build a diversified book.