6 Things Investors Should Know About P2P Lending

With yields on Treasury bonds at 3 percent or less and savings account rates near zero, investors are starved for income. Is peer-to-peer lending a possible answer?

Peer-to-peer lending, in which investors and borrowers arrange loans without a traditional bank in the middle, has blossomed into a multibillion dollar business. In exchange for putting up the loan principal, peer-to-peer lending can offer investors a healthy rate of income.

However, the approach is still too new for the risks to be fully recognized by the marketplace. Before you invest in a peer-to-peer lending opportunity, here are six things you should think about.

1. The track record is incomplete
Promoters of peer-to-peer lending will show you statistics to reassure you that yields have been more than enough to make up for defaults. However, this has previously been the case with new markets, from international bonds to mortgage-backed securities. In the early years, investments are made very selectively, and not enough time has elapsed for defaults to fully develop. It is when an approach becomes applied on a broader scale and over a longer time that the true risks become apparent. That has not happened yet with peer-to-peer lending.

2. Underwriting standards are important
If you are going to make these loans, think like a banker. Get a written description of how people qualify for the loans you are funding, and how those standards are enforced.

3. So is the go-between
Since your money is going to pass through whoever is organizing these loan pools, you need to know whether they can be trusted and what their cut of the profit is.

4. A diversified borrower pool is essential
This is a key, because the more concentrated that pool is, the more exposed you are to suffering big losses due to a few defaults. Shoot for a borrower pool that is diversified not just in numbers, but in the geographic distribution of the borrowers. This way, an employment setback in one area does not disproportionately impact you.

5. You can manage risk by choosing different terms
All things being equal, shorter-term loans are viewed as less risky than longer-term ones. So, even though long-term loans may offer a higher yield, you can moderate your risk with a pool of high-turnover, short-term loans.

6. Not all repayment flows work the same way
In a loan pool, repayments can be structured in different ways. The most straightforward is for all investors to get paid at the same time as interest payments come in, but there are more complex structures that divide repayment into tranches. Later tranches — in other words, lower priority repayments — may offer higher yields, but these are the most susceptible to defaults.

If you venture into peer-to-peer lending, do so cautiously and with a limited amount of your investment assets. Dont let a few successes make you overconfident either, because default rates tend to soar during economic downturns. With that in mind, pay close attention to employment trends. If you see unemployment start to rise, it could be a good signal to back away from peer-to-peer lending.

Peer-to-peer lending can be a sensible investment for those who understand the risks. But the first thing to understand about those risks is that peer-to-peer lending is not a substitute for highly secure income vehicles like savings accounts and Treasury bonds.

This article originally appeared on Money-Rates.com.

New Jersey lawmakers introduce state’s first lawsuit lending bill

TRENTON, NJ (Legal Newsline) In the next year, New Jersey will join states like Indiana and Missouri in their attempts to regulate the lawsuit lending industry.

On Sept. 18, Assemblymen John McKeon, D-Essex and the chair of the Judiciary Committee, and Joseph Lagana, D-Paramus, introduced a new bill that targets lawsuit lending the practice in which third-party companies fund litigation in exchange for a portion of a successful recovery for the first time in their states history.

The New Jersey General Assembly, which is now in the middle of a two-year session, will consider and potentially pass the bill in 2015.

China to Ease Rules to Boost Lending: Update

Still, the central bank refrained from making a broader easing move for fear that such steps would send the market
too strong a signal about easing monetary policy.

Its a big help for the banks and at the same time, the central bank can maintain its neutral monetary stance,
said one of the banking officials.

Analysts estimate the move is roughly equivalent to injecting 1.5 trillion yuan–or about $242 billion–into the
banking system. PBOC officials didnt respond to requests for comment.

Chinese banks for weeks have been pressing the PBOC–known locally as yang ma, or big mama–to free up more funds
to boost their lending abilities. A rare drop in bank deposits–historically the main source of cheap funding for
Chinese banks–is forcing banks to curtail lending or look for more-expensive types of financing.

The PBOC worries that broader moves will only fuel Chinas flush stock market, already among the worlds best-
performing this year, and put money in the coffers of big state-run companies without helping smaller firms and the
broader economy. A PBOC interest-rate cut last month resulted in a surge in Chinas stock markets as investors bet on
more monetary-easing moves and put money in new initial public offerings. Meanwhile, funding costs for Chinese
businesses havent shown signs of dropping significantly.

But Chinas economy keeps losing steam, forcing the central bank to turn to more aggressive measures to prop up
economic activity. Economists warn that the Chinese government may miss its annual growth target–set at 7.5% for 2014–
for the first time since the 1998 Asian financial crisis.

Shanghais benchmark stock index rose 3.4% on Thursday amid local reports of the PBOCs move, led by banks and
other financial firms.

Banks have been calling on the PBOC to lower the share of deposits banks must set aside against financial trouble,
known as the reserve-requirement ratio. In past slowdowns, the central bank has lowered the ratio to boost credit.

In the latest move, the PBOC will significantly relax how banks calculate the loan-to-deposit ratio–the major
restraint on banks lending abilities, according to the banking officials. Currently, Chinese banks cant lend more than
75% of their total deposits, but that calculation doesnt include large sums of deposits from nonbank financial
institutions such as asset managers and securities firms.

Now, the PBOC will allow banks to add those deposits to their calculations of their loan-to-deposit ratios,
according to the banking officials.

At the same time, PBOC officials told the participants at the meeting Wednesday that banks wouldnt have to set
aside additional reserves for these deposits with the central bank, according to the officials.

The two steps combined would have the same effect as a 1.5-percentage-point cut in banks reserve-requirement
ratio, the banking officials said.

The central bank in the past month has also beefed up banks ability to lend in other ways. It rolled over part of
the 500 billion yuan in loans to the countrys five biggest state-owned banks. The central bank also injected 400
billion yuan of short-term liquidity into the banking system.

Many Chinese banking executives have called those targeted steps inadequate as banks struggle with falling profits
and rising bad-loan levels.

— Grace Zhu contributed to this article.

Write to Lingling Wei at lingling.wei@wsj.com

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Intermediaries remain the most popular choice for buy to let investors

UK landlords sourcing buy to let finance from intermediaries has increased as they regard it as the best way to secure a good deal, new research suggests.

There has been a 6% increase in landlords who prefer get property finance from intermediaries and large scale landlords more likely to make exclusive use of intermediaries, according to the latest report from specialist buy to let firm Paragon Mortgages.

The Private Rented Sector Trends survey, which has been tracking landlord confidence and views on the buy to let market for 20 years, also shows that 60% of landlords agree intermediaries are valuable in finding the best buy to let deals.

More than a third, 36%, of landlords in the fourth quarter of the year preferred to source buy to let finance exclusively via intermediaries, a 6% increase over the past three months, up from 30% of landlords in the third quarter.

In comparison, 23% of landlords in the last quarter of 2014 preferred to source buy to let finance directly from lenders, and 23% sourced through a mix of intermediaries and lenders, which reduced from 28% in the third quarter.

Large scale landlords, those with five or more properties, were more likely to prefer to source all their buy to let finance via intermediaries at 40% compared with 23% of small scale landlords.

Morning Scan: Deck the Halls and Close Brokers’ Loopholes; Title Lending Boom

Wall Street Journal

Its about to get harder for brokers to hide their dirty laundry from clients, according to the paper. The Financial Industry Regulatory Authority will begin sharing with state insurance regulators a monthly list of securities brokers who have been banned or suspended from the industry. The move stems from concerns that regulatory gaps have allowed some brokers to continue peddling financial products to clients even after they have been nailed for misconduct. A

Another Voice: New lending rules will increase homeownership

By Darren M. Swetz

Didn#x2019;t we learn anything?

That is the question critics have been asking since the Federal Housing Finance Agency announced plans earlier this fall to loosen lending requirements for some mortgages backed by government-sponsored lenders Fannie Mae and Freddie Mac. Fannie Mae on Dec. 13 started allowing first-time home buyers to get mortgages with down payments as low as 3 percent.

To some, this move represents a step toward another subprime lending crisis, much like the one that left us with the worst recession in decades. But it is easy to decry the FHFA#x2019;s initiatives if you already own a piece of the American dream: a single-family home.

So what have we learned since the recession?

We have learned that the nation#x2019;s homeownership rate, as of the end of the third quarter, was at 64.4 percent #x2013; the lowest rate since 1995, according to the US Census Bureau. And we know that the tighter lending requirements that have been in place since the recession have increasingly made that American dream something many can only rent and not own.

Even here in Western New York, I#x2019;ve seen over the past six years a stark increase in clients who want to own a single-family home but are left renting instead because they cannot satisfy onerous down payment or credit requirements. It was these lending requirements that in part turned single-family rental housing into what Fannie Mae called #x201c;the fastest-growing component of the real estate market#x201d; and that prompted institutional investors such as the Blackstone Group to gobble up single-family homes across the country and then rent them out.

The shift toward single-family rentals has been pronounced in states such as California and Florida. In 2010, the Buffalo Niagara metropolitan area actually had the 13th lowest rental market share of single-family renter-occupied housing, according to a Fannie Mae report. But in the aftermath of the recession, this single-family rental trend has started making inroads in the region.

Just to be clear: There is nothing wrong with renting a single-family home. Renting a single-family home is actually a good stepping stone to owning one because it allows tenants to establish a payment history and to save for a down payment. And with Fannie Mae and Freddie Mac lowering their down payment requirements, tenants may be able to shorten the time renting or bypass renting all together.

We need to stop viewing mortgages as ticking time bombs and remember that they enable individuals and families to become more invested in their communities. Without question, changing the lending rules will pose risks for the economy. But not changing them will pose risks for the community.

Darren M. Swetz is a partner at Tully Rinckey PLLC in Williamsville, where he practices real estate law statewide.

Nearly 200 groups back Defense plan to crack down on predatory lending

Meanwhile, the Consumer Financial Protection Bureau (CFPB) released a report that pinpointed problems within the current rules that are allowing lenders to offer costly loans to military families.

Last year, Congress gave the CFPB the power to enforce the law.

In 2007, the Military Lending Act capped rates at 36 percent and applied other protections to payday loans with terms of 91 days or fewer and for an amount of $2,000 or less, vehicle title loans with terms of 181 days or less for any amount and tax refund anticipation loans.

Banks brace for Small Business Lending Fund interest rate reset

A handful of Greater Washington community banks have loaned tens of millions of dollars to small businesses as part of the federal governments economic stimulus to boost the recovery following the Great Recession.

The Small Business Lending Fund money was distributed to the banks in the second half of 2011 at an initial cost of up to 5 percent. For those banks that increased their lending by 10 percent or more by the end of 2013, the interest rate was reduced to 1 percent.

But recently the government began reminding those banks the rate automatically resets to 9 percent in early 2016. Additional reminders will go out during 2015. Banks dont have to repay the money by this time next year, but they will have to pay the higher rate.

Nationwide, the Treasury Department says that since 2011 it has loaned $3.9 billion to 281 community banks and $104 million to 51 community development organizations, which wont face a rate reset until 2019. The government says participants have made nearly 63,000 small business loans and increased their lending by $13.5 billion from a $33 billion baseline in the third quarter of 2011. Nearly 80 percent of the loans are less than $250,000, just 6 percent are over $1 million.

So which local banks received the government money?

Bethesda-based EagleBank was one of the first to participate in the SBLF when it received $56.7 million in July 2011. Virginia Heritage Bank got $15.3 million about the same time, which is now part a nearly $72 million total following the October merger of the two banks.

We will pay it off sometime in 15, said EagleBank Chairman and CEO Ron Paul. Theres no need to be in hurry to repay capital thats at 1 percent.

Paul said EagleBanks small business lending would remain strong without the government money.

EagleBank increased its small business lending from a $413.3 million baseline to $714.5 million, an increase of nearly 73 percent, according to a recent Treasury Department report based on June 30 data. At the time of the snapshot, before the merger, Virginia Heritage increased its small business lending from $85.6 million to $162.2 million, more than 89 percent.

WashingtonFirst Bank of Reston received $17.8 million in August 2011. Its lending grew from a $217.6 million baseline to $301.1 million, or 38 percent. Monument Bank of Bethesda received $11.4 million in SBLF money. Its small business loans grew 56 percent to 454.6 million from $34.9 million.

Officials at those two banks couldnt be reached Tuesday as the holiday approached.

Some local banks, and others around the nation, used the SBLF money to repay higher-rate Troubled Asset Relief Program loans taken during the height of the financial crisis. That prompted some lawmakers to call the program a backdoor bank bailout, but the maneuver was completely legal and well-known to regulators.

Local community development groups that received the SBLF money include District-based Partners for the Common Good, $1,009,000; and Building Hope Charter School, $2,091,000. In Virginia, ECDC Enterprise Development Group got $320,000 and Capital Improvement Partners received. $8.2 million.

Mark Holan covers the economy and money —┬ábanking, finance, private equity, corporate accountability and professional services.

Mandiri to boost micro lending with hundreds of new branches

State-owned lender Bank Mandiri plans to open hundreds of branch offices and cash outlets across Indonesia as part of the company’s business strategy to increase revenue contributions from the growing micro business segment.

Agus Haryoto Widodo, Mandiri senior vice president for micro business development, said that the bank planned to open 400 new branch offices to manage its micro lending next year. The new offices will complement the 2,600 micro branch offices already in operation.

In addition to branch offices, the lender also plans to launch 50 cash outlets at traditional markets in 2015, bringing the total number of its outlets to 60.

Mandiri began opening cash outlets for micro lending this year, including in Bekasi in West Java, Madiun and Magetan in East Java, Palembang in South Sumatra and Solo in Central Java.

“By opening outlets in markets, we will be able to directly reach micro-scale vendors. They often cannot leave their stalls because of the hustle and bustle of market activities, so we have to come to them,” he said recently.

The new offices and outlets are expected to help the bank post its 35 percent annual growth target for micro lending to around Rp 51.3 trillion (US$4.11 billion) in 2015.

In 2020, the lending portfolio was hoped to rise to between Rp 164 and Rp 165 trillion, Agus said.

Data from the bank show that micro loans have exceeded the Rp 36.45 trillion target set for 2014 as the outstanding micro loans already stood at Rp 37 trillion by November, generated from one million micro-scale customers.

The micro segment accounted for 7.2 percent of Mandiri’s total loans, the data revealed.

At present, Mandiri is the second-largest player in the micro lending segment after fellow state lender Bank Rakyat Indonesia (BRI).

According to the September banking statistics issued by the Financial Services Authority (OJK), BRI controlled around 22.6 percent of outstanding micro loans, while Mandiri held 5 percent.

Micro lending has long been recognized as the most profitable banking segment because of its high interest rate, which produces the biggest profit margin for banks.

Mandiri currently sets its micro interest rate at 19.5 percent, the highest of all its lending segments.

However, Mandiri micro and retail banking director Hery Gunardi said that the company would soon introduce a new loan product that would allow micro loan customers a lower interest rate.

“We require our customers to open a micro saving account every time they apply for a micro loan. In the future, the higher their micro saving balance, the lower their micro interest rate,” he explained.

He claimed that such a product would encourage saving habits among micro-level customers and raise low-cost funds for the banks.

Mandiri has around two million micro-saving customers at the moment, with a total of Rp 6.6 trillion in the saving balance. It hopes to increase the figure to Rp 13 trillion in 2015 and to Rp 70 trillion by 2020.

Bank Mandiri posted a net profit of Rp 14.5 trillion in the third quarter of 2014, up 12.9 percent from Rp 12.8 trillion in the same period last year. Profit growth was driven primarily by a 26.5-percent increase in interest income.

As of the end of September 2014, lending was up 12.4 percent to Rp 506.5 trillion, compared with Rp 450.8 trillion at the end of September last year. As a result, Bank Mandiri’s assets rose 14 percent to Rp 798.2 trillion year on year, the bank said in a recent press release.

Wells Fargo Commercial Banking Primes for Eastern Expansion

Wells Fargo said that New York City will serve as its new Eastern Region hub for Commercial Banking. John P. Manning, a 26-year financial services veteran and Wells Fargo executive vice president, will lead the continued expansion of the company’s Commercial Banking business in the Eastern US and Eastern Canada.

Manning succeeds Carlos Evans, a longtime Wells Fargo Commercial Banking leader in Charlotte, North Carolina, who retired last May. Manning most recently led Wells Fargo’s 14-office Commercial Banking division in Southern California. Before that, he oversaw the Greater Los Angeles division. His teams doubled their loan portfolio between 2009 and 2014.

In the last few years, Wells Fargo Commercial Banking has grown rapidly in the East, with new operations in Maryland, Boston, and Toronto, among others. Manning’s new Eastern territory includes 23 Regional Commercial Banking Offices in 13 states, plus the District of Columbia and Eastern Canada. Wells Fargo has identified more Eastern urban and suburban markets for possible Commercial Banking expansion, including New York boroughs and New England communities where middle-market businesses cluster.

“As middle-market companies are feeling more confident about the economy, they’re seeking opportunities to invest in their operations, their people, and their communities,” Manning said. “Wells Fargo’s top priority throughout this region is putting resources on the ground. That means local teams, local decisions, and local lending authority where our customers live and work.”

A native of New Jersey, Manning earned his bachelor’s degree in finance from Rutgers University. He joined Wells Fargo’s Commercial Banking group in 1994 as a relationship manager in Los Angeles. He progressed through the organization and was promoted to head of the Greater Los Angeles division in 2009. Commercial Banking unified its Southern California offices into one region in 2013 with Manning at the helm.