sg
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Post by sg on Jun 2, 2017 11:01:11 GMT
To be clear stub8535 I have expressed no particular concerns about the underlying security, my concern is about the connection of this loan to others I already have and the risk of common-mode default. This loan is to APF Ltd, they are in no way legally constrained in what they use this money for it goes into there general account along with all other incomings. They are also not legally constrained in how they use income to pay the interest on this loan, it comes from general cashflow. Because of this any problems this company have in any area of their business can have an impact on the repayments and default condition of this loan and similarly any problems on this loan can affect others. The security may well be perfect for this particular loan but say that APF have a loan to a bank for another project that we are unaware of and that goes wrong, the security in that case is not enough and the bank take recourse on APF's assets. This would then affect their ability to service all of their other loan commitments. They are in no way disconnected from each other until the point of default, at which time the security comes into play. Add to that the fact that as interest comes from general cashflow then if necessary APF can choose to default a single or multiple loans at their choice with no connection to the underlying project. So if project A goes wrong and project B is ok there is nothing to stop them stopping the interest on B and paying A if it is in their interest to do so. Now, to be clear, I think that this is a good loan to a good company and I don't have a problem with it and would invest if I wasn't at my limit, I just think it is in no way disconnected from other loans to the same company as far as risk of default or repayment problems are concerned, no matter how good the security may be. I don't know about others but my limits are based on risk of default, not security as I don't want any of my loans to default and have to rely on selling the security at some point in the future when the market conditions are unknown.
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ozboy
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Mine's a Large One! (Snigger, snigger .......)
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Post by ozboy on Jun 2, 2017 11:09:45 GMT
Well stated and very reasoned sg.
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macq
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Post by macq on Jun 2, 2017 11:11:08 GMT
I am rather surprised at some of the comments about acf expressed and the underlying security. Having done the sensible thing that is "read ALL the documents" I find the answers to all the concerns expressed above for this particular loan. I do understand the concentration risk mitigation as I experience it elsewhere and apply a limit but only because the loans securities are all interconnected. david42 was the outstanding charge you mention the ccj for £480 that is a matter of dispute that must be cleared before drawdown or another charge that I missed on first reading please? On a local knowledge level, living in Birmingham, I know of the area where the properties are located. The road is a busy commuter road to the South of Birmingham. Locally there is Queen Elizabeth hospital which has a large staffing level. It is one of the teaching hospitals for many specialist functions and contains wards specifically for armed forces injury rehab. Birmingham University (Russell group) is a little further out along Hagley Road. Other colleges and ex polytechs are local as well. The nurse training university is within a short walk also. As i was the one who first asked the question i should say i was asking as someone who has been only been doing P2P for a year and one of the first things you are warned about platform risk & spread your money.While i had read that each loan comes with its own security and would not effect another,you do start to wonder sometimes if that is the case( and when A is borrowing from B to lend to C and may be D sometimes, it just feels less secure) .But thanks to all of the answers i am happier & more knowledgeable
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dandy
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Post by dandy on Jun 2, 2017 11:21:34 GMT
To be clear stub8535 I have expressed no particular concerns about the underlying security, my concern is about the connection of this loan to others I already have and the risk of common-mode default. This loan is to APF Ltd, they are in no way legally constrained in what they use this money for it goes into there general account along with all other incomings. They are also not legally constrained in how they use income to pay the interest on this loan, it comes from general cashflow. Because of this any problems this company have in any area of their business can have an impact on the repayments and default condition of this loan and similarly any problems on this loan can affect others. The security may well be perfect for this particular loan but say that APF have a loan to a bank for another project that we are unaware of and that goes wrong, the security in that case is not enough and the bank take recourse on APF's assets. This would then affect their ability to service all of their other loan commitments. They are in no way disconnected from each other until the point of default, at which time the security comes into play. Add to that the fact that as interest comes from general cashflow then if necessary APF can choose to default a single or multiple loans at their choice with no connection to the underlying project. So if project A goes wrong and project B is ok there is nothing to stop them stopping the interest on B and paying A if it is in their interest to do so. Now, to be clear, I think that this is a good loan to a good company and I don't have a problem with it and would invest if I wasn't at my limit, I just think it is in no way disconnected from other loans to the same company as far as risk of default or repayment problems are concerned, no matter how good the security may be. I don't know about others but my limits are based on risk of default, not security as I don't want any of my loans to default and have to rely on selling the security at some point in the future when the market conditions are unknown. What you describe here is wholesale lending and cannot be how it is structured otherwise it would be blocked by FCA - from a previous post I had understood that this was accepted with lending to a car finance company who retain ownership of the cars until loan repaid by their borrowers - and hence is apparently compliant. There is no way in a million years the above would be compliant and as this is property related I do not quite understand how the borrower here (APF) will own the security
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registerme
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Post by registerme on Jun 2, 2017 11:42:33 GMT
On a lighter note the comment in the valuation document "For the purpose of this report, we have assumed that all the properties complies with current fire regulations...." got a chuckle out of me.
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sg
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Post by sg on Jun 2, 2017 11:47:57 GMT
dandy I have no idea how the structure of the loan is done but it will comply with FCA requirements. APF don't own the security that will probably be the company borrowing from them, they may or may not have a charge on it, but that will be assigned to any lenders at some point when the loan goes live. Ablrate suggest in the proposal that the primary concern should be the underlying security and that is very important in the case of default, but not until then and in no way affects the ability to service the loan and hence avoid default. For example I have a large valuable house that I live in and have owned outright for years, two years ago I was employed and could service a very large loan with the house as security. I have now retired and while my income is ok it is considerably less than it was and I could not service anything like as large a loan. None of this has anything to do with the value of my house until I default the loan, the chances of which do not have any connection to my house value. I would love to be proved wrong, so I could place more money in comfort, but nothing I have seen on this thread yet does that.
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registerme
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Post by registerme on Jun 2, 2017 11:53:43 GMT
Something I don't understand... and would welcome enlightenment about... The valuation document, in the "Comparable Evidence" section, seems to be comparing these two fire damaged houses, requiring of extensive work if not complete demolition and rebuild, with extant properties that can be occupied / used. If I'm right then the £995k "valuation" is actually a GDV, and one where nothing in the borrowing proposal or the valuation document addresses the (re)build costs. Am I right? Did I miss something?
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blender
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Post by blender on Jun 2, 2017 12:34:51 GMT
Something I don't understand... and would welcome enlightenment about... The valuation document, in the "Comparable Evidence" section, seems to be comparing these two fire damaged houses, requiring of extensive work if not complete demolition and rebuild, with extant properties that can be occupied / used. If I'm right then the £995k "valuation" is actually a GDV, and one where nothing in the borrowing proposal or the valuation document addresses the (re)build costs. Am I right? Did I miss something? This is what troubled me but I decided to wait for someone else to raise it. I was surprised that these two burnt-out properties were worth £1M as a development site, or less for a quicker sale. However it is clear that the valuation is the present market value and not GDV, because the valuation clearly says current value. They do compare with the offer price of another development site. The reinstatement cost is given on p8 of the valuation as £800k. No-one is going to re-instate a pair of Victorian semis and if they did the GDV might be £1M or so. Presumably the site is more valuable because they are able to clear it and create accommodation which has a GDV much greater than £1M. Or at least that is how I understand it all hangs together. I would like to know the GDV of the planned development, but this is not a development loan.
On this question of the separateness of loans, para 3 of the lending proposal, which is on page 3 of the borrowing proposal, gives comfort that this security is tied to this loan, and that Ablrate can step in, in certain circumstances. The point sg makes about the risks of our borrower defaulting is well worth considering. When we talk about security, that does pre-suppose a default in the payments from the borrower. If your evaluation is made to avoid a default, rather than to assess the consequences of a default, then the security for one loan is not very relevant.
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Post by ablrate on Jun 2, 2017 14:28:29 GMT
To be clear stub8535 I have expressed no particular concerns about the underlying security, my concern is about the connection of this loan to others I already have and the risk of common-mode default. This loan is to APF Ltd, they are in no way legally constrained in what they use this money for it goes into there general account along with all other incomings. They are also not legally constrained in how they use income to pay the interest on this loan, it comes from general cashflow. Because of this any problems this company have in any area of their business can have an impact on the repayments and default condition of this loan and similarly any problems on this loan can affect others. The security may well be perfect for this particular loan but say that APF have a loan to a bank for another project that we are unaware of and that goes wrong, the security in that case is not enough and the bank take recourse on APF's assets. This would then affect their ability to service all of their other loan commitments. They are in no way disconnected from each other until the point of default, at which time the security comes into play. Add to that the fact that as interest comes from general cashflow then if necessary APF can choose to default a single or multiple loans at their choice with no connection to the underlying project. So if project A goes wrong and project B is ok there is nothing to stop them stopping the interest on B and paying A if it is in their interest to do so. Now, to be clear, I think that this is a good loan to a good company and I don't have a problem with it and would invest if I wasn't at my limit, I just think it is in no way disconnected from other loans to the same company as far as risk of default or repayment problems are concerned, no matter how good the security may be. I don't know about others but my limits are based on risk of default, not security as I don't want any of my loans to default and have to rely on selling the security at some point in the future when the market conditions are unknown. What you describe here is wholesale lending and cannot be how it is structured otherwise it would be blocked by FCA - from a previous post I had understood that this was accepted with lending to a car finance company who retain ownership of the cars until loan repaid by their borrowers - and hence is apparently compliant. There is no way in a million years the above would be compliant and as this is property related I do not quite understand how the borrower here (APF) will own the security Wholesale lending is based on the practice of lending money to be lent on. This is not that, as confirmed by our conversations with the FCA and with our (very expensive) compliance firm.
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sg
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Post by sg on Jun 2, 2017 15:03:07 GMT
Just to be clear ablrate I am sure that this loan along with all the others fully complies with FCA requirements, the above was somebody else's interpretation of my post. My concern is the separation of the loans to this company, not the separation of the security. I see nowhere in any documentation any mention that the monies are held separately or that the payments from the end borrower go though separate client accounts for each loan. In other words this loan like the others passes into APF's general accounts in both directions and is in no way legally separate from any other monies in their accounts. The risk of default is therefore not specific to each individual loan but is general for APF. If there are some sort of legally binding agreements that prevent payments from each end borrower being used for any other purpose than paying back to us, and that all monies from us can only be used to fund this end user then I don't see them. And even if there was that doesn't remove the joint risk from problems within APF. I am not being awkward here, I would really be pleased if you could provide some documentation showing how problems with one or more of these loans or elsewhere within APF would not crossover into related problems with all other loans, I just don't see how that would not occur.
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nick
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Post by nick on Jun 2, 2017 15:29:02 GMT
I do believe that the current structure whereby the loan in intermediated through APF does introduce additional credit exposure to APF itself. The structure looks very similar to Lendy before they restructured to ensure a direct contractual relationship between underlying borrower and lender suffers the same fundamental issue.
While the assignment of cash flows and security on the underlying loan may well work should the underlying loan (or other APF loans default), lenders would remain exposed to credit issues at APF level. For example, if the underlying lender made a final bullet payment to APF, but APF mis-appropriate the funds because of fraud or otherwise, lenders would suffer the loss as the underlying borrower would have discharged their obligations to APF extinguishing the original security rights (ie they have repaid the loan). Whilst the risk of mis-appropriation due to fraud at APF level may be low, there are no restrictions on the business APF may undertake now or in the future which could lead to underlying cash flows being directed elsewhere that ultimately leads to a lender's loss - this is a real risk that appears to be glossed over.
There are ways to help mitigate the intermediary risk such as entering into a tripartite agreement with the underlying borrower such that cash payments are made into a separate bank account under the joint or sole control or the lender, although these are often imperfect and do not seem to apply in the current case. I've yet to come across a perfect intermediation structure which doesn't inject a degree of risk compared to a direct lending relationship and I think it is a bit misleading to be as dismissive of the attendant risk.
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Post by ablrate on Jun 2, 2017 16:04:55 GMT
The question that seems to be asked here is an interdependence of loans. Each loan is structure for us to step into the shoes of APF if there is a default, so basically if APF were in trouble for any reason and missed one months interest on a loan we would default and take over receivables/security. If the underlying had defaulted and there were no receivables, we would exercise the underlying PGs, and begin a sale of the properties. The underlying security is not an asset of APF, it is an asset of the underlying which is charged to our lenders via assignment. In reality, one months' interest goes missing and we step into the shoes.
On GDV, it is obviously significantly higher than the current valuation, but for our purposes is not relevant and could even have been misleading to quote a figure. Our interest is in what happens if things go bad, not what happens if things go well.
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nick
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Post by nick on Jun 2, 2017 16:27:48 GMT
The question that seems to be asked here is an interdependence of loans. Each loan is structure for us to step into the shoes of APF if there is a default, so basically if APF were in trouble for any reason and missed one months interest on a loan we would default and take over receivables/security. If the underlying had defaulted and there were no receivables, we would exercise the underlying PGs, and begin a sale of the properties. The underlying security is not an asset of APF, it is an asset of the underlying which is charged to our lenders via assignment. In reality, one months' interest goes missing and we step into the shoes. On GDV, it is obviously significantly higher than the current valuation, but for our purposes is not relevant and could even have been misleading to quote a figure. Our interest is in what happens if things go bad, not what happens if things go well. I'm comfortable that the loans are interdependent, but remained concerned that there remains an underlying risk to APF in the event that funds are mis/redirected out of the business due to fraud or legitimate other business. Eg, at the end of the term when the underlying borrower makes a bullet repayment, if that cash is used by APF in respect of other business activities or fraud, we would be completely exposed. Such circumstances cannot easily be mitigated by contract, you really need to have physical control of the cash flows to have any real comfort.
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Post by ablrate on Jun 2, 2017 16:50:29 GMT
The group business is an FCA regulated company with all that this entails.... with a lawyer and an ex-PLC director amongst the directors. If fraud risk is what you are concerned about the group holdings company would be happy to put an corporate guarantee. APF are good partners of ours and we don't consider fraud risk material, or we wouldn't be doing deals with them, but happy to arrange the corp guarantee if it increases comfort.
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sg
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Post by sg on Jun 2, 2017 17:10:30 GMT
The question that seems to be asked here is an interdependence of loans. Each loan is structure for us to step into the shoes of APF if there is a default, so basically if APF were in trouble for any reason and missed one months interest on a loan we would default and take over receivables/security. If the underlying had defaulted and there were no receivables, we would exercise the underlying PGs, and begin a sale of the properties. The underlying security is not an asset of APF, it is an asset of the underlying which is charged to our lenders via assignment. In reality, one months' interest goes missing and we step into the shoes. On GDV, it is obviously significantly higher than the current valuation, but for our purposes is not relevant and could even have been misleading to quote a figure. Our interest is in what happens if things go bad, not what happens if things go well. ablrate - Thanks for that, it does give me more reassurance, but again you are talking about the recovery process not the active loan. What I want to know is what are the common risks to all loans of defaulting together. If I lend to Fred in London and Ginger in Edinburgh who have no connection whatsoever there are no common risks (except the general economy). If I lend to Fred in London on two loans with different houses as security the common risks are almost 100% (call it 90%) (ie the chance of one loan defaulting and not the other are low) so the two loans are very connected and if I have loan limits per borrower (as I do) then I could squeeze a small amount out on the second loan but not much. I see these APF loans (and other similar cross-linked loans on Ablrate) as maybe about 80% linked so if I've got a limit of £2000 per borrower then I could justify about another £400 on a new APF loan but no more than that. Whereas if a new loan came along from an entirely unconnected person then we are back to £2000 limit. There would be little point in APF defaulting on a single loan as the recourse is not limited by the security, if the underlying loan defaulted then they might as well recover themselves and pay off in full as that would avoid further recovery costs if Ablrate had to do it. The risk of default is to all the loans together by either problems elsewhere in APF or a cascading default of the underlying loans caused by a property crash say. I think all the loans would repay ok (very much the most likely scenario) or they would all default together (much less likely) , or a single loan defaulting with no effect on any others (very very low likelyhood). Despite platforms trying to get lenders to focus on the security I believe the important risk is that of default. I want my loans to run to term and then repay not default, only after default does the security and recovery process become important. We have seen on Lendy that the recovery process is long and uncertain and the only thing that can be read into their hiding of the Provision Fund details and subsequent secrecy over the recovery process is that publishing details of the recovery process would not be favourable to them as to the value of the Valuation Report. I want to avoid this scenario and so focus on the borrower separately from the security. Both are important but the borrower is more so and in this case that borrower has reached their limit.
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