2016 has been an interesting and difficult year so far for the securitisation market and bonds are trading at their lowest levels for five years. However, the market is resilient and new re-financing opportunities appear regularly. The ever increasing success of the Peer 2 Peer (P2P) lending platforms is an example.
The attraction for the P2P lenders is in the usual benefits of securitisations; diversification of funding source, freeing up existing funding channels and ultimately more competitive funding levels. The attraction for the market is a new class of mainly generic security.
Ironically, just as the first securitisation takes place, a warning has come from Treasury Committee chairman who has written to the Financial Conduct Authority and the Prudential Regulation Authority warning of the risks in P2P lending. He questions whether current regulation of the market is appropriate. In particular, he has challenged the regulatory authorities on the accuracy and completion of information and whether P2P investors were able to fully assess the risks of lending in this sector.
When any new asset class develops, it is essential that lenders and investors understand the assets and that proper due diligence is undertaken at all stages of the process. This will help to avoid unnecessary risk exposure, enabling the asset class to build the credible track record which is essential for the sector to grow.
The lenders role is particularly important in this process; paying attention to the quality of the asset and the accuracy of the information provided as mortgages are underwritten and completed.
Regular independent audits of newly originated loans will help in verifying that lending policies and procedures are fit for purpose and being followed correctly.