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Are New Union loans less risky

Please post any New Union topics that you want to discuss with the local p2p community.
admin
Site Admin
Posts: 23
Joined: Thu Feb 04, 2016 11:16 pm

Are New Union loans less risky

Postby admin » Mon Feb 08, 2016 11:42 pm

[repost from previous forum]

[carey]
Have you guys invested with New Union? Do you think their loans are less risky since they are backed by collaterals?

[will-roy]
i tend to believe that in this nascent p2p space with close to nil “prospectus” available on the target, my focus will be on the it’s ability to fulfill it’s obligations from an account 101 perspective which is their operating cash flow.

[Crowd Smarter]
My observation is that New Union’s loans are pre-funded first by New Union. So New Union has already assumed the entire credit risk of any borrower.

The participation contract states that an investor lends to New Union, not to the underlying borrower – unlike CM, FS or MS. The underlying deal is also insured and guaranteed by New Union. The investor is taking on New Union’s credit risk directly, and the underlying loan indirectly.

The collateral in the lending is pledged to New Union, not to New Union’s lenders. Lending to New Union is still unsecured.

In my view, investing with New Union is more like taking on New Union’s credit risk and much less so on the underlying deal. This is unlike with CM, FS or MS.

[Shylock]
Yes, it is actually quite misleading. Only who we read the FAQ in detail, did it suggest what Crowdsmarter had pointed out:

Extracted from New Union’s FAQ for Investor
Through my investment, do I own a fraction of the offering?
When you invest in a New Union product offering, you are investing through our Participation Contract. The contract states that the investor will receive a declared interest rate for a declared term that is reliant on the underlying funding between New Union and the SME borrower. Therefore, the Participation Contract is a contract between the investor and New Union.

While the investor does not have any ownership on the said funding or its security, the Participation Contract gives the investor an interest, shared with other investors who have funded the offering. Therefore, the investor obtains a right to receive monthly interest disbursements as well as the return of the principal sum when the SME borrower makes full payment on the funding.

websoft
Posts: 2
Joined: Fri Feb 12, 2016 10:24 pm

Re: Are New Union loans less risky

Postby websoft » Fri Feb 12, 2016 10:30 pm

Hi Crowd Smarter,

So what I understand from your post is that the loans we invest in at New Union are not actually secured? Then what happens if the company defaults?!

Would the same line of reasoning apply to their "insurance"? That the insurance is also just simply New Union "insuring" the loans - and that in effect if New Union is in financial trouble all the loans will go to shit? (as the insurance is not actually done by an insurance company with the capital to back the insurance)

I hear that they also charge borrowers 50-60% and give investors only 7% - so New Union are taking a 40+% spread?

Does anyone know what the actual disbursement process post-funding is? This is really very fishy...

Thanks!

CrowdSmarter
Posts: 31
Joined: Wed Feb 10, 2016 11:29 pm

Re: Are New Union loans less risky

Postby CrowdSmarter » Sun Feb 14, 2016 11:48 pm

Hi websoft,

First of all, I'm not a lender on New Union's platform. But some of the information you seek is available on their website.

Yes, lending to New Union is not secured. It is stated in their FAQ (extracted below).

Is my investment secured?

No. However, New Union has a set of legal mechanisms and contingency plans in place to mitigate such risks. We also employ insurance against our secured funding as a final measure to protect our investors' principal. In a worst case scenario, we are able to liquidate the asset and have reasonable expectation of being able to return most or our investors' entire principal.


If New Union defaults, lenders may lose part or all of their capital. However, New Union recently appointed an escrow agent to hold crowdfunded loans. This should protect lenders in event of New Union default.

I think most people misunderstand what is meant when New Union says its investments are secured. It basically means that the borrower's collateral are pledged to New Union, but not to the individual lender / investor. If the borrower default, New Union has a legal claim against the borrower's collateral. It does not mean that the individual lender has a legal claim against the borrower's collaterals. This is an important distinction.

I'm not too sure on its insurance; it could be done by a third party or internally by a bad debt provision.

On the spread, yes - I believe New Union earns a spread on every loan. I wouldn't say it is fishy, but it is just a different business model. New Union always pre-funds the loans, before opening up the investing option to other investors. The insurance and collateral management, if done properly, should also incur additional costs. So I wouldn't be surprised if it tries to earn a spread.

RachelSMartin
Posts: 2
Joined: Thu Nov 30, 2017 12:18 pm

Re: Are New Union loans less risky

Postby RachelSMartin » Thu Nov 30, 2017 12:26 pm

yes


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