bigfoot12

chilterncom1, on 03 July 2012 - 15:05, said:

It is a superior model (if it works) given the current tax treatment of losses. Zopa is superior because it has more liquidity. When I started lending with Zopa we were told that we would be able to offset losses.

chilterncom1, on 03 July 2012 - 15:05, said:

Yes, just to get it going. If it made Zopa more successful...  After a while providing actual defaults are lower than 'estimated defaults plus a tiny bit' the fund would become self sustaining and Zopa would get its initial loan back.

The fund would be some sort of trust set up to benefit lenders with non performing loans.

chilterncom1, on 03 July 2012 - 15:05, said:

Offers would be created in all markets just as they are now, and filled in the order of best rate with earliest offer being taken first in the case of tied rates.

A* longer currently has expected bad debt of 0.4, and with a tiny bit added on make that 0.5. Together with lender fee of 1% and current rates of 6.9% X would have to be 5.4 to get matched at the moment. It seems unlikely with prices as they are today much would be matched in B, C or Y.

As a lender would have no risk (subject to Zopa surviving and the provision fund being large enough) the lender is ambivalent to which underlying market the money is actually lent in.

I don't see rates being negative. (A++ shorter would have X at 4.3% with a headline rate of 5.9% and 1% lender fee and fund contribution of 0.6%.)

chilterncom1, on 03 July 2012 - 15:05, said:

I agree there is an overhead for it being set up. It mustn't be insurance. I don't think that it would be banking either. As I said I'm neither an accountant nor a lawyer. Clearly another company has managed to do something similar - though it is possible it will turn out that they didn't. I'm not saying that this is what they really want, but Zopa often say that they would like to be regulated more.

Toffeeboy, on 03 July 2012 - 13:39, said:

Apart from the tax.

Currently we pay tax on X + (expected default rate). In my example above we would pay tax on X.

FailedTheTuringTest, on 15 May 2012 - 21:34, said:

I agree with your first 3 points. I also agree with your 4th point, but the issue is that 'one way or another' has different tax outcomes, self insurance has unfortunate tax issues for any taxpayer. Your final point does not hold for a taxpayer, if my 10p a time is offset against income, but your £10 isn't.


I don't think that it would be hard to introduce a compensation fund. How about this.

Zopa creates two new markets A++ (longer and shorter). Zopa creates a compensation fund and lends it (in some sort of subordinated way) some money say £200k. Lenders may lend with either these markets or the existing markets. If a lender chooses to lend in one of the A++ markets at a rate X% offers are actually placed in the other markets at rates of
X% + (lending fee)% + (expected default rate of that market plus a tiny bit)%.

Each month after a repayment Zopa deducts the usual fee and sends (expected default rate of the market plus a tiny bit)% into the compensation fund. Should this borrower default the compensation fund pays out to this and any other A++ lender.

After a year or so, providing that the size of the compensation fund is large enough to more than cover expected bad losses Zopa starts to get repaid. If after a few more years the fund is getting large it can pay a 'dividend' to lenders active in the A++ markets.

It needs to be done so it isn't insurance and all that, but I'd imagine there are lawyers and accountant who could do that. Obviously it might be bad PR. It might be like New Flavour Coca Cola which Pepsi claimed tasted more like Pepsi. But at least in this case Zopa wouldn't be removing the old flavour.

Whilst I was looking at my loan book the number of late payers fell. I did have 3 or 4 new late payers, all others have been late in previous months, but now I only have 1. Have another look Deddington and see if you now have fewer.

I have a few strange ones. One is late every month on the 1st and pays every month close to the 15th. My guess is he set up the wrong standing order date. I have 2 or 3 others which are similar.

I too, have voted 'yes'. I too, have yet to use Funding Circle.

I had a look at funding circle, but it looked like a lot of effort for each loan. Same reason I wasn't involved with listings. If zopa could grade the loans and subject to the tax issue I would be interested. As there are more options available such as security and director guarantees, etc. it should be possible to have similar default rates.