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February 4 2020
If you are Mintos investor with active investments in loans originated by Aforti Finance, you will find the status update information sent to your email.
December 19 2019
We are sharing an update about developments regarding the Aforti Finance loans on Mintos.
While Aforti Finance continues to make regular payments to cover the accumulated negative settlement and ongoing borrower repayments and loan buybacks, these payments have decreased significantly since our last update. The incoming payments are first directed to cover the negative settlement due to investors – initially covered by Mintos, and then to cover pending borrowers’ repayments for investors.
We are currently in negotiations with the management of Aforti Finance to resolve the situation in the best interests of investors on Mintos. At this point, we evaluate various options for next steps and will inform you about any significant developments.
Until then, thank you for your patience, understanding and trust that we will do the best we can to make sure that Aforti Finance’s obligations arising from their contracts with Mintos and Mintos investors are met.
We’ve combined the questions we have seen on our blog, social media as well as the ones asked to our Investor Service team, and are providing answers in a single yet slightly longer comment. Bear with us as we go through the Aforti Finance case.
After the last update on Aforti earlier in October , some investors asked if we pay investors before receiving payments from loan originators. For us at Mintos, investors’ experience is a priority. This means that in cases when a loan originator indicated that the borrower has made the payment and we knew the loan originator will transfer the payment in the next couple of days, we credited investor accounts even though we had not yet received borrower repayments from the loan originator. In most of the cases, this does not cause any issues as, in order to avoid unnecessary transfers back and forth, we work with loan originators on a net settlement basis. In rare occasions, this can lead to negative settlements for short periods of time until the loan originator transfers the borrower’s repayment.
In the case of Aforti Finance, we acted in a similar way yet until a mismatch in loan statuses occurred – initially caused by the technical issue, which later on evolved into a more complex matter with payment transfers. As a result, investor accounts were credited even though Aforti Finance had not transferred borrower repayments and that subsequently resulted in an accumulated negative settlement on behalf of Aforti to Mintos. At this point, our agreement with Aforti Finance is to solve the negative settlement issue and at the same time continue transferring borrower repayments to Mintos investors that are due according to the payment schedule of respective loans.
Although challenging, in the process of handling this case we learned and made improvements at every step of the process . We are thankful to our investors for their patience while our team work hard to manage the situation.
Going further, we have introduced new procedures into the payment transfer management. This will positively impact the investors’ experience on Mintos. In a few months we will introduce a new status – Pending payments – for better transparency as to where borrower repayments are on their way from the borrower to the investor.
Among the Aforti Finance related questions, some of the investors have asked whether investors have assignment agreements with payments pledged to a specific borrower. The payments of borrowers under the assignment agreements are not pledged. Rather, after concluding the assignment agreement investors have a direct claim against the borrower, and payments from borrowers which the loan originator collects are assigned, or in other words – transferred to investors. Once the loan originator collects an instalment on a loan that has been assigned to investors, the loan originator has an obligation to transfer the share of that instalment that is due to Mintos investors, and that needs to be distributed among investors. Until that transfer is made, investors have a claim towards the loan originator for transferring the instalment they have collected on behalf of investors from the borrower. If a loan originator is not transferring payments that have been received from borrowers to investors, Mintos holds the right to interfere to protect the interests of investors on the Mintos marketplace.
Among comments on Aforti Finance, we also saw misconception that the buyback guarantee is a measure of safety put into action as soon as there are indications of loans underperforming. However, this is not true. The buyback guarantee is the loan originator’s commitment to repurchase non-performing loans from investors that are 60 days past due and is exercised by loan originator only in this case. The loan originator’s ability to fulfil the buyback guarantee depends primarily on its loan performance, with its balance sheet strength adding an extra layer of assurance. Mintos assesses both these aspects in the initial due diligence and during the continuous monitoring of the loan originators.
The buyback guarantee does not imply the absence of risk, though. In case the loan originator’s loan performance and/or financial performance significantly deteriorates, the loan originator may not be able to honour the buyback guarantee.
Some investors have asked why the group guarantee has not been activated in the case of Aforti Finance. The effectiveness of the guarantee would depend on the guarantor’s ability to immediately settle the amounts due. With Aforti continuing to make payments, we believe requesting to exercise the guarantee would not be in the best interest of investors.
To reply to the questions regarding our audits and controls – the Mintos marketplace is audited annually by Ernst & Young. Our finance performance reports are available on our website.