pikestaff
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Post by pikestaff on Oct 28, 2014 7:51:48 GMT
Wouldn't an opt-in provision fund be nice? Is that really necessary? If you're worried about a loan, just put all your units up for sale as soon as you start feeling uncomfortable. In this case, I expect the 18% interest rate would attract enough buyers to take your holding off your hands soon enough. A provision fund works for consumer loan sites such as RS because they have enough relatively small loans that a statistical approach works. But I do not believe that a provision fund can work for a platform such as AC with a relatively small number of large loans. Unless the provision fund is very large, a single failure could wipe it out. Anyway, it's not going to happen on AC because it would go against their philosophy (see their lending guide, which BTW needs updating to reflect the new site, andrewholgate please note). And I'm happy with that. I have avoided Wellesley partly because I do not trust that their provision fund will work in times of stress.
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mikes1531
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Post by mikes1531 on Oct 28, 2014 22:21:28 GMT
Is that really necessary? If you're worried about a loan, just put all your units up for sale as soon as you start feeling uncomfortable. In this case, I expect the 18% interest rate would attract enough buyers to take your holding off your hands soon enough. A provision fund works for consumer loan sites such as RS because they have enough relatively small loans that a statistical approach works. But I do not believe that a provision fund can work for a platform such as AC with a relatively small number of large loans. Unless the provision fund is very large, a single failure could wipe it out. I'm not as convinced that a provision fund couldn't work at AC. With unsecured loans, the fund has to be able to cope with 100% losses, where the borrower never makes a payment at all before becoming bankrupt, for instance -- and it has happened. For those platforms dealing with that type of loan, the need to be dealing with lots of small loans is, as pikestaff suggests, necessary for the fund to be effective. With secured loans, however, the chance of a 100% loss ought to be pretty close to nil. So, taking Hac**** as an example, the fund shouldn't need to be able to cope with a £2.2M loss, since a worst-case loss is probably going to be much less -- hopefully £0.5M or less. For a fund to work in that environment it wouldn't need to be as big as if it had to cope with a £2.2M loss, so it ought to be more feasible for a fund to work at a platform such as AC. Having said that, though, the relatively small number of loans would make it difficult to build up the fund to an appropriate level, so it wouldn't be easy to get it going in the first place, but it ought to be possible. Whether AC would want to do that, of course, is a different question. A provision fund is effectively an insurance product and, as for all sustainable insurance products, the premiums collected have to be enough to build up an appropriate level of reserves, to pay out all claims, and to cover the costs of administering the scheme. Big companies tend to self-insure because they can afford the occasional loss and they avoid the administration costs. The 'savers' targeted by Zopa and other similar platforms probably are not risk-takers, and are thought to be willing to pay for the insurance for the peace of mind it provides them so the platform organises the insurance for them. The investors targeted by AC and other similar platforms probably are risk-takers, and might be expected to be unwilling to pay for the insurance, so the platform hasn't organised insurance for them. I don't know whether or not, in the process of the recent changes to their system, AC are intending to change the type of investor they are targeting. If not, then they should be fine continuing without a provision fund. If they're going after the risk-averse 'savers', however, they may need to have a provision fund in order to complete with other platforms targeting those same investors.
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kermie
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Post by kermie on Oct 28, 2014 22:42:56 GMT
On a related point, it appears to me as AC may be moving into providing a fund (e.g., for the "Green Investment Account" that is coming soon...).
You might imagine that such a fund would attract less risk-averse investors (it's targeting 7% return, rather than the more typical 10-12% on AC loans). You might also imagine that AC might look to use this fund as a way of widening their lender/investor net - and think of it as a "gateway" fund that could lead to investors crossing over into the Manual Investment Account.
Anyway, my point is that perhaps the Green Investment Account might be more appropriate for a provision fund if AC really wanted to use it as a way to attract a wider audience.
But I'm still not convinced that a provision fund for the standard AC offering makes that much sense. If you have a provision fund, then it seriously imbalances the market-place - why would any lender consider anything less than the very highest-yielding loans if everything is covered by a provision fund? With such imbalances, you'd fall out with underwriters quite quickly, and the whole model goes pop. Either that, or we'd see a squeeze-down and homogenization of yields...which I don't think is what lenders want at all.
Appreciate some of the above is pure speculation, but heck, that's what this forum is good at ;-)
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sqh
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Post by sqh on Oct 28, 2014 23:29:16 GMT
Is that really necessary? If you're worried about a loan, just put all your units up for sale as soon as you start feeling uncomfortable. In this case, I expect the 18% interest rate would attract enough buyers to take your holding off your hands soon enough. A provision fund works for consumer loan sites such as RS because they have enough relatively small loans that a statistical approach works. But I do not believe that a provision fund can work for a platform such as AC with a relatively small number of large loans. Unless the provision fund is very large, a single failure could wipe it out. Anyway, it's not going to happen on AC because it would go against their philosophy (see their lending guide, which BTW needs updating to reflect the new site, andrewholgate please note). And I'm happy with that. I have avoided Wellesley partly because I do not trust that their provision fund will work in times of stress. I think there is an alternative to a provision fund that no other platform offers, as far as I am aware. I would propose subdividing a new loan into priority parts, creating 2 or more sub-loans. The simplest example would be to take a loan of £100,000 proposing to pay 10%p.a. and subdivide it into 2 parts as follows: A high priority part of £25,000 would only pay 4% interest, but would have first call on any losses. That is as good as guaranteed. This is a rate similar to those offered by the Zopa and Wellesley models. The remaining £75,000 would pay 12% interest (instead of 10%), but has a slightly higher risk of loss. This becomes more appealing to those who want a higher rate. The advantages: Offers very high security for the risk averse. Allows for better loan rates. Large loans get broken into smaller loans, increasing liquidity. Allows greater diversity. It is transparent to the borrower. The disadvantages: Only works for new loans. For 12% loans the rates become 4% and 14.66%. The rates become more complicated for multiple subdivision, but more interesting.
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mikes1531
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Post by mikes1531 on Oct 29, 2014 0:24:01 GMT
A provision fund works for consumer loan sites such as RS because they have enough relatively small loans that a statistical approach works. But I do not believe that a provision fund can work for a platform such as AC with a relatively small number of large loans. Unless the provision fund is very large, a single failure could wipe it out. Anyway, it's not going to happen on AC because it would go against their philosophy (see their lending guide, which BTW needs updating to reflect the new site, andrewholgate please note). And I'm happy with that. I have avoided Wellesley partly because I do not trust that their provision fund will work in times of stress. I think there is an alternative to a provision fund that no other platform offers, as far as I am aware. I would propose subdividing a new loan into priority parts, creating 2 or more sub-loans. The simplest example would be to take a loan of £100,000 proposing to pay 10%p.a. and subdivide it into 2 parts as follows: A high priority part of £25,000 would only pay 4% interest, but would have first call on any losses. That is as good as guaranteed. This is a rate similar to those offered by the Zopa and Wellesley models. The remaining £75,000 would pay 12% interest (instead of 10%), but has a slightly higher risk of loss. This becomes more appealing to those who want a higher rate. The advantages: Offers very high security for the risk averse. Allows for better loan rates. Large loans get broken into smaller loans, increasing liquidity. Allows greater diversity. It is transparent to the borrower. The disadvantages: Only works for new loans. For 12% loans the rates become 4% and 14.66%. The rates become more complicated for multiple subdivision, but more interesting. An interesting idea. My only thought would be that the rate on the 'high security' parts would have to be higher than 4% in order to compete with other P2P platforms.
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pikestaff
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Post by pikestaff on Oct 29, 2014 7:55:12 GMT
...But I'm still not convinced that a provision fund for the standard AC offering makes that much sense. If you have a provision fund, then it seriously imbalances the market-place - why would any lender consider anything less than the very highest-yielding loans if everything is covered by a provision fund? With such imbalances, you'd fall out with underwriters quite quickly, and the whole model goes pop. Either that, or we'd see a squeeze-down and homogenization of yields...which I don't think is what lenders want at all... If we had a provision fund, all loans of a given duration would have to pay the same rate to lenders, likely to be in the 4-7% range depending on duration. (This would vary over time.) The excess would go into the provision fund, with riskier borrowers paying more than safer ones. It could not work any other way. And then we'd not need credit reports on the individual loans, or Q&A, or any of that stuff. We'd be looking at a completely different offering. Not my cup of tea at all!
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Post by mrclondon on Oct 29, 2014 8:09:06 GMT
I think there is an alternative to a provision fund that no other platform offers, as far as I am aware. I would propose subdividing a new loan into priority parts, creating 2 or more sub-loans. The simplest example would be to take a loan of £100,000 proposing to pay 10%p.a. and subdivide it into 2 parts as follows: A high priority part of £25,000 would only pay 4% interest, but would have first call on any losses. That is as good as guaranteed. This is a rate similar to those offered by the Zopa and Wellesley models. The remaining £75,000 would pay 12% interest (instead of 10%), but has a slightly higher risk of loss. This becomes more appealing to those who want a higher rate. The advantages: Offers very high security for the risk averse. Allows for better loan rates. Large loans get broken into smaller loans, increasing liquidity. Allows greater diversity. It is transparent to the borrower. The disadvantages: Only works for new loans. For 12% loans the rates become 4% and 14.66%. The rates become more complicated for multiple subdivision, but more interesting. One of the TC sponsors has tried something similiar, if not quite as ambitious, and it worked reasonably well. A listing was split into senior and mezzanine slices, the former up to 60-70% LTV (I don't have the exact figures to hand, sorry) with a fixed rate of 10.25% (1st charge), and the balance of the loan (upto mid 80's LTV IIRC) as mezzanine (2nd charge) which was offered as a reverse auction starting at 14% but ending up around 11.5%.
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sl75
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Post by sl75 on Oct 29, 2014 9:48:36 GMT
If we had a provision fund, all loans of a given duration would have to pay the same rate to lenders ... Not necessarily - Zopa already has a model where loans of a given duration have all kinds of different rates paid to lenders. Whether that's a good idea or not is an entirely different question of course.
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sqh
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Post by sqh on Oct 29, 2014 12:04:39 GMT
An interesting idea. My only thought would be that the rate on the 'high security' parts would have to be higher than 4% in order to compete with other P2P platforms. My first thought was the same, but the security is extremely good. Assetz Capital could offer these high priority sub-loans on a demand only basis, lump them together and issue them as a bond, where the AC lender base are providing the guarantee. They could be 3 month bonds that would automatically rollover, Wellesley only offer 4% for 12 months and the demand seems to be high.
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sqh
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Post by sqh on Oct 29, 2014 13:36:42 GMT
One of the TC sponsors has tried something similiar, if not quite as ambitious, and it worked reasonably well. A listing was split into senior and mezzanine slices, the former up to 60-70% LTV (I don't have the exact figures to hand, sorry) with a fixed rate of 10.25% (1st charge), and the balance of the loan (upto mid 80's LTV IIRC) as mezzanine (2nd charge) which was offered as a reverse auction starting at 14% but ending up around 11.5%. I like this idea, although I'm not sure the rates match the risk. Seems like lenders were over exuberant for 2nd charge at 80%.
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mikes1531
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Post by mikes1531 on Oct 29, 2014 17:04:55 GMT
One of the TC sponsors has tried something similiar, if not quite as ambitious, and it worked reasonably well. A listing was split into senior and mezzanine slices, the former up to 60-70% LTV (I don't have the exact figures to hand, sorry) with a fixed rate of 10.25% (1st charge), and the balance of the loan (upto mid 80's LTV IIRC) as mezzanine (2nd charge) which was offered as a reverse auction starting at 14% but ending up around 11.5%. I like this idea, although I'm not sure the rates match the risk. Seems like lenders were over exuberant for 2nd charge at 80%. Perhaps things are a little different at TC because of the higher minimum investment, but auctions do seem to produce irrational results some of the time as bidders' emotions take control. (Like on eBay where a seller has a pile of identical widgets for sale and offers them for a fixed price of £15, but also puts one up for auction with a starting price of 99p, and then watches the bidding go to £20 when a couple of buyers get over exuberant.) I believe that Zopa gave up on their Listings (loan auctions) partly because the resulting rates were too low for the risks involved and they didn't want lenders to end up unhappy a few years down the road when their earnings are significantly eroded by defaults.
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mark
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Post by mark on Oct 31, 2014 10:36:53 GMT
AC's Lender Update
30th Oct 2014 at 16:45
Further to our update earlier this week we have now heard back from the introducer.
It now appears that the borrower is seeking refinance with a new bridging company to allow her to improve planning further on the property before selling. We are now told that this is well advanced with completion expected next week.
We have told the introducer that patience has run out here and should this not happen then we will be asking lenders to vote on whether to appoint an LPA Receiver or not.....................
I started this thread mid-June when the original loan was due for repayment and 4 1/2 months later after all the broken promises from this joke of a borrower, with the promise of repayment imminent on numerous occasions, we are now informed that the they are seeking refinancing with a new bridging company with repayment due , or once again so we are told, within a week.
I find it hard to believe that all the refinancing, legals and due diligence can possibly be completed in seven days by a new bridging company experiencing how long this process takes AC. AC states in Q and A's that maybe the borrower has already started this process so it could be possible.
If this is the case, then lenders would have obviously been deceived by the borrower in recent updates regarding Aldermore and how refinancing with them was all but ready to payout, subject to what seems now some stalling BS about the title.
Further to my previous posts, in my opinion, this is further proof of the failure of AC's empty rhetoric approach to such borrowers who after months of misleading AC and lenders have had no real pressure put on them to refinance. After months of patience running out, deadlines, empty threats of letters demanding repayment, possible LPA. They have now been told that if repayment does not happen AC will ask lenders to vote on whether to appoint an LPA Receiver....or not.
I bet the borrowers is having sleepless nights over that threat !!!
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oldgrumpy
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Post by oldgrumpy on Oct 31, 2014 10:51:19 GMT
The borrower should not be told that we are going to vote. That is not their business. That just informs them that they have more time.They should be told that formal preparations to appoint receivers has been instigated (even if that only means that we will vote).
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bugs4me
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Post by bugs4me on Oct 31, 2014 11:13:43 GMT
The borrower should not be told that we are going to vote. That is not their business. That just informs them that they have more time.They should be told that formal preparations to appoint receivers has been instigated (even if that only means that we will vote). IIRC, haven't they already been told about the receivers lurking in the background several blue moons ago? At this rate with the costs etc, we will all be part owning a property in Ang*****.
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sl75
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Post by sl75 on Oct 31, 2014 14:03:46 GMT
The borrower should not be told that we are going to vote. That is not their business. That just informs them that they have more time.They should be told that formal preparations to appoint receivers has been instigated (even if that only means that we will vote). A borrower who wants to know this will find out. If necessary, have their associate acquire at least £0.01 of exposure to their own loan in order that they get voting rights; or a larger amount if AC start to enforce a larger minimum (intentional) holding.
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