Harmoney

[BJ1]

[QUOTE

Attachment 8975


All my defaults are grade E's[/QUOTE]Losing 10% of your interest after a year in indicates your default experience is much greater than Harmoney projects - around twice expected on your figures. Note also that as you are heavily weighted to 60 month, when loans do get written off you will take a bigger hit than if you were in 36 month loans (assuming Harmoney is right in suggesting that the default profiles are similar with regard to time in the loan.

[myles]

Losing 10% of your interest after a year in indicates your default experience is much greater than Harmoney projects - around twice expected on your figures.

BJ1 I think you've said something like that before - can you expand on it a bit? The Harmoney forecast default rates are an annual percent of loans, not interest rate?

If you assume the average loan in the above is $100, that's only 8 loans defaulted - for the spread that looks like less than Harmoney would forecast to me?

The 36 vs 60 month comparison isn't as simple as it looks - an overly simple example - to get the same interest as a 60 month loan you need one 36 month loan and (to make it easy) a 24 month loan - the chances of a default increase for the two loans vs the one lone. Not the best example but perhaps helps think it through.

[alistar_mid]

BJ1 I think you've said something like that before - can you expand on it a bit? The Harmoney forecast default rates are an annual percent of loans, not interest rate?

If you assume the average loan in the above is $100, that's only 8 loans defaulted - for the spread that looks like less than Harmoney would forecast to me?

The 36 vs 60 month comparison isn't as simple as it looks - an overly simple example - to get the same interest as a 60 month loan you need one 36 month loan and (to make it easy) a 24 month loan - the chances of a default increase for the two loans vs the one lone. Not the best example but perhaps helps think it through.

well crunching some numbers my weighted average annual default rate is 1.87%

I have 0.89%

The weighted average age of loan I have is 4.02 months.

Therefore 1.87 / (12 / 4.02) = 0.63% is where I should be right now.

So I am tracking slightly higher than I should be.

Hmm it is like 89/63 = 40% higher than what it should be.... ><

[myles]

The weighted average age of loan I have is 4.02 months.

That's a worry then!

Therefore 1.87 / (12 / 4.02) = 0.63% is where I should be right now.

Considering when the bulk of defaults are supposed to kick in you might be in for a fair bit more pain then

[BJ1]

BJ1 I think you've said something like that before - can you expand on it a bit?

If we take a basket of loans at C1 as an average and earn18.52% in interest and write off 0.86% of the principal after a year thatrepresents 4.64% of the interest actually earned, yet alistar has lost 9.13% ofhis interest. So he is either sufferingdefaults at a greater rate than Harmoney expects, or they are occurring veryearly in the loan life – neither is as expected.
Harmoney estimate that 80% of defaults will occur by 18months with both 36 and 60 month loans having a similar hazard curve. On a $1000 loan@ 18% surviving for the 18 months the writeoff on a 60 month loan will be $787against $567 on a 36 month loan; and one has to wonder about loans on the booksfor only 6 months or so which are written off

[permutation]

I have plotted my Charged off loans against my RAR graph. Now a Total of 18 from 1230+ all-time loans taken over 26 months.
The red dots represent the E and F grades and the blue dots the A_D grades.Permutation defaults.JPG

Today 95.69% of my loans are A_D grades.

[myles]

If we take a basket of loans at C1 as an average and earn18.52% in interest and write off 0.86% of the principal after a year thatrepresents 4.64% of the interest actually earned, yet alistar has lost 9.13% ofhis interest. So he is either sufferingdefaults at a greater rate than Harmoney expects, or they are occurring veryearly in the loan life – neither is as expected.

Not seeing it Why C1's - doing the same for a basket of F1's works out at 17.75% not 4.64% - it is a mix of loans?

Harmoney estimate that 80% of defaults will occur by 18months with both 36 and 60 month loans having a similar hazard curve. On a $1000 loan@ 18% surviving for the 18 months the writeoff on a 60 month loan will be $787against $567 on a 36 month loan; and one has to wonder about loans on the booksfor only 6 months or so which are written off

Do you get the same interest on $1000 invested at 18% for 60 months as you do for 36 months for loans that don't default? No, so you have to reinvest for the remaining 24 months, which see's this reinvestment loan having to survive past that 18 month danger zone - a second time - increasing the chances of a default. You can't just look at single loans to make this comparison?

[Bjauck]

...No, so you have to reinvest for the remaining 24 months, which see's this reinvestment loan having to survive past that 18 month danger zone - a second time - increasing the chances of a default. You can't just look at single loans to make this comparison?

Yep, I agree. So if your average note investment runs for 18 month then you have double the chance of a default for your invested funds in a 36 month period, compared with your funds invested in notes running for the full 36 months.

[myles]

All my defaults are grade E's

Just out of interest, when were most of these defaulted loans taken out?

There is a fair amount of support out there that suggests that loans taken out in the lead up to Christmas have an increased chance of defaulting - just how much is hard to get a meaningful figure on. From this, I'd make a suggestion that if someone got into Harmoney in a big way at that time of year they may not do as well (due to higher defaults) as someone who got in at a different time. It might also suggest that in the lead up to Christmas it would be a good idea to pick 'safer' loans.

Just a theory :P

[myles]

This data set may provide an insight to the trend of default rates for P2P lending since the similarity of Credit Card Debt and P2P lending has been shown in the past:

Credit card balances - C12 - Reserve Bank of NZ

In particular:

Advances 90 days past due
This is the value of advances outstanding (or credit card debt) that is older than 90 days. This time series enables analysis of the ability or willingness of credit card users to repay debt.

Data around 2008 gives a good indication of what happened then. Doesn't predict the future unfortunately

Added: Chart

chart.png

Looking a little closer at the graph - it is always increasing in December...