Poll

Which of these is critical to tripling LC's retail investor base?

Isolate my loan default risk from LC’s bankruptcy risk (aka BRV)
36 (37.9%)
Distribute loans equitably between institutional and retail lenders
11 (11.6%)
Tax treatment
11 (11.6%)
Improved user experience
8 (8.4%)
Improved loan portfolio analytics
8 (8.4%)
Improved secondary market
13 (13.7%)
Improved loan products
1 (1.1%)
Other
7 (7.4%)

Total Members Voted: 42

Voting closed: May 29, 2016, 11:02:58 PM

Author Topic: Attracting more retail investors - Part II  (Read 5252 times)

PhilGD

  • Full Member
  • ***
  • Posts: 150
    • View Profile
    • Email
Re: Attracting more retail investors - Part II
« Reply #15 on: May 25, 2016, 01:58:32 PM »
I think it would go a long way to restoring investor confidence if LC instituted a reserve fund to cover losses that occur early in the life of a loan. For instance, they could set it up so that the reserve fund protection was proportional to the subgrade of a loan - A's would receive more protection than G's - and it could trigger investor reimbursements when a borrower defaulted in the first couple of months.

A fixed amount of LC's balance sheet could be allocated to the reserve fund. Another option could be to allow investors to "enroll" their notes for reserve fund protection in exchange for a portion of their protected notes' interest income. Or LC could even set it up as a credit-linked note and securitize it!

dompazz

  • Full Member
  • ***
  • Posts: 224
    • View Profile
Re: Attracting more retail investors - Part II
« Reply #16 on: May 25, 2016, 03:34:18 PM »
I think it would go a long way to restoring investor confidence if LC instituted a reserve fund to cover losses that occur early in the life of a loan. For instance, they could set it up so that the reserve fund protection was proportional to the subgrade of a loan - A's would receive more protection than G's - and it could trigger investor reimbursements when a borrower defaulted in the first couple of months.

A fixed amount of LC's balance sheet could be allocated to the reserve fund. Another option could be to allow investors to "enroll" their notes for reserve fund protection in exchange for a portion of their protected notes' interest income. Or LC could even set it up as a credit-linked note and securitize it!
LC is not the lender.  Asking them to set up a loan loss reserve puts a lot of credit risk on them, but they don't get to take on additional revenue.  I'm not against it, but it would necessarily mean we would receive less interest income.  I would like to have the option, as you say.

I think the better idea is to claw back of a portion of the origination fee if default happens in the first 12 months.  It aligns incentives and shouldn't mean a reduction in interest rates.  I'm happy to set up my own loss reserve.

PhilGD

  • Full Member
  • ***
  • Posts: 150
    • View Profile
    • Email
Re: Attracting more retail investors - Part II
« Reply #17 on: May 25, 2016, 05:53:25 PM »
I think it would go a long way to restoring investor confidence if LC instituted a reserve fund to cover losses that occur early in the life of a loan. For instance, they could set it up so that the reserve fund protection was proportional to the subgrade of a loan - A's would receive more protection than G's - and it could trigger investor reimbursements when a borrower defaulted in the first couple of months.

A fixed amount of LC's balance sheet could be allocated to the reserve fund. Another option could be to allow investors to "enroll" their notes for reserve fund protection in exchange for a portion of their protected notes' interest income. Or LC could even set it up as a credit-linked note and securitize it!
LC is not the lender.  Asking them to set up a loan loss reserve puts a lot of credit risk on them, but they don't get to take on additional revenue.  I'm not against it, but it would necessarily mean we would receive less interest income.  I would like to have the option, as you say.

I think the better idea is to claw back of a portion of the origination fee if default happens in the first 12 months.  It aligns incentives and shouldn't mean a reduction in interest rates.  I'm happy to set up my own loss reserve.

I would gladly give up a few bps of interest in exchange for not taking a 100% loss every time another 1st-month default/straightroller/dead beat comes along.

SLCPaladin

  • Full Member
  • ***
  • Posts: 202
    • View Profile
Re: Attracting more retail investors - Part II
« Reply #18 on: May 25, 2016, 10:49:22 PM »
I think it would go a long way to restoring investor confidence if LC instituted a reserve fund to cover losses that occur early in the life of a loan. For instance, they could set it up so that the reserve fund protection was proportional to the subgrade of a loan - A's would receive more protection than G's - and it could trigger investor reimbursements when a borrower defaulted in the first couple of months.

A fixed amount of LC's balance sheet could be allocated to the reserve fund. Another option could be to allow investors to "enroll" their notes for reserve fund protection in exchange for a portion of their protected notes' interest income. Or LC could even set it up as a credit-linked note and securitize it!

Over in the UK Zopa has something similar to what you described. They refer to it as "Zopa Safeguard Trust". Here is what it does:

Quote
If a borrower misses a payment, Zopa will follow up with them in order to get them back on track with their repayments. If the borrower misses a repayment for four consecutive months, this is classed as default. Zopa in conjunction with a not-for-profit company called P2PS Limited will continue to administrate the loan.

At this point, if your loans are covered by Safeguard, a claim is made for the outstanding loan amount. Safeguard will usually pay the claim but does reserve the right not to, and in this case Zopa in conjunction with P2PS will seek to recover the amounts owed on your behalf.

Safeguard’s ability to pay out relies on having sufficient funds in Safeguard. The amount of money in our Zopa Safeguard Trust is based on the estimated default rate for each borrower in a similar economic environment, and an assessment of whether there is enough money in the fund to make estimated pay-outs. Since Safeguard's launch all claims on loans covered have been paid, although there is no guarantee this will always be the case.

Zopa lenders can choose Zopa Access or Classic which are covered by Safeguard.

Read more here: http://www.zopa.com/lending/risk-management

dompazz

  • Full Member
  • ***
  • Posts: 224
    • View Profile
Re: Attracting more retail investors - Part II
« Reply #19 on: May 26, 2016, 10:29:33 AM »
I would gladly give up a few bps of interest in exchange for not taking a 100% loss every time another 1st-month default/straightroller/dead beat comes along.

I expect it would be 100s of basis points, not a few.

Boatguy

  • Jr. Member
  • **
  • Posts: 77
    • View Profile
    • Email
Re: Attracting more retail investors - Part II
« Reply #20 on: May 28, 2016, 05:23:10 PM »
I'm amazed that there are only 41 people in these forums with an opinion.  Lend Academy claims 5,800 members of this forum.  Is it really the case that less than 1% have an opinion?

What would need to happen before you would recommend LC to a less financially knowledgable friend?  Someone who might invest in a bond fund, but not LC?
« Last Edit: May 28, 2016, 05:25:39 PM by Boatguy »

Fred93

  • Hero Member
  • *****
  • Posts: 2164
    • View Profile
Re: Attracting more retail investors - Part II
« Reply #21 on: May 28, 2016, 05:46:09 PM »
I'm amazed that there are only 41 people in these forums with an opinion.  Lend Academy claims 5,800 members of this forum.  Is it really the case that less than 1% have an opinion?

What would need to happen before you would recommend LC to a less financially knowledgable friend?  Someone who might invest in a bond fund, but not LC?

I have done so continuously over the past few years. 

To be specific, as this point often gets confused: I recommend investment in the loans/notes, but not in LC's stock.