Excluding Paid-offs from calculation can only give you expected return from your current portfolio - rather than actual overall. Also, use of months and Harmoney classification thereof should increase margin of error.
Printable View
AI assists in assessing credit risk.
https://www.cio.co.nz/article/632369...s-credit-risk/
An elegant way of treating, that will give you a conservative view; What is the payment rate of 31-60 that you are finding so far? Are you taking the data from the "export" button in reports, or doing your own ageing?
Some insurers use credit risk as part of their underwriting criteria. This is due to the relatively high correlation between loan default and claims incidence (through moral hazard - eg using imdemnification to ones advantage to engage in risky behaviour).
So - imagine holding a $20000 Harmoney loan with PP, in the knowledge that layoffs are coming...
The thought process of a borrower who has diligently settled all their past obligations (grade A), vs somebody with a track record of defaulting (grade E/F) may lead to different behaviours. Thus E/F on average showing an increased incident in envoking payment protect. Would expect this to hold true here.
So those stats are specific to my portfolio...
Each grades "harm est chg%" is the weighted average of the est default risk of loans I hold... So for F, I hold nearly all F1 F2 and F3, and very few F4 or F5. So overall my average default on F's will be lower then simply the average of grades F1 to F5.
I am not up with all this technical analyzing of returns but I thought some may be interested in a little exercise I have just done. My first loan purchase was in Sept 2014, In the next 4 months I took out 88 Loans all 36 months and for $ 25 to $ 150. Of those 88 loans, only 8 went full term and there are 3 still running and for some reason well behind in payments. 10 were charged off. The spread of grades was pretty even through A to E with only 5 F's.
I have steadily invested since but have to take 60 month loans to keep up and as far as RAR goes it was up around 15-16% for the first 6=8 months but then went down to about 13% where it has stayed ever since. ( now at 12.7%)
Still happy enough but no new funds in for more than a year now.
Thanks Soolaimon. Could have been a bad first up batch, low sample size.
Harmoney 1.0 suggests you should have only had 6 defaults, in all likelihood you'll end up with 12 or 13. Hopefully the rest of the loan book isn't running similar.
Grade 3 yr default loans defaults A 0.5% 16 0.1 B 1.6% 17 0.3 C 3.6% 17 0.6 D 5.9% 17 1.0 E 12.3% 16 2.0 F 29.4% 5 1.5 Tot 88 5.4
What is your profit on these loans if any? (eg taking your interest received and deducting all premium outstanding, whether defaulted or in arrears)