Saving Stream now an illiquid monster...

/mod hat off again .

Paul64 , since its inception Saving Stream / Lendy have relied on a) "the quality of their due diligence" and b) "you can take comfort in the fact that our business will suffer if we bring bad loans to the platform" to attract lender funds. As such "recommendations" might be implicit, but they do exist. Additionally I don't believe that Saving Stream / Lendy have ever conducted any product suitability / client assessment checks beyond AML (they certainly haven't with me).

In this context, and with it being a consumer retail saving (investment) product attempting to mitigate all associated risks with a "talk to an IFA" statement isn't really a credible position.

Just as a for instance, were the use of IFAs as intermediaries a requirement there is simply no way that Lendy would have written has much business as they have.

Note that the above applies to other platforms as well, Lendy are not unique in not having grasped this particular nettle yet.

Yes, and perhaps listen to people who write to them and say...YOU ARE CONSIDERING LENDING TO A LIFE LONG CON MAN! Oh, and perhaps a google search of the applicants name?

I would love to know how Lendy square their stated due diligence regarding "knowing their borrowers" with the actual public knowledge about their record concerning borrowing and lending. I don't think Lendy are prepared to debate that though. It's too obvious that they have been lax and "tolerant" of certain borrowers' questionable activities when lending our money to their customers. No amount of spin or b*ll**** (choice between two apposite words there ) can justify that.

I guess there's a spectrum from "undesirable" borrowers for mainstream lenders, who are fine for P2P, and "dodgy" borrrowers who no lender should touch, which are not.

However I disagree that Lendy lent anyone's money. Only an investor decides to lend. If you are not satisfied with the borrower or indeed any other loan term steer clear. Lendy should not have intermediates the loan is more correct way of phrasing the criticism.

If it turns investors off funding new loans and ongoing development loans it could hurt them and the use of more expensive underwriters or lender incentives could cost them.

I really don't understand why there is so much complaining about SS and their SM when what is occurring was totally predictable (and was predicted). It just required enough time for the loan book to season and for origination volumes to outstrip lender demand.

SS stated that borrowers pay upfront 18% interest, 2% fee to SS, 2% fee to the broker and have to pay a 2% exit fee. So the borrower receives 78% upfront of their loan notional and pays 102% back. That's an IRR of 30%+. You'd have to be seriously naive to think that the majority of borrowers who pay that sort of rate are likely to be a good credit risks. So a substantial percentage of defaults (and losses) was always to be expected. Remember that pretty much all of AC's big 12% bridge loans defaulted. Lenders accepted SS taking a huge margin for being the agent and lenders getting just 12% for owning all the risk. So lenders can't start complaining now. It seems that around £40mm of the portfolio is now in default with around £10mm in recovery (I'm ignoring SS's definition of default which is complete nonsense). This seems quite reasonable. If anything, I expect NPLs, defaults and loss rates to climb further as the portfolio matures.

So you take a portfolio of loans with an inherently high default probability of 20%+ and a risk of poor recovery. You then design an SM where all the default risk of the loan is at term but the cashflows are still being paid monthly. That design is clearly going to cause issues because it's blatantly obvious that the loan NPV goes increasingly negative as it approaches term. Rational traders will want to sell-out prior to term. Without variable pricing you have no way of establishing an equilibrium clearing price. The SM will always then tend toward reducing that soft arbitrage i.e making everyone hold to term = illiquid. Liquidity will always be temporary; simply a function of origination volumes outstripping lender demand. So the whole trading strategy of the SM becomes based on a 'greater fool' theory until it fails ... which it has. Again nothing has changed except the market has matured.

I also don't understand why lenders feel that improved communications would help. Will improved comms reduce default probabilities or increase recovery rates?

So lenders accepted everything about the SS investment proposition with joy during 2015/16. SS could do no wrong. Nothing about that proposition has changed except time. Lenders need to grow up and accept they bought into a trading strategy that was flawed and they may need to pay a price for that.