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Thread: Harmoney

  1. #3676
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    Quote Originally Posted by myles View Post
    I take the comments above, but the point I'm trying to show is the rate/value of defaults per grade. Defaults are not annual, they are total over the life of all loans - the %Loss is based on total invested value per grade, not current or final value (so loss of potential interest is not included).

    I take Cool Bears point on fees, so I've added that in - it had no effect on the overall trend, but it could have. Tax is at a portfolio level so I'm not including it deliberately.

    I know the last column is meaningless, but I find it to be indicative of the return for the grade.

    Updated with 15% loss due to fees:

    Attachment 9918

    The key thing I take from these values is that the expected, larger default losses for higher grades is not what I'm seeing. So selection criteria can impact expected defaults and averages - significantly.
    Further to Coolbear and Snow Leopard, That analysis although interesting overlooks much. Defaults, will create a drag on your return - due to the capital not being recuperated so interest is foregone.

    Fee should be applied against all interest.

    Early repayment amplify's the impact of default, especially in the higher grades. Without the benefit of your data, would say your E5 grade is returning closer to 12% rather then 19%. See attached.

    Capture.JPG

    That said your DEF grades are performing very nicely, and well below the predicted static loss ranges indicated by HM, so you must a knack for risk selection

  2. #3677
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    Quote Originally Posted by leesal View Post
    Early repayment amplify's the impact of default, especially in the higher grades. Without the benefit of your data, would say your E5 grade is returning closer to 12% rather then 19%. See attached.
    I re-invest 'early repayments' - so shouldn't the months be 14 with the associated increased interest and fees?

    This wasn't the point I was trying to highlight. The point was the %Loss column - for my loans it is clearly more advantages to invest in higher grade loans based on loss due to defaults (when interest is taken into account). Compare the %Loss column for B5 vs D4 or B4 vs E3 and then consider what the return for each will be... Higher grade loans, for my loan set, are not showing increased default losses as would typically be expected (include the interest gain and it should be obvious how significant the gain is).

  3. #3678
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    Quote Originally Posted by myles View Post
    I re-invest 'early repayments' - so shouldn't the months be 14 with the associated increased interest and fees?
    The reinvestment principal is independant, so in the case of E5 - if you were to reinvest the returned capital back into a E5 loan it should have the same characteristics and return 12% in this example (eg expected default of 4.5% per year, 35%pa of early repayment, etc).



    Quote Originally Posted by myles View Post

    This wasn't the point I was trying to highlight. The point was the %Loss column - for my loans it is clearly more advantages to invest in higher grade loans based on loss due to defaults (when interest is taken into account). Compare the %Loss column for B5 vs D4 or B4 vs E3 and then consider what the return for each will be... Higher grade loans, for my loan set, are not showing increased default losses as would typically be expected (include the interest gain and it should be obvious how significant the gain is).
    Agree with that, you are showing incredible risk selection at the DEF grade. I find it incredible that your D grades are outperforming your C's. Your E grades are showing a static loss of 4%, HM are showing a static loss of 7.7% on the 2017 cohort. So you are doing 50% better then the platform, a impressive record!

  4. #3679
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    I don't agree with your calculation - as per my previous comment - early repayments are earning interest not included in your determination of 12% - defaults have already been factored in for all loans (these were actuals for the full period, re-investment included).

    I've calculated my actual return for just those E5 loans as 16.99% (pre tax), 19.98% without fees.

    Some of the original loans are still current and earning 38.25% interest [rates over the period include: 38.25, 26.95, 28.69]

    This was why I approached the comparison from the actual loss side, much easier to calculate than trying to calculate the actual gain, which has to be done on an individual loan basis...and why it is pointless generalising the final value...

    [Calculated by weighting individual returns and annualising both returns and default losses.]
    Last edited by myles; 14-09-2018 at 09:46 AM. Reason: fixed %

  5. #3680
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    Quote Originally Posted by myles View Post
    Something that I found when looking through my data set is that none of the re-written loans have defaulted!

    This could be partly due to timing and the limited time frame of my loan set, but I find it very interesting.

    Cool Bear, is this something you could chart with your extended data set? Just the same as your previous default graph, but only include loans that have previously been re-written i.e. positive value for Previous Loan Pay-off (re-write)​ column.
    Will try but have to be in a month or two as I will be travelling.

  6. #3681
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    Quote Originally Posted by myles View Post
    I don't agree with your calculation - as per my previous comment - early repayments are earning interest not included in your determination of 12% - defaults have already been factored in for all loans (these were actuals for the full period, re-investment included).

    I've calculated my actual return for just those E5 loans as 16.99% (pre tax), 19.98% without fees.

    Some of the original loans are still current and earning 38.25% interest [rates over the period include: 38.25, 26.95, 28.69]

    This was why I approached the comparison from the actual loss side, much easier to calculate than trying to calculate the actual gain, which has to be done on an individual loan basis...and why it is pointless generalising the final value...

    [Calculated by weighting individual returns and annualising both returns and default losses.]
    Hi Myles. The intriguing thing about your data, is your loss on the lower grades being significantly less. If you select well, you can exploit thoses pockets, at the lower grades.

    What we have to consider, given the age of our portfolios (both being immature), is how each individual cohort will run. By continually repurchasing, you will be witnessing the performance of a mixture of cohorts with a younger average loan age - higher interest relative as a portion of monthly repayments, less loans reaching 120-180 days in arrears etc.

    HM annual average default is misleading. Rather I prefer to look at cohort default across the full term. Taking HM forecasted stats for Grade "E", their default forecasts are approx 4.5% per annum, or 22.5% across a 5 year term. To validate this, taking the 2014 E grade performance off the "historical annual default rate tool " https://www.harmoney.co.nz/investors/default-rates - shows that the cumulative default of E grade at 22.7% (and running to a similar place on 2015 and 2016 cohorts). Critically the definition of cumulative default is based on the number of loans originally funded, not the loans outstanding.
    How is the cumulative default rate calculated?

    The cumulative default rate is calculated by dividing the total number of defaults by the total number of loans funded. For example in 2015, for grade C3, 447 loans were funded and 17 loans defaulted to the end of 2017 creating a cumulative default rate of 3.8%.
    How that reads to me, is early repayment is not factored in. If HM were to publish annual default based on time in lent, the number would be significantly different. ie If 22% of your E grade loans are going to default, and 78% remain good - how are your stats going to look if 40% of the good ones repay early in the first 12 months!

    To run some really crude numbers, here is a mocked up example on 5 year on E5. I've used heuristics to make the stats less complicated (no hazard curve, timing of cash at start of period).

    Capture.JPG

    Ultimately I'm not in disagreement with the part of your analysis that compares relative defaults between the grades. If you can select DEF grades which will default at the same rate as BC's - then fantastic. And those lucky enough to get in at 38.25%, kudos and am jealous. But rather trying to throw questions for those who may otherwise assume that 20% gross returns are readily achievable at todays rates.

  7. #3682
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    I would do the calculation as below. I'm not sure where your repayment values are coming from in your second table?

    E5 Loan Return.jpg

    Notes:
    • The second table shows re-investment of both paid-off loans and interest, as well as cumulative defaults (if only you could cash out like this).
    • The first table doesn't allow for 5 years due to fund shortfall at 4th year - so I just paid it out at that point.

  8. #3683
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    Quote Originally Posted by myles View Post
    I would do the calculation as below. I'm not sure where your repayment values are coming from in your second table?

    E5 Loan Return.jpg

    Notes:
    • The second table shows re-investment of both paid-off loans and interest, as well as cumulative defaults (if only you could cash out like this).
    • The first table doesn't allow for 5 years due to fund shortfall at 4th year - so I just paid it out at that point.
    You are on the right track. I mucked up the 2nd table, and for that matter the 1st wasn't right either - double counting defaults. I've refined again Works out at somewhere between 12-15%.
    In that simple model, if are able to achieve a default of 3% pa (or 15% over the term), return lifts to just under 20%.


    Capture.JPG

  9. #3684
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    This is the analysis I'm running for my Cohorts.

    For each cohort population (by month), I've taken HM interest rate and annual default rates. Using this data & early repayment date i'm able to track the expected performance through the loan term.

    Shows that my current cohorts are running at approx 15.1% after fee, against expected RAR of 14.5%. Am showing that overall full term RAR is projecting at 10.5%. Which reflects the much lower expected RAR under platform 1.5 pre May18.

    Note - am only modelling cohorts older then 6 months, to allow early repayment data to settle down.

    Capture.JPG

  10. #3685
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    Market place is Busy this morning, 11 Loans - 100% rewrites, a number of good ones

    Unfortunatly Ive moved most the my spare $ to lending crowd so almost none available to invest,


    But Ill bet the money comes flooding back into my account once these loans are gone due to early repayments

    11 Rewrite loans.JPG

  11. #3686
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    First time I've been < $25 available funds for a long time

  12. #3687
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    Did you catch the defaulties ? in a few of them.

  13. #3688
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    Quote Originally Posted by IntheRearWithTheGear View Post
    Did you catch the defaulties ? in a few of them.
    I didn't spot that - but I only looked enough to pick what I had $ for
    No defaults in any of the 6 still listed and none on the one I invested in

  14. #3689
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    Quote Originally Posted by humvee View Post
    Market place is Busy this morning, 11 Loans - 100% rewrites, a number of good ones

    Unfortunatly Ive moved most the my spare $ to lending crowd so almost none available to invest,


    But Ill bet the money comes flooding back into my account once these loans are gone due to early repayments

    11 Rewrite loans.JPG
    I forgot I had my C D E F Grade filter on when I did screenshot - so there would have been more loans available then that

  15. #3690
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    Quote Originally Posted by myles View Post
    First time I've been < $25 available funds for a long time
    Dont expect it to last - expect the early repayments to arrive any second now ......

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