FIREOF – Passive income

FIREOF now offers risk categories for its loans listed on Mintos p2p lending platform

By MPI15th October 2018News, Peer-to-Peer Lendingcredit score, FIREOF, invest, investor, Mintos, peer-to-peer lending, risk, risk category

Spanish mortgage lender FIREOF Management, which recently launched on Mintos, now offers investors the opportunity to invest in its loans by selecting them based on loan risk categories. The inclusion of the risk categories will allow investors to make more informed investment decisions.

FIREOF loans have a historical track record of 0% loss given default (LGD) and 0% bad debt rate due to the high loan-to-value ratio (average below 35%), thorough analysis of the borrowers and collateral as well as the personal guarantee provided for the loans. The risk of losing the principal has historically been very low and the main risk has been related to liquidity – locking in the investment during the court collection process which varies and averages 18 months.

FIREOF will provide loan risk ratings in each scoring category based on the predicted probability of default (PD) – assessment of the probability of loans becoming 90 days late when the court collections process is being initiated.

FIREOF Risk Categories

Category (Score)	PD*	Interest rate to investor
AAA (1000-851)	0,63% – 0,70%	5,00% – 6,00%
AA (850-701)	0,95% – 1,04%	5,50% – 6,50%
A (551-700)	3,76% – 4,15%	6,00% – 7,00%
BBB (500-551)	5,04% – 5,57%	6,50% – 7,50%
BB (451-500)	5,79% – 6,40%
B (331-450)	7,24% – 8,00%
C (0-330)	9,78% – 10,81%

* Probability of default (loans going into court collection, more than 90 days past due). Historically FIREOF has been able to recover 100% of principal for all defaulted loans.

FIREOF bases the risk categories on their scoring model that is being used to assess the riskiness of the loans they are issuing. Their scoring model, based on a FICO score (a type of credit score created by the Fair Isaac Corporation), has been specifically designed for the mortgage secured lending business in Spain. It takes into account various factors in three main areas to determine the credit quality: borrower profile, collateral liquidity and loan type risk.

FIREOF takes into account the loan type risk (35% of score), collateral liquidity (35-40%) and borrower profile (25-30%) to determine the credit score for each loan. Scores range between 0 and 1 000. In general, scores above 550 indicate a good credit quality. In contrast, loans with scores below 500 mean the credit quality is inferior – borrowers might find it difficult to repay monthly instalments, the quality of the collateral is sub-optimal or the loan type holds a larger risk. Currently, FIREOF plans to offer only loans with category BBB and higher for investment to Mintos investors.

Loan Type Risk

In order to determine the loan type risk, different aspects of loan parameters are taken into account, including the amortization type, the term of the loan, APR charged to the borrower, loan amount and reason for taking the loan.

Collateral Liquidity

To reach an acceptable score for collateral, collateral type (internal liquidity), market size and liquidation price (external liquidity) are analysed together with government public ratios to measure the potential of selling the collateral in case the borrowers of FIREOF fail to repay their liabilities.

Loan to value (LTV) and loan to liquidation value (LTLV) are calculated on a principal cap basis. In addition, fraud detection triggers are deployed at an early stage.

Borrower Profile

As a general rule, borrower information is provided and analysed by the Spanish central bank. The information analysed includes the average default probability by age, debt to income ratio (DTI) and payment incident records in combination with the minimum income (of the borrower). The decision-making process is continuously improved based on past performance information

Established in 2015, FIREOF is an asset-secured lending business whose mission is to provide a financial bridge to Spanish consumers. FIREOF pursues a win-win relationship with their borrowers. The company is fully licensed and audited and it provides its credit products through established brokers.

Spanish mortgage lender FIREOF has just launched on Mintos p2p lending marketplace

There are now even more investment opportunities in mortgage loans, as Spanish mortgage lender FIREOF Management (FIREOF) has just launched on the Mintos peer-to-peer lending marketplace. You can invest in its loans now and enjoy net returns of up to 8%.

Established in 2015, FIREOF is an asset secured lending business whose mission is to provide a financial bridge to Spanish consumers. FIREOF pursues a win-win relationship with their borrowers. The company is fully licensed and audited and it provides its credit products through established brokers.

FIREOF has a Special Purpose Vehicle (SPV) that will place its loans on Mintos, FIREOF DM. An SPV is a subsidiary company with an asset/liability structure and legal status that makes its obligations secure even if the parent company would experience financial difficulties. The SPV used for Mintos investors was incorporated in 2016, while the holding company has been operating in real estate lending since 2009. All loans and investments will be held by the FIREOF DM, while FIREOF will service the loans. FIREOF DM, the loan originator as a pure cashflow SPV, has no employees nor liabilities except from the assignments of Mintos investors and its own equity from its investors and shareholders. The SPV adds an extra layer of security for investors on Mintos.

“Our motivation is to democratise the mortgage financing business by offering the opportunity for small investors to access the biggest financial asset in the world. Currently, only large financial institutions can invest in this market, and they alone benefit from the fixed income secured by real estate collateral. We want to change this,” said FIREOF Managing Director Agustín Fernández Clemente.

The average Spain-issued mortgage loans from FIREOF on Mintos will be EUR 50 000 with a repayment period from one to five years, which will be paid in monthly instalments. The loan-to-value (LTV) ratio is not greater than 45%. The typical borrower is a middle class wealthy real estate owner with a need for short-term liquidity.

To keep its interests aligned with investors, FIREOF will maintain 15% of each loan placed on the marketplace. The loans will initially not be secured with a buyback guarantee.

As of June 30, 2018, FIREOF has an assets under management portfolio of EUR 25 million. The company has eight full-time highly qualified senior employees with a total experience of more than 100 years in the Spanish real estate lending business.