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Post by dan1 on Jun 13, 2017 21:45:22 GMT
The problem with a simple at par secondary market is it only really work when loan demand and supply are fairly balanced. As soon as there is an significant imbalance, liquidity fails (liquidity in the sense of gross volumes transacted rather than simply ease/speed of sale). I view the primary purpose of the SM is to provide liquidity, and to that end, anything that removes barriers and increases liquidity is welcome, even if it makes the market more complex......... Lenders seems to fall into two groups, those who prefer platforms with at par SM and those who prefer premiums/discounts. I believe this reflects those who view P2P as a high risk savings account or an investment akin to stocks and shares (or more similarly a bond). I came to P2P from stocks and shares, albeit passive investments, so I very much fall into the latter group. However, I suspect the majority fall into the former group - it's not uncommon to find those who leave stocks and shares to investment professionals but are quite happy to manage a complex P2P portfolio. Those who prefer their SM's at par implicitly accept that liquidity can be a fickle thing. But, I'm not sure most lenders understand this, which is why we see the soap opera (sorry, serial drama) style commentary on the Lendy board (please, please, please don't turn this forum into Digital Spy lite!). Ablrate (and now Huddle Capital) is perhaps the only example of a fully featured platform allowing bids/offers so that lenders can see the spread. I like the Ablrate platform despite its flaws and transaction accounting but I understand that a lot of lenders are put off by its complexity - if you don't believe me just download the yield calculator here. There are also a good many who don't like the ability to profit from discounts/premiums. I understand these concerns and agree with them to a certain extent but this comes at the expense of liquidity. Discounts/premiums are essential to find the true value, the price at which someone is prepared to take that loan from you. You can see this clearly on FS where premiums increase with scarcity (pawn loans, for example) and remaining days left. It's going to be very interesting to see what happens when the next crisis occurs. I assume that the platforms which have at par SM's will have no buyers and loan holders will effectively be locked into their loans until they resolve. On the other hand how low will prices drop on FC and Ablrate and will FS increase the allowable discount (1% will not be enough) - or will buyers dry up completely. P2P is a fast moving asset class and just as I want to see share prices plummet to allow me to purchase more at cheap prices I also want to see what a shock will do to P2P.
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littleoldlady
Member of DD Central
Running down all platforms due to age
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Post by littleoldlady on Jun 13, 2017 21:54:00 GMT
If an illiquid SM is frightening lenders off the platform what would unsold loans offered at a discount do? IMO the only thing that will restore confidence would be repayments, in full with interest, particularly of overdue loans, and I just don't see that happening.
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dan83
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Post by dan83 on Jun 13, 2017 22:34:44 GMT
Not everything on the secondary market takes ages to sell, I sold over half of all my investments in under 3 days, most in under 7hours.
Instead of talking about discounting loan parts, why not talk about lendy increasing interest rates?
It's happened on 2 of the other platforms I use recently.
Surly it's better if lendy take the hit rather the us?
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david42
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Post by david42 on Jun 14, 2017 0:08:09 GMT
The problem with a simple at par secondary market is it only really work when loan demand and supply are fairly balanced. As soon as there is an significant imbalance, liquidity fails (liquidity in the sense of gross volumes transacted rather than simply ease/speed of sale). I view the primary purpose of the SM is to provide liquidity, and to that end, anything that removes barriers and increases liquidity is welcome, even if it makes the market more complex......... Lenders seems to fall into two groups, those who prefer platforms with at par SM and those who prefer premiums/discounts. I believe this reflects those who view P2P as a high risk savings account or an investment akin to stocks and shares (or more similarly a bond). I came to P2P from stocks and shares, albeit passive investments, so I very much fall into the latter group. However, I suspect the majority fall into the former group - it's not uncommon to find those who leave stocks and shares to investment professionals but are quite happy to manage a complex P2P portfolio. Those who prefer their SM's at par implicitly accept that liquidity can be a fickle thing. But, I'm not sure most lenders understand this, which is why we see the soap opera (sorry, serial drama) style commentary on the Lendy board (please, please, please don't turn this forum into Digital Spy lite!). Ablrate (and now Huddle Capital) is perhaps the only example of a fully featured platform allowing bids/offers so that lenders can see the spread. I like the Ablrate platform despite its flaws and transaction accounting but I understand that a lot of lenders are put off by its complexity - if you don't believe me just download the yield calculator here. There are also a good many who don't like the ability to profit from discounts/premiums. I understand these concerns and agree with them to a certain extent but this comes at the expense of liquidity. Discounts/premiums are essential to find the true value, the price at which someone is prepared to take that loan from you. You can see this clearly on FS where premiums increase with scarcity (pawn loans, for example) and remaining days left. It's going to be very interesting to see what happens when the next crisis occurs. I assume that the platforms which have at par SM's will have no buyers and loan holders will effectively be locked into their loans until they resolve. On the other hand how low will prices drop on FC and Ablrate and will FS increase the allowable discount (1% will not be enough) - or will buyers dry up completely. P2P is a fast moving asset class and just as I want to see share prices plummet to allow me to purchase more at cheap prices I also want to see what a shock will do to P2P. Having come from the Equity markets I used to believe variable pricing was the most efficient solution for every market, until I saw the problems it caused in the low volume markets of the P2P world. Variable pricing works best in high volume markets, where smaller volume traders can usually assume the market has efficiently set a price that reflects the value, so they can trade when they want at a fair price. But in low volume markets like P2P, variable pricing does not produce a fair price and it does not enable trading on demand: 1. Price: In low volume markets, the variable price reflects short term supply and demand mismatches rather than the underlying value of the security. This makes it difficult to work out whether trading at today's price is the best thing to do. A lot of us already find the time taken managing P2P risk is a big drawback, without adding an extra layer of price speculation work. As evidence of inefficient pricing just look at how the flippers (arbitrageurs) are hated on FC for creaming off the profits on the best loans, leaving less attractive returns for the longer term investors. 2. Volume: In a low volume market you cannot sell a large holding just by reducing the price. That would only work if a lower price attracted more buyers. But where the information to correctly value the risk is scarce and unevenly shared, like in P2P, a price reduction is more likely to frighten buyers away. If my observations are correct then the self perpetuating increase in secondary market availability we are currently seeing would continue even if variable pricing was introduced because the mismatch of supply and demand indicates a confidence feedback effect where increasing availability (or reducing prices) frightens away buyers instead of attracting them.
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elliotn
Member of DD Central
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Post by elliotn on Jun 14, 2017 6:04:41 GMT
An issue I have with a variable priced SM is that even though it should, in theory, offer parts that are more accurately priced, it also offers the smart and canny a chance to profit from or prey on the casual and ignorant. I believe this is what broke FC and it also happens frequently and blatantly on TC. This is why if it is introduced on L there needs to be a significant sellers fee or discounts only with big % steps. You can see this on abl too where BHs hoard the 13/14% loans originated and then sell off at significant premiums afterwards. Discounts only at significant steps for the reasons Andrew gave at the time of its introduction on AC.
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Post by jackpease on Jun 14, 2017 7:06:31 GMT
I like the simplicity of SM being fixed but equally if Lendy can't/won't deal with defaulted overhang then may dramatic discounts could be needed - ONLY if buying of parts in the first place was well rationed (on Lendy, it is).
that said - looking at Rebs and FK where I built up a reasonable presence, when I felt they were peaking the discounts (up to 5%) were not sufficient to shift the doggy loans.
I suspect all this talk is a distraction - the elephant in the room is when (not if) Lendy is going to bite the bullet and handle the inevitable losses we will make on some of our loans. What we have at the moment is a monster that eats at the top end but has yet to poop at the bottom end.
Jack P
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Post by lusitania on Jun 14, 2017 7:41:07 GMT
There's a jewelry loan on AC that recently had a 1% discount and still the SM for that loan remains over half a million. There are plenty of flats on COL that after an increase on interest are still due to be fully funded or are already on the SM. Personally I believe we might have reached a surplus of loans available and not enough capital going around (not just on Lendy). What concerns me about Lendy is the lack of urgency in following up the borrower's exit strategy. Easy does it and we'll cross that bridge when we get there. On the other hand there seems to be quite a lot of urgency in keeping the pipeline active as if there is no tomorrow. Clearly there isn't so much money available and I struggle to see how some of these loans or tranches will ever be funded without the help of some really BH's or underwriters. Alternatively full repayments must be made... I'm currently holding to my DFL's as I believe they are 1) good/solid investments and 2) as far as I'm aware no DFL has ever defaulted. Having said that you never know what tomorrow will bring.
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p2p2p
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Post by p2p2p on Jun 14, 2017 7:43:24 GMT
LLs job is to grow the business by introducing loans at a rate to match increased funds from lenders. This is L=X+Y+Z% per month, where X is the 100/loan length to reflect repayments,Y is from the interest, Z is new money.
Their problem is multiple. They are introducing loans too fast, repayments aren't happening as fast as they'd like, reduced interest rates lower Y, and a bulging SM can mean Z is negative.
Holding back on new loans is their best tool. While the DFL tranches are inevitable, they shouldn't be introducing new loans, especially under 12% until the SM reduces. They can turn of that tap much more easily than they can address defaulted loans.
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littleoldlady
Member of DD Central
Running down all platforms due to age
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Post by littleoldlady on Jun 14, 2017 8:01:49 GMT
LLs job is to grow the business by introducing loans at a rate to match increased funds from lenders. This is L=X+Y+Z% per month, where X is the 100/loan length to reflect repayments,Y is from the interest, Z is new money. Their problem is multiple. They are introducing loans too fast, repayments aren't happening as fast as they'd like, reduced interest rates lower Y, and a bulging SM can mean Z is negative. Holding back on new loans is their best tool. While the DFL tranches are inevitable, they shouldn't be introducing new loans, especially under 12% until the SM reduces. They can turn of that tap much more easily than they can address defaulted loans. Agreed, but as they have just taken on 3 senior staff it seems they don't see it that way.
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Post by lendinglawyer on Jun 14, 2017 8:17:20 GMT
Also I think people keep forgetting that: (a) new loans are inevitably how Lendy makes most of its money; and (b) if Lendy doesn't make the loan MT/COL/other platform probably will, and with people (well, those in the know at least) now seemingly finally recognising that their offerings are fundamentally the same and switching loans across platforms accordingly Lendy would be just as damaged (from a "flight to new loans" perspective - obviously they also lose fees given (a)) by another platform writing these loans as they would be by themselves.
It's funny to see people over on the MT boards for example making the same complaints from a liquidity perspective (their comms are inevitably better) there as have been made about Lendy. Previously MT was thought to be some kind of magic bullet , but actually it was just an immature platform with an identical business model, so essentially it was bound to end up in a similar position from a liquidity perspective eventually.
The one thing I cannot dispute at all is that Lendy need to get their acts together on overdue loans. Who knows what they do and how they make decisions, but the number in very substantial negative days (not just those >180 days which as we all know is a false definition of "default") is very high. Probably I agree they hold off exits to seek to insulate against losses that can't be covered from somewhere, but that isn't sustainable forever, especially looking at some of the loans...
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mary
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Post by mary on Jun 14, 2017 8:51:09 GMT
... I'm currently holding to my DFL's as I believe they are 1) good/solid investments and 2) as far as I'm aware no DFL has ever defaulted. Having said that you never know what tomorrow will bring.
True no DFL has defaulted (on this platform) - but it is also true that no DFL has yet repaid the loan as they are all still running!
I think that DFLs are (generally) more solid, but I also think that some suffer from optimistic valuations and therefore DD is still important.
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rxdav
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Post by rxdav on Jun 14, 2017 8:55:08 GMT
There's a jewelry loan on AC that recently had a 1% discount and still the SM for that loan remains over half a million. There are plenty of flats on COL that after an increase on interest are still due to be fully funded or are already on the SM. Personally I believe we might have reached a surplus of loans available and not enough capital going around (not just on Lendy). What concerns me about Lendy is the lack of urgency in following up the borrower's exit strategy. Easy does it and we'll cross that bridge when we get there. On the other hand there seems to be quite a lot of urgency in keeping the pipeline active as if there is no tomorrow. Clearly there isn't so much money available and I struggle to see how some of these loans or tranches will ever be funded without the help of some really BH's or underwriters. Alternatively full repayments must be made... I'm currently holding to my DFL's as I believe they are 1) good/solid investments and 2) as far as I'm aware no DFL has ever defaulted. Having said that you never know what tomorrow will bring.
Sorry to be contradictory but as an experiment I put £1K of AC's loan #331 on the SM yesterday at a 1% discount - it flew off the shelf. There was well over £1M of that loan available when I did (there still is) and none of it then being offered at any discount.
So whilst AC's diamond loan won't move easily at a small discount (still £155K at 1% discount available last time I looked) the property loan did. Which suggests it's more likely the loan fundamentals (Borrower profile/LTV/Duration/Interest Rate/Security etc. - or any permutation thereof) which determine whether a loan which has a significant amount on the SM will sell or not when offered at a discount. I accept this was a low volume experiment and what effect offering £155K of #331 at a small discount would have on its liquidity remains debatable.
Irrelevant with regard to Ly at the moment I know - but worth noting.
Edit: Typo
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merlin
Minor shareholder in Assetz and many other companies.
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Post by merlin on Jun 14, 2017 8:59:38 GMT
I think that when all is said and done the current problem revolves around lack of new capital coming into the P2P market. This is most likely caused through fear. Fear of the consequences of Brexit, fear of the political chaos in the World and generally fear of the uncertainty pervading the market (increasing inflation and potentially increasing interest rates). In the circumstances we have today the big investors normally try to reduce risk and typically flee to either US dollars or gold. Little people like most of us are, just get very nervous and pull out of risky ventures, pay off mortgages and put their investments under the proverbial mattress.
I reached my personal P2P investment ceiling about two years ago and nothing will pursued me to increase until things settle down. In fact if I see things going seriously wrong with either Brexit, Mr Trump or politics nearer home I will reduce my P2P pot further.
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Post by dan1 on Jun 14, 2017 9:42:08 GMT
Having come from the Equity markets I used to believe variable pricing was the most efficient solution for every market, until I saw the problems it caused in the low volume markets of the P2P world. Variable pricing works best in high volume markets, where smaller volume traders can usually assume the market has efficiently set a price that reflects the value, so they can trade when they want at a fair price. But in low volume markets like P2P, variable pricing does not produce a fair price and it does not enable trading on demand: 1. Price: In low volume markets, the variable price reflects short term supply and demand mismatches rather than the underlying value of the security. This makes it difficult to work out whether trading at today's price is the best thing to do. A lot of us already find the time taken managing P2P risk is a big drawback, without adding an extra layer of price speculation work. As evidence of inefficient pricing just look at how the flippers (arbitrageurs) are hated on FC for creaming off the profits on the best loans, leaving less attractive returns for the longer term investors. 2. Volume: In a low volume market you cannot sell a large holding just by reducing the price. That would only work if a lower price attracted more buyers. But where the information to correctly value the risk is scarce and unevenly shared, like in P2P, a price reduction is more likely to frighten buyers away. If my observations are correct then the self perpetuating increase in secondary market availability we are currently seeing would continue even if variable pricing was introduced because the mismatch of supply and demand indicates a confidence feedback effect where increasing availability (or reducing prices) frightens away buyers instead of attracting them. Agreed, P2P markets are highly inefficient when viewed from the perspective of equity or bond markets. Price volatility is higher as was seen prior to the end of the tax year when prices dropped as people looked to liquidate to feed their flexible cash ISAs to preserve their tax free allowances. I think you can sell a large holding by offering an increased discount. This was seen recently on Ablrate where a >£10k holding in the interest only version of a loan was offered at a 4% discount. It was taken up within minutes if I remember correctly. I believe that everything will sell at the right price - I just have a morbid fascination to see whether that applies in a crisis.
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sl75
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Post by sl75 on Jun 22, 2017 15:50:25 GMT
A thought - rather than an explicit lender-selected discount (with all the issues that this creates in such a low-volume market), what if the accrued interest that a seller forfeits were instead credited to the buyer(s).
Assuming this is visible (or at least fairly well-known), this would presumably create additional demand for loans that have had parts on sale for a long time, thereby reducing the difference between "short" and "long" queues (making "rare" loans easier to buy, as some buyers would avoid them because there's no accrued interest associated with the loan parts for sale, and "common" loans easier to sell within a reasonable amount of time, because some buyers will actively seek them in order to get additional interest "for free").
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