Lessons for Peer-to-Peer from the Financial Crisis

LESSONS FOR PEER-TO-PEER

FROM THE FINANCIAL CRISIS

TWO COMMONLY HELD VIEWS

1. MORTGAGE LENDING CAUSED THE

GLOBAL FINANCIAL CRISIS

2. SECURED LENDING IS SAFER THAN

UNSECURED LENDING

WHAT HAPPENED?

GROWTH OF US SUB PRIME

WHAT HAPPENED?

EVOLUTION:

SIVA

NIVA

NINA

OPTION “ARMS”

US SUBPRIME DELINQUENCIES

US PRIME DELINQUENCIES

- AUTOMATED

- INCREASINGLY LOWER STANDARDS

2005 SUBPRIME ORIGINATIONS

- HOUSE PRICES RISING (9.7%)

- UNEMPLOYMENT FALLING (5.3% TO 4.8%)

16% DEFAULTED WITHIN 12 MONTHS

LAX UNDERWRITING

SECURITY

VS

AFFORDABILITY

NOT ALL ASSETS ARE EQUAL

A LOOK AT THE UK

UK COMMERCIAL VS RESIDENTIAL PRICES

Q1 2002 = 100

BTL MORTGAGE & RENT ARREARS

UK AVERAGE QUARTERLY RENTS

LESSONS FROM THE CRISIS:

1. “ORIGINATE-TO-DISTRIBUTE” MODEL

2. UNDERESTIMATING MARKET RISK

3. SERVICEABILITY OF LOANS

SOLUTIONS FOR PEER-TO-PEER

TRANSPARENCY

LANDBAY:

OUR SOLUTION

1. PUBLISHING BORROWER RATE FOR EVERY SINGLE

LOAN

2. ENSURING THAT LENDERS ARE COMPENSATED FOR

THE RISK THEY TAKE

3. MANUAL UNDERWRITING WITH A FOCUS ON

AFFORDABILITY

4. PUBLISHING REGULAR, INDEPENDENT STRESS TESTS

@LandbayUK

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