Property development lending

Apologies for coming to this thread 'late' but I am still catching up after a spell touring Europe on my motorcycle.

Whilst I don't disagree with the tone of your post the two sentences above stood out to me. Personally I wouldn't have used 'honesty' but that is a personal thing. When I started with P2P only zopa and Ratesetter existed so there was no DD involved.  When AC started I signed up and soon realized that with higher stakes (and no PF) DD was a necessary evil so I started digging .... and that continues to this day. From day one I discovered information that made me less inclined to invest in certain loans/platforms. For example I remember a PM exchange we had over the involvement of a certain individual in a platform and his past that included the Mark Thatcher Equatorial Guinea coup attempt.

The point I am making is that I make my decisions and I sink or swim based on those decisions. So to read "I've been lobbying hard for individual loan selection to be banned from retail offerings" made my heart sink. Yes I have picked a few duds over the years (usually with hindsight I realize I shouldn't have gone into the loan in the first place, not enough DD) but by lobbying for black box investments you are suggesting a sanitized P2P market that includes no 'fun'.  My days with zopa and Ratesetter I would characterize as being dull spreadsheet filling exercises.  Now that may suit some but not me and I presume others.

So when you lobby the FCA are you doing it in a personal capacity or as a representative of this well used and respected forum?

 "I've been lobbying hard for individual loan selection to be banned from retail offerings" made my heart sink. Yes I have picked a few duds over the years (usually with hindsight I realize I shouldn't have gone into the loan in the first place, not enough DD) but by lobbying for black box investments you are suggesting a sanitized P2P market that includes no 'fun'.  My days with zopa and Ratesetter I would characterize as being dull spreadsheet filling exercises.  Now that may suit some but not me and I presume others.

After a few months concentrating on other things, I've spent the last few weeks on fairly intensive due diligence on loans on COL/FS/L/MT, and to be frank I'm pretty disillusioned with what I'm discovering (all of the above !!) . Is there a gap in the market for an ethical p2p platform ? Or is 101 ways to serve up deceit the only viable business plan ? At present I'm seeing little to choose between COL/FS/L/MT in terms of appalling ethical behaviour (and I suspect ABL is no better, but I'm not a lender there). Would platforms really struggle to attract borrowers if they were 100% open and truthful ?

I am absolutely fuming that after spending hours working out my own LTV for the MT Birkenhead loan, I now discover that for whatever reason I wasn't told of the existence of what probably (subject to further legal guidance) amounts to prior charges ahead of the MT charge, or the end borrower was in technical default at the time of the listings for the later tranches. I have a chunk of the MT Lancs Residential Park despite some misgivings over the real LTV (but some posts on the forum did reassure me that I was probably being slightly over pessimistic). I now discover that MT don't routinely declare missed / very late payments by borrowers so I have no idea whether the borrower is up to date with the repayments and whether there have been any serious delays with any of the repayments so far. Given I'm uneasy with the LTV, I may have to sell this loan as I have no means of assessing payment performance, and hence current risk of default.

For lenders such as me to do adequate due diligence on loans on COL/FS/L/MT to come up with an independent risk assessment is tough, and sometimes can only be completed when the loan has drawn down due to the deliberate attempts by platforms to disguise the identity of both assets and borrowers. The COL Darwen/Burnley loans are a case in point. The platform implies that there are two principals of the borrowing company one very experienced, when google tells us that it is one principal with minimal experience of property development.

I assume most people are aware that for secured loans to UK companies, a simple google search

    {platform name - of the security trustee} charge site:companieshouse.gov.uk

reveals details of both assets and borrowers ? Throw a bit of an address into the search

    {platform name - of the security trustee} charge {asset's town} site:companieshouse.gov.uk

and it pretty much throws out the answer. Trivial. What does redacting details of borrowers and their assets really achieve ?  Far less trivial, I'm about to write a crawler/spider application integrating with the companies house web API to extract details of the other business interests of the directors of borrowing companies. There are a lot of shady characters borrowing on p2p platforms, and unless the security is rock solid an assessment of the borrower's business ethics is an essential risk factor.

EDIT: Its worth noting some assets are "hidden" in overseas companies (e.g. the COL Bolton and MT Paisley assets are charged to Gibraltar companies) which makes lender due dilligence, and on going monitoring of the borrowing company prohibitively expensive.

registerme has already mentioned valuation reports that are simply fanciful (e.g. FS Wimbledon Construction) or contain basic blindingly obvious errors (e.g. MT Putney), and the lack of sight of MS reports by lenders prior to tranche drawdown (e.g. almost all FS/L loans). The FS Whitehaven loan is a frightening example of what can go wrong when there is no MS involvement at all.

Which brings me back to my opening question: Is there a gap in the market for an ethical p2p platform focussing on the property development sector ? (and could/should any of ABL/COL/FS/L/MT aspire to be that platform? ) Actually AC in my opinion is pretty much there these days (totally anonymous loans are long gone), but I'm not sure ABL/COL/FS/L/MT would necessarily regard AC as a close competitor (for borrowers).

What do I mean by ethical ? As an overriding principle, I think it is about being 100% open and honest, revealing all risk factors however minor, revealing borrowers payment performance, revealing who the borrowers are, what the asset is (no redacting), ensuring the valuation report considers worst case fire sale realisation, providing copies of the land registry documentation after the charge has been filed to save dozens of us each having to pay £3 (or £6 or £9 if multiple titles) to download them (now a necessity given the MT UN1 issue). Perhaps we are all naive, and playing dirty is actually the only game in town. I called time on my own career partly through the realisation that my own ethical approach of 100% open and honest communication was rarely appreciated. I confess I have a mental block here.

I genuinely believe that the current lack of openness and honesty at COL/FS/L/MT is going to force the FCA eventually to take some action. I've been lobbying hard for individual loan selection to be banned from retail offerings (i.e. restricted to sophisticated/HNWI). For high volume platforms (FC as the prime example) operating a black box account for retail lenders is workable, and it would probably work at FS. But I'm not convinced ABL/COL/L/MT have the volume of loans to make a black box account feasible. In other words I fear the current lack of openness and honesty with lenders by COL/FS/L/MT could in due course cause an existential crisis for one or more of these platforms.

The expectations of the average forumite regarding business ethics is, I suspect, WAY above what is the norm in UK business, and given that many p2p borrowers (the platform's actual customers) are sub-prime operating on the boundaries of legality never mind ethics and morality it is hard (perhaps impossible ?) for p2p platforms to live up to the expectations of forumites. Cue withdrawal of platform reps from active participation on the forum as the discussion is on a different plane to that on which the platform is actually operating. A platform rep simply can't square the circle between how lenders expect the platform to operate, and how the platform has to operate in the shady world of sub-prime loans. The result is viscous circle of forumites getting ever more disgruntled, and pushing platform reps further into their shells. Which, intuitively, isn't conducive to good due diligence, by platforms or lenders.

This year seems to have reached the point of five similar platforms (ABL/COL/FS/L/MT), all offering similar loans, all believing openness with lenders will kill the business. Is that the pinnacle of the dream of the founders of these platforms ? Eleven years on from zopa's launch, I am so disillusioned with where we have ended up. The original p2p concept of a borrower making a pitch for funds from a pool of lenders seems to be fading fast. But is the demise of that original concept inevitable ? There are a few borrowers with a good demonstrable track record in their field. Why not present a professional portfolio of the borrower's work to support his loans, and yes, be open, and explain the background to any liquidated companies he is associated with. And perhaps, just perhaps, when one of his projects slips behind schedule slightly, there might be a bit less alarm from lenders.

Whilst I agree with much of the above, especially “many p2p borrowers (the platform's actual customers) are sub-prime operating on the boundaries of legality never mind ethics and morality” I consider “I've been lobbying hard for individual loan selection to be banned from retail offerings (i.e. restricted to sophisticated/HNWI)” to be elitist.

If people are daft enough to put money into something without investigation, DD or call it what you will then perhaps it would be better if the FCA initiated a programme of financial education rather than barring those who are not considered to be HNWI.

1. The information presented to investors at time of investment.

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It's clear to me that the special place p2p has in financial regulation is anomalous and unstable.  The growth in p2p was born of the 2008 financial crisis and the resulting tightening of the banks' purse-strings.  It filled a political need at the time.  Now that the banks are flush with cash again there is no upside for the FCA or their political masters in maintaining the status quo.