Author Topic: Gathering experts' opinion about the future of peer lending  (Read 11267 times)

Fred93

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Re: Gathering experts' opinion about the future of peer lending
« Reply #15 on: November 11, 2014, 02:16:53 PM »
third party ratings on credit quality. A uniform approach, from Moody's or S&P or that ilk.

They did so well on securitized mortgages.

thezfunk

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Re: Gathering experts' opinion about the future of peer lending
« Reply #16 on: November 11, 2014, 02:39:15 PM »
third party ratings on credit quality. A uniform approach, from Moody's or S&P or that ilk.

They did so well on securitized mortgages.

I know! Think how well they would do with securitized P2P loans!  With their magic they could take a basket of D-HR loans and turn them into A loans!  I can't wait to sink my entire retirement fund into their securitized products which, with an A rating, will ensure low defaults and high returns! 

I trust their ratings completely because it's not like they defrauded investors in the past with similar products.  Even if they did it was just their 'opinion' and if you chose to believe them then you're the sucker and they did nothing wrong!

rawraw

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Re: Gathering experts' opinion about the future of peer lending
« Reply #17 on: November 11, 2014, 03:42:21 PM »
third party ratings on credit quality. A uniform approach, from Moody's or S&P or that ilk.

They did so well on securitized mortgages.
Only some mortgages, most with very complex structures.  Their ratings continue to work elsewhere

AnilG

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Re: Gathering experts' opinion about the future of peer lending
« Reply #18 on: November 11, 2014, 09:00:00 PM »
The problem with independent ratings is the conflict of interest they create. How are these independent raters will be compensated? As soon as the payment is being received from loan originators or buy/sell side orgs, it creates the conflict of interest. It is the same issue with stock analysts and investment banking. The intentions are noble but execution is fraught with conflicts and issues.

"There are no unbiased ratings."

third party ratings on credit quality. A uniform approach, from Moody's or S&P or that ilk.

They did so well on securitized mortgages.
Only some mortgages, most with very complex structures.  Their ratings continue to work elsewhere
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brycemason

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Re: Gathering experts' opinion about the future of peer lending
« Reply #19 on: November 11, 2014, 09:25:46 PM »
Fine. Triangulate the truth with multiple independent viewpoints. I think my point stands that reputational risk of platforms isn't enough.

Fred

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Re: Gathering experts' opinion about the future of peer lending
« Reply #20 on: November 12, 2014, 01:17:23 AM »
The problem with independent ratings is the conflict of interest they create. How are these independent raters will be compensated?

+1

Moody's and S&P charge about 5 bp to issue ratings.  LC would need to fork $2.5M to have its $5B notes rated by an agency.  Most bond investors require ratings from 2+ agencies, so this would cost LC $5+ M.
« Last Edit: November 12, 2014, 02:52:32 AM by Fred »

rawraw

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Re: Gathering experts' opinion about the future of peer lending
« Reply #21 on: November 12, 2014, 06:13:42 AM »
Fine. Triangulate the truth with multiple independent viewpoints. I think my point stands that reputational risk of platforms isn't enough.
One potential problem that I could see with this is the background of the independent view points.  There are a lot of people involved in this space who haven't actually had any interaction with traditional lenders (both inside and outside of LC).  Sometimes the presence of data can fool us into thinking we know something much better than we actually do.  This is why I expect the business loans and potentially subprime loans to be a train wreck for LC -- of all credit, prime consumer credit is a easy to actually know from the data.  But maybe LC has staffed up with people experienced in those matters -- I'm doubt the average investor (even institutional) will get it right if LC puts garbage up for investment.

This was one of the problems with the toxic mortgages mentioned earlier.  Because the historical dataset said everything would be fine and people involved didn't realize it was a reflexive relationship between the inputs and outputs.  But I'm sure if some of those people had actually visited the people making the loans, they would have realized no matter what the data said something was awry.

One thing people are ignoring is that for consumer credit, FICO would be something similar to a third party review although incomplete.