Peer-to-peer lending sites: MSE guide discussion

elephantrosie

missing my money in collateral

bxboards

masonic wrote: »

As for Collateral, presumably you weren't burnt because you didn't invest? I personally don't believe anyone could have seen the fraudulent regulatory situation coming, and I don't think there was anything wrong with the loans I cherry-picked to invest in over there - I guess I might find out in the fullness of time whether those loans (which did not include any development finance) are recoverable.

I didn't do Collateral as it seemed to me they went from a pawn-shop model (rings / watches / jewelry) etc to 12% property development loans almost overnight. That never smelled right to me. I recall them offering 2 or 3% cashback on top as well which you can look at in a couple of ways - a last gasp attempt to get funds in and stay afloat, or extraordinary generosity. Occums razor I think pointed to the former.

Back to Lendy, very few of the defaults there I find surprising at all, most seem to be speculative property loans with pie in the sky valuations - to me these are obvious candidates to fail, and should have surprised no one IMHO.

Let me give you an example - I could buy a plot of land for 100k, pretend that I'm going to build 6 houses on it at 250k per house, and hey presto, magically someone will lend me 250k x 6 @ 70 LTV. I don't even need to put any of my own money in! Now if I said to you, come on guv, lend me some money, you'd run a mile! But folks have been chucking money at these turkeys like its going out of fashion.... The big issue in P2P is speculative development backed up by ludicrous 'hope' development value. You don't need to be Mystic Meg to avoid these.

olliebean

fun4everyone wrote: »

I withdrew from Zopa a while ago, bottom line was I was not getting the returns I wanted for the risk.

I think I'm going to sell up and get out, but I just got an email from them saying they're in the process of completing a debt sale, so I'd better wait for that to play out first.

masonic

bxboards wrote: »

I didn't do Collateral as it seemed to me they went from a pawn-shop model (rings / watches / jewelry) etc to 12% property development loans almost overnight. That never smelled right to me. I recall them offering 2 or 3% cashback on top as well which you can look at in a couple of ways - a last gasp attempt to get funds in and stay afloat, or extraordinary generosity. Occums razor I think pointed to the former.

Back to Lendy, very few of the defaults there I find surprising at all, most seem to be speculative property loans with pie in the sky valuations - to me these are obvious candidates to fail, and should have surprised no one IMHO.

Let me give you an example - I could buy a plot of land for 100k, pretend that I'm going to build 6 houses on it at 250k per house, and hey presto, magically someone will lend me 250k x 6 @ 70 LTV. I don't even need to put any of my own money in! Now if I said to you, come on guv, lend me some money, you'd run a mile! But folks have been chucking money at these turkeys like its going out of fashion.... The big issue in P2P is speculative development backed up by ludicrous 'hope' development value. You don't need to be Mystic Meg to avoid these.

Can't disagree on any of your points about property development loans. However, some of the spectacular failures have come from outside of that space. Some have involved criminal activity and fraudulent use of funds by the borrower, while others have been grossly misrepresented to lenders. I maintain you are being unfair in branding those who have invested in any loan that has suffered significant loss 'turkeys'.

It probably won't have escaped your attention that FundingSecure started off from a pawn-shop model and moved over to property, and also offered/offers cashback of up to 3% on some slow filling loans - not that I hold them up as a model platform, but to demonstrate such actions are not really indicative of fraud/insolvency.

short_butt_sweet

it's best to look at all p2p as the wild west.

i'm sure some platforms are better than others, but IMHO guilty until proven innocent

fun4everyone

short_butt_sweet wrote: »

it's best to look at all p2p as the wild west.

i'm sure some platforms are better than others, but IMHO guilty until proven innocent

Agreed, and a major part of the reason why I have my p2p money spread around 10 platforms .

takesyourchances

short_butt_sweet wrote: »

it's best to look at all p2p as the wild west.

i'm sure some platforms are better than others, but IMHO guilty until proven innocent

It certainly is, when large sums are invested it is very wise to spread.



Also anyone investing should control their proportion of their overall investment and treat it as mostly illiquid as once you want to exit fully and defaults, problems or platform issues or failure occur does the extent of liquidity issues around p2p be truly understood.


Personally now I can't view it as a long term investment and feel if I'm prepared with cash tied up in 5 year loans and factoring risk too I'd rather invest stock based.



The concept of p2p I liked but it's surrounded by a lot of unscrupulous dealings and issues for the risk reward in many cases.

fun4everyone

takesyourchances wrote: »

The concept of p2p I liked but it's surrounded by a lot of unscrupulous dealings and issues for the risk reward in many cases.

Yes it really is. A major problem in p2p in my opinion is the conflict of interest (no pun intended) between investor and platform. You would think we could work in harmony but it seems not that easy.

1) It is against the platforms interest to default loans. Platforms advertise their default rates/amount of capital lost in loans and of course want them to be as low as possible to entice new investors in. Current investors can be stuck in some shockingly bad obviously "defaulted" loans which a platform seems very unwilling to formally default. Defaults would mean work chasing and potential loss of capital that also would look bad on their figures. I am thinking about Funding Secure here as an example but it no doubt applies elsewhere.

2) It costs time and money to chase late borrowers effectively. Investors all want lots of time and effort and expertise levelled at getting their money back when a borrower does not pay up. Platform's do not want to spend large amounts of money recruiting experts (they cost) and wasting their time chasing borrowers. I believe a lot of platforms do the minimum they can get away with in this regard.

There is much more. Investors want high quality loans. Platforms just want lots of loans that are filled is another point. The concept of p2p is great but the way it is implemented is kind of shaky. I cannot think of how to solve all these issues.

takesyourchances

fun4everyone wrote: »

Yes it really is. A major problem in p2p in my opinion is the conflict of interest (no pun intended) between investor and platform. You would think we could work in harmony but it seems not that easy.

1) It is against the platforms interest to default loans. Platforms advertise their default rates/amount of capital lost in loans and of course want them to be as low as possible to entice new investors in. Current investors can be stuck in some shockingly bad obviously "defaulted" loans which a platform seems very unwilling to formally default. Defaults would mean work chasing and potential loss of capital that also would look bad on their figures. I am thinking about Funding Secure here as an example but it no doubt applies elsewhere.

2) It costs time and money to chase late borrowers effectively. Investors all want lots of time and effort and expertise levelled at getting their money back when a borrower does not pay up. Platform's do not want to spend large amounts of money recruiting experts (they cost) and wasting their time chasing borrowers. I believe a lot of platforms do the minimum they can get away with in this regard.

There is much more. Investors want high quality loans. Platforms just want lots of loans that are filled is another point. The concept of p2p is great but the way it is implemented is kind of shaky. I cannot think of how to solve all these issues.

I think you summed up excellent points here and a lot of security has dodgy valuations and as you pointed out it costs money to go after recovery and a lot of platforms are not in profit so added costs.


In my earlier p2p with funding circle even though got out just ahead the remaining defaults have gone nowhere asides the odd 20p coming in


Ratesetter masked over issues until it hit the fan and the green energy account on assetz went belly up and I've 70 stuck there seemlying going nowhere fast with turbines as security.


Then latest with FS comes out its littered.


The concept could be good but the reality is these styles of problems and those of us who have invested heavily at points will certainly have experienced it. It's all reminded me of a saying its the person who's lent the money out who has the worry and problems not the person who has to repay it.

firestone

Just to be fair i have a small amount of Blackbox type P2P but i would guess that part of the problem with P2P is that the market for all the types of loans on offer from personal,business,mortgage etc is not new and was offered by banks and private companies they knew there would be defaults and built that into their cost analysis and accepted it
The likes of Ratesetter at 3 billion of lending and competing on comparison sites with the normal lenders understand this as well and warn people that the headline rate may not be achieved and there are risks but what is new is that there doing it with public money and Joe public will panic at the first sign of default and probably cause bad publicity while one of the big credit companies may have the same rate of defaults and the difference is it effects profit or share price.
Also think after the likes of Landbay,Ratesetter,Octopus launched paying a good rate but operating at market lending rates at which i assume they think is fair and can grow the business while getting good borrowers you then had investors saying it was not enough reward for the risk.
Which is where the second wave of P2P probably comes in giving 12 to 16% and charging the borrower much more and who can't get a loan else where and people then seem surprised when it goes wrong.Much of this lending in property devolopment has defaulted before at times in recession etc but usually effecting HNW but now with a pooling effect any body can have a go