Hype??? Hmm, I suspect you don't have a good understanding of what happened in the lead up to, or during the GFC? If you can see some similarity, okay then...
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We do sign up knowing that we will never know loan/borrower specific detail but now that the platform has existed for a longer period I do think that more portfolio level experience and information could be given - perhaps legal status or actual recoveries by time by risk grade - so that people can start to consider the full life cycle. This would also address to some extent the uncertainty that is created by the information vacuum at the moment (and as mentioned in another post - the past experience of finance industry in general)
As an aside, knowing more (at summary level) about how successful Harmoney and its agents push on this part of the process enables us to consider in more detail what is acceptable risk from an investment (and moral) perspective. When I see some of the loans being listed I wonder if the borrowers are either financially naive or are starting to test/believe/figure out that the Platform is a soft touch. And when I see relatively safe risk categories being assigned to these loans I wonder also if the right balance has been struck - and it is only at the very end of the (sometime messy and protracted) process that we know for sure.
P2P investing is in its infancy in NZ, no one can predict how it will play out in the next few years. Hopefully, history will not repeat itself again.
Thanks. What risk grades were these? I expect A's and B's in general do better than D's and E's but I don't know. I have no idea of time frame to expect post charge-off - it could easily be a year or more before the peak of any possible / cost effective recovery is reached?
I guess there is a tradeoff of how much info can be given, the time it takes to collect it (from the borrower) and its accuracy. If Harmoney added an 'Outgoings' type figure, would that make the difference in the initial decision making? What else could reasonably be provided?
The process of application is outlined at: Application Process which gives an indication of what Harmoney have available to determine their Risk Grading.
The summary level stuff for risk is there - risk grade defaults rates and hazard graph - just how up-to-date these are, and over what period they are compiled from is questionable.
The process up to a charge off is well documented: Collections Process there are some penalties for borrowers at the 60-90 day stage e.g. registered as having defaulted, which in theory makes it much more difficult for the borrower to get a loan again.
Harmoney provides the following meaning of a charge off:
A charged off status indicates that a Borrower has defaulted on their loan, primarily due to bankruptcy, sickness, job loss, death, or other unforeseen circumstances. Typically, this means that we’ve exhausted our collections efforts and there’s a low statistical likelihood that we’ll be able to collect any funds from the Borrower; resulting in a capital loss for Lenders.
Bold added by me and I accept this and factor in that any charge off's are lost (any returns would be a bonus).
I'd like to see a more 'current' and more well defined risk grade defaults rate and hazard graph - which is all you could really base your investment strategy on anyway? The issue with these type of figures is that they are at a summary level - if you selectively pick loans based on 'your own' criteria, these rates may no longer apply (for better or for worse). Also the risk of default today, may be quite different to the risk of default tomorrow. :(
Although E & F grades are only 15% of my investments $765 charged off out of $952 were in those grades. Most of these charge-offs were over the last 6 or so months, so I don't know whether I might start seeing some recoveries later. Possibly the first few instalments paid to a debt collector might be applied to the Debt Collector's and Harmoney's debt collection/bounced payment fees? - I don't know what the procedure is with that. Would be good to hear if investors with older charge-off balances are starting to see many recoveries.
Interesting - if you apportion a single unit to each Risk Grade Default rate (total them), the total defaults for E and F is 74.53 and the default rate for A, B, C, D is 19.47. Apply that ratio to your total 952 (952*74.53/(74.53+19.47) gives a value of 755, very close to your actual 765 - perhaps indicating that Harmoney default rate values are on the money?
Haven't factored in the 15%, whoops... Would you be willing to post your other grade percentages to rework this to see how close the provided rates are to yours?
I find myself very fortunate for only having $248.12 charged off so far. There has been only $1.70 in total recoveries. The loans charged off range from grades D2-F5.
I noticed the $1.70 came through shortly after the loan was charged off, that was back in... December 12th 2016.
I did mainly choose my loans based on income to loan repayment ratio. I say "did" because I haven't invested in Harmoney since early March and have been moving all my money gradually over to another platform, as the money comes rolling in.
I've been looking through the Lender FAQ's, but cannot find what I'm looking for. There used to be a part about recoveries, how much Harmoney expected to recover back for us etc.
I do however see this - "We have forecast a 4% static loss across the portfolio over the life of the loan. This means that out of every $100 invested, you could expect $4 to charge off." - extract from Harmoney.
What i suspect harmony do ?
They have or had access to large amount of loan data - each of those loans has properties such as married, income job type, loan ratio etc, has a pet, credit score.
They then look at the outcomes of those loans - didnt pay, paid, paid early etc.
Workng back from the outcomes - they predict the ratings a1, a2, a3 , f1 ,f2 ,f3 based on the attributes to outcomes. So on a global scheme over many loans - harmony is correct, prediciting which loans default individually - they can only come up with a probability.
Add a fudge factor in and you get your return.
In a recession the data will not be indicative - hence the risk.
Out of interest you can find lend lending clubs data set here.
https://www.kaggle.com/wendykan/lending-club-loan-data
Cheers
An interesting read, Lenders Responsibility Principles, which Harmoney are required to adhere to...