Saving Stream now an illiquid monster...

The yes secure situation is not really comparable. Their loan book was only 540k so there simply were not the financial or manpower resources to manage a problem loan book. Lendy has the scale to get proper legal advice and run a recoveries department. They are only recently having to face and get to grips with this so we can expect teething problems but i would rather I have my money in their( good )  loans than many much smaller platforms.

I never understood why somebody would buy a 3 month old loan at par, you arr taking all the risk for half the original reward, so doubling the risk/reward ratio on an already high risk investment. 

ISTM that a loan book with 25+% non-performing loans is not a problem on its own when dealing with secured lending.  Realised losses result from a combination of the proportion of loans that default, and the losses incurred during the recovery process. 

With a portfolio of genuine 70% LTV loans, net recoveries of 50% of the 'value' would mean than an investor would lose 29% (2/7ths) of their capital and receive no interest on that loan.  If that's what happens to 25% of their portfolio, then their loss would be 29% of 25%, which is 7.25% of their investment.  If the other 75% of their portfolio repays as it should, and they've earned 12% interest for a year, then their income will be 12% of 75%, which is 7.25% of their investment.  Combining those two components would show that the investor hsd had a net positive return of 1.75%.  That's not a return to be proud of, but it's not a net loss to the investor.

(I accept the above is a very simplified example calculation.  Other factors include the time taken for recoveries, loans that are for periods shorter than a year, taxes, etc., etc., and is simply intended to give a general idea.)

If, however, it turns out that the initial security valuations were optimistic, the picture looks a lot grimmer.  Followers of the forum will be aware that there's one Lendy loan where the security appears to be being offered for sale at 18% of its 'value'.  Even if it were to be sold for the asking price, the net proceeds would be in the order of 10% of the 'value' and the investor would be seeing a loss more like 86% (6/7ths) of their capital.  If I plug results like that into my example above, the investor ends up with a net negative return of 12.5%.

I'm coming around to the opinion that assuming average recovery proceeds of 60% may be being optimistic.  Firstly, 'values' often appear to be based on taking 6-12 months to find a buyer, whereas receivers can't sit back and wait for the right buyer to appear, so they seem to be working toward a quicker sale, and that mean discounting the asking price to encourage offers sooner.  Foreclosure sales/auctions have a whiff of desperation about them and buyers come looking for bargains.  (This is a particular issue with one-of-a-kind securities.)  There's also the question of what a part-complete development is worth.  Someone taking on such a project is unlikely to value it as  highly as the defaulting borrower would because they may not be convinced the existing work is up to their standards and/or there are things they'd have done differently, so they 'll want a low enough sale price to allow them to redo things.  And finally, disgruntled borrowers being foreclosed upon who are of the opinion that they'll get nothing out of the recovery process can do things that will degrade the value of the security. 

If it is assumed that securities can be sold and produce proceeds close to the outstanding debt such that the net losses are small, then the proportion of loans that default won't have a huge impact on investors' net returns.  If, OTOH, recoveries are more like half the outstanding debts, then the proportion of defaults is very important.  So to get back to the original question...  Is 25+% defaults a problem?  It all depends on the recoveries!

Lendy have a good track record for recoveries at the moment, but that's partially the result of their PF.  They seem to have a number of defaults where the prognosis doesn't look good, and I'm not optimistic that the PF can provide the same support that it has in the past.  I have a significant Lendy investment, and I'm concerned.  But there's virtually nothing I can do about it other than to wish them success with their many recoveries.

My worry is, at some point Lendy are going to have to forfeit there No1 advertising tool "No one has yet lost any of their capital" . 
When this tool is lost and lendy have relieved themselves of this millstone.... then what I wonder.

To be honest i will be relieved when a loan results in capital loss. At least then we can move on and stop pretending we can realistically get a 12% return with no risk. What is a problem is that too many loan result in huge capital loss (40-50%plus) and lendy sticks to offering lower rates. Lendy becomes highly unattractive in this situation, but momentarily this does look the most likely outcome.

Is this really the case ? Not from my eyeballing of the default loans many of which look likely to repay all the capital of investors. The 25% past due is a very mixed bag. What we need to get a handle on this is a view of likely capital losses in the past due portfolio which I guesstimate is going to result in a recovery figure of more than 50% value across the whole 25%. I don't expect any capital losses in my rebuilt portfolio so there will not be a uniform experience by investors.