Peer to peer loosing

TheTracker

bigfreddiel wrote: »

no one here will own up to losing any money, we're all far to clever to ever make a loss, or own up to it if we did.

Cheers fj

Maybe because they haven't lost any money?

I've 100k+ loans, mostly 1k packets. One loan with a principal value of £700 hasn't repaid for a few months, the company is in trouble, recovery efforts are underway. I'd probably be happy to settle to sell it for £350. I've another interest only loan that has extended its repayment date as its business plan is yet to come off, I'd probably sell it at 85% if able. With these factored in I'm still at 12%+ annualised for 3 years. I worked out a while ago - and should do it again - if memory serves that if 25% my loans went into problems due to A Big Crash and I could only recover half the balance then I'd still be over 10%.

I actually enjoy that people are still scared of P2P, supply v demand more on my side.

Dan83

When you sell your bad debt, do the buyers know they are buying bad debt?

TheTracker

Dan83 wrote: »

When you sell your bad debt, do the buyers know they are buying bad debt?

Different platforms have different rules around selling loans on the secondary market. Most will block any sales for loans that have issues, even late payments. So there is little liquidity in this space. It's a problem they'll have to solve. We need liquidity for ISAs. And we run into confidentiality issues - those in a loan are privy to unpublished information about company status, and its difficult to convey that if selling a loan part. Even buying a vanilla loan on a secondary market is fraught with problems, as the due diligence attached to the loan may be years out of date. I personally would welcome more ability to sell distressed loans, I think there could be profit in them thar hills. So in short, sellers generally aren't able to sell bad debt to buyers.

jamesd

kidmugsy wrote: »

Just days ago a grand panjandrum, Adair Turner, was forecasting big losses for P2P. I've always had the impression that he's an !!!, but that doesn't necessarily mean he's always wrong.

http://www.theguardian.com/money/2016/feb/10/former-city-regulator-warns-peer-to-peer-lending-lord-turner

No, he wasn't. The BBC mangled what he really said and other news outlets picked up on their version mostly without bothering to listen to what he actually said.

What really happened there is that the BBC edited out a major part of what he said in their initial interview, presumably because they didn't understand it. Here's a more full version of what he said:

"Lord Turner: I strongly suspect that the losses on peer-to-peer lending [breathe in] which will emerge within the next five to ten years [breathe in] will make the worst bankers look like absolute lending geniuses. Because I think a group of people are going into a lending process on a technical platform without anybody really doing go out and kick the tires credit analysis. You [emphatic]cannot lend money[end emphatic] to small and medium enterprises in particular [breathe in] without somebody going and doing good credit underwriting which is understanding you know where are these premises that the guy says he's got, you know what are the machines he's got, you know, does he really know or she know what they're doing? This idea that you can just automate that onto a platform I think it has a role to play but I think it will end up producing big losses.

Interviewer: Does that mean the Financial Conduct Authority - the replacement organisation for the body you used to head - is asleep at the wheel on this?

Lord Turner: Well. I think there is to a degree an element of conduct where there has to be a bit of you know buyer beware caveat emptor and you know obviously if people are mis-selling in the sense of if there are people who are running peer-to-peer lending platforms who are pretending that as it were the sponsor is doing a degree of credit underwriting credit analysis which isn't there then that has to be constrained. But if it is absolutely clear to people that they are meant to be making their own credit decisions by looking at the information available, then you know life has to have some toughness to it. If you do crazy things you do have to sometimes face the consequences.

Interviewer: Because ...not intelligible... this is not sophisticated investors there are adverts on the tube for this stuff. There are adverts on bus stops.

Lord Turner: Well again I think we should be very careful of the advertisement for it, we should make sure that there is clear warnings within it. I think we need to encourage people only to participate in this if they have money which they can afford to lose. This should not be any core part of the investment strategy of somebody who needs to be certain and able to conserve capital and we need warnings of that."

The only significant P2P firm in the UK that I know of which might do that automated underwriting without lots of other checks including human checks is Funding Circle, so it might be their method that concerned him. Or not, since he didn't specify a firm. It's more common in the US and he might be warning against that spreading to the UK. I don't think I've ever suggested using Funding Circle here.

That interview was cut down to this in the original BBC story version:

"The losses which will emerge from peer-to-peer lending over the next five to 10 years will make the bankers look like lending geniuses"

After I sent them a factual correction message early in the day they modified that to add a missing word "worst":

"The losses which will emerge from peer-to-peer lending over the next five to 10 years will make the worst bankers look like lending geniuses"

and also added the content now there about underwriting. What he actually said in full makes Lord Turner look well informed, what the first BBC version did was make it look as though he had little idea how UK P2P firms really work. You can listen to the fuller version that has the transcript words above at 1:17:25 here. I write "fuller" and "more full" because this may also have more unhelpful significant edits from the BBC.

jamesd

Dan83 wrote: »

saving stream. ... Reading the advertising pitch about Having a fund ( can't remember their term for it) basically to really any bad debt, so the lender doesn't loose out. ... Has anyone actually lost money through a bad loan on here, I've read the news paper stories, but not ever spoke to any one has lost out.

There has so far been only one loan at SavingStream which went bad. They started legal action to sell the property that was the security for the loan and recovered enough money to cover both their legal costs and all of the money people had lent. At the time of this loan investors were lending to SavingStream directly and SavingStream were lending to their borrower and SavingStream would have paid up if the property value had been too low.

SavingStream have now changed their system. Today the loans are not to SavingStream with them picking up the risk. Instead each loan stands on its own and the security for that loan will be used to pay the lenders. The security is typically land and/or existing buildings for property development loans. Their protection fund is likely to step in if this is not enough.

I've had many loans to consumers default at places without protection funds but the overall interest rates have still left me very thoroughly positive overall. At Zopa the current value of defaulted capital owed for me is about £620 and total interest received is around £1,250. A Bondora the current capital value owed on defaulted loans is about €2,600 and total interest received about €11,300. In both cases many of the loans are receiving regular payments either after court action or non-court debt collection work. Some will never pay, for example the bankrupt or otherwise insolvent ones at Zopa and similar at Bondora. But overall debt collection for defaulted loans improves the overall picture significantly, though it takes years usually.

jamesd

Rich2808 wrote: »

What happens if we go into a recession and the borrowers cannot repay.

Then the security they offered for their loan is taken and sold to repay the debt if the platform and loan are secured. And/or if there is a protection fund that is used.

For some loans at some platforms, notably MoneyThing, the lending is to a business which is itself in the lending business. In those deals so far the business has agreed to just replace loans with new ones in the packages that a re a portfolio of lots of smaller loans. One of these is a pawn broker, the other a car hire firm.

Rich2808 wrote: »

And the rates aren't all that - in some cases barely more than I get on my current accounts which are protected and instant access.

Nothing forces people to use those, though. At least three places routinely offer 12% before bad debt and enough more are offering 8% and more to allow diversification over at least five different P2P platforms, which is a wise move.

Malthusian wrote: »

finally you have to ask what happens if the platform itself goes bust. (The underlying debts may still exist, but are they enforceable?

Yes, they are still enforceable. UK P2P firms are required as a condition of their FCA approval to operate to have a runoff plan in place that will continue to collect payments and chase defaulters.

redux wrote: »

I looked at one platform and it seemed to be exclusively property development. ... I'm not principled against that, but it has been very cyclical, make loads of money in phases and almost (or actually) go broke in between.

Probably SavingStream. Their deals are normally for property development. What happened in 2008 is that the properties took longer to sell and sold at lower prices, but less low early on that later. SavingStream already routinely extend loans when that happens, until either sale or new financing can be found. With loan durations typically in the six months to one year range that limits the potential downside quite substantially.

Higher risk in this area would be loans secured on land with planning permission where the exit plan is to sell the land to a developer. It would be hard to find a willing developer if demand for completed developments fell greatly. There are relatively few of these deals but they are available at times.

jamesd

Dan83 wrote: »

When you sell your bad debt, do the buyers know they are buying bad debt?

Yes, of course.

The only platform that I know that allows selling a defaulted loan is Bondora and they only started doing that about six months ago. Most don't allow selling loans that are late but again Bondora does. Permitting selling in these cases is a good idea but it does require a secondary market that allows selling ant premiums and discounts. Discounts because many are worth less than full value, premiums because accrued penalties could make the loan more profitable after default than before. I've sold a loan where the anticipated return for the buyer after me adding a 40% markup was over 90%. the borrower paid all amounts owed and the buyer made that profit. Don't use Bondora, it's now possible to do better elsewhere than when I invested, their planned returns have been dropping over the years. For any loan being sold at Bondora the potential buyer gets a full record of all payments made and the same or more debt collection information as the seller has.

Many platforms either only permit selling at par - the current capital value - or have some other setup that makes it impossible to provide the appropriate pricing for sales of impaired loans, so they don't allow it.

colsten

A warning from Adair Turner: http://www.professionaladviser.com/professional-adviser/news/2446474/ex-fca-chairman-attacks-p2p-in-wake-of-industrys-biggest-failure

"The losses which will emerge from peer-to-peer lending over the next five to ten years will make the worst bankers look like absolute lending geniuses."

Daz2009

colsten wrote: »

A warning from Adair Turner: http://www.professionaladviser.com/professional-adviser/news/2446474/ex-fca-chairman-attacks-p2p-in-wake-of-industrys-biggest-failure

This article has already been discussed to death,it's old news mate

AlanP_2

colsten wrote: »

A warning from Adair Turner: http://www.professionaladviser.com/professional-adviser/news/2446474/ex-fca-chairman-attacks-p2p-in-wake-of-industrys-biggest-failure

Discussed and commented on at 12:59 by JamesD - have you read it, and still taking it on face value?