Harmoney

[joker]

Yes, the lower interest rates are very attractive. 6.99% over 5 years for an unsecured loan is exceptional - even better than Heartland Bank's secured mortgage rate! I think that we the lenders will earn a lower RAR over time but Harmoney will be winners with many more $500 lending fees earned funded up front immediately by us?

And of course there are probably more rewrites as borrowers want to get a lower interest rate. I wouldn't be surprised if Harmoney is sending letters encouraging borrowers to "get more for less".

[icyfire]

Harmoney is in trouble again for breaking the law!

[SilverBack]

I have been investing in Harmoney for nearly 2 years now and currently I have placed in excess of 1200 loans.
I thought I would share some thoughts following the recent adoption of a new scorecard. Please excuse me if I repeat some things already commented on but I may have some fresh thoughts all the same.

Interest rates have been lowered. Who is the winner? Why Harmoney, all the way of course. Their return is based on fixed fees while they run NO risk from defaults because it is your money that is lost (recognising that they have structured their fees to cover their costs in managing defaults). They also have a fixed rate of return independent of what the borrower pays. Any reduction in rate is borne by you and NOT Harmoney, as I will soon show.
As the lender you now face a reduced return. Of course you can decide to quit making loans at any time.

My analysis across all my loans is that the actual rate that I receive when a loan when it is repaid is approximately 5% p.a. LESS than the headline rate. That is before tax but after Harmoney fees. A reducing proportion of my loans are on the old scale of 1.25% of interest plus repayments while most of the rest are on 17.5% of gross interest with about 100 at 20% of gross interest. To date the 5% deduction from the headline rate of a loan is a good guide. It does vary a little bit from loan to loan but that continues to be a good guide for my portfolio. I do expect the 5% to increase as my older loans are paid off because the change in the service fee from 1.25% of total repayments to 20%/17.5%/15% of gross interest back in 2016 resulted in a substantial gain by Harmoney. Oh yes, Harmoney made out they were responding to complaints about the service fee going on principal repayments but they took advantage to increase their income substantially when they introduced the new scheme.

Now, the real point of my post is that when Harmoney reduce the headline rates for borrowers they still get approx. 5% on each and every loan but you the lender will suffer the reduced income. Hence, as a private investor, it is foolish to take up an "A" loan category loan with headline rates of 6.99%+ because that will leave you with an effective 1.99%+ interest after fees (more or less). From that you need to deduct the expected default rate. Also, this is for an unsecured loan over 36/60 months. You can get better than that from a bank deposit over the same period with a very low risk rating (close to nil). Hence, I say you are foolish to invest in Harmoney's lowest interest rate loans. If you can tolerate risk (which you must do in order to invest with Harmoney), then finance companies give a better return than most of these A loans.

Don't forget that for private investors like me, defaults are NOT tax deductible and they can seriously affect your effective return. At the moment I lose 21.5% of my net interest (i.e. after tax) on defaults and I am on a low tax rate. These defaults are on top of the effective 5% taken by Harmoney. I have a diversified portfolio with over 90% in the B, C and D grades. My recent RAR is over 16% and so I am not complaining about that but the RAR will now reduce as the new schedule takes effect and as I replace paid off loans with new ones.

There is more I could say from my onging analysis but this is enough for one post.

[myles]

Harmoney is in trouble again for breaking the law!

At this point in time they haven't broken the law...the law doesn't cater for peer-to-peer. This is not new, it appears to be a continuation of this and this - the Commerce Commission seem to have their knickers in a knot, probably because they (ComCom) didn't do their job properly in the beginning...Funny it always seems to come up in August?

[Investor]

I have been investing in Harmoney for nearly 2 years now and currently I have placed in excess of 1200 loans.
I thought I would share some thoughts following the recent adoption of a new scorecard. Please excuse me if I repeat some things already commented on but I may have some fresh thoughts all the same.

Interest rates have been lowered. Who is the winner? Why Harmoney, all the way of course. Their return is based on fixed fees while they run NO risk from defaults because it is your money that is lost (recognising that they have structured their fees to cover their costs in managing defaults). They also have a fixed rate of return independent of what the borrower pays. Any reduction in rate is borne by you and NOT Harmoney, as I will soon show.
As the lender you now face a reduced return. Of course you can decide to quit making loans at any time.

My analysis across all my loans is that the actual rate that I receive when a loan when it is repaid is approximately 5% p.a. LESS than the headline rate. That is before tax but after Harmoney fees. A reducing proportion of my loans are on the old scale of 1.25% of interest plus repayments while most of the rest are on 17.5% of gross interest with about 100 at 20% of gross interest. To date the 5% deduction from the headline rate of a loan is a good guide. It does vary a little bit from loan to loan but that continues to be a good guide for my portfolio. I do expect the 5% to increase as my older loans are paid off because the change in the service fee from 1.25% of total repayments to 20%/17.5%/15% of gross interest back in 2016 resulted in a substantial gain by Harmoney. Oh yes, Harmoney made out they were responding to complaints about the service fee going on principal repayments but they took advantage to increase their income substantially when they introduced the new scheme.

Now, the real point of my post is that when Harmoney reduce the headline rates for borrowers they still get approx. 5% on each and every loan but you the lender will suffer the reduced income. Hence, as a private investor, it is foolish to take up an "A" loan category loan with headline rates of 6.99%+ because that will leave you with an effective 1.99%+ interest after fees (more or less). From that you need to deduct the expected default rate. Also, this is for an unsecured loan over 36/60 months. You can get better than that from a bank deposit over the same period with a very low risk rating (close to nil). Hence, I say you are foolish to invest in Harmoney's lowest interest rate loans. If you can tolerate risk (which you must do in order to invest with Harmoney), then finance companies give a better return than most of these A loans.

Don't forget that for private investors like me, defaults are NOT tax deductible and they can seriously affect your effective return. At the moment I lose 21.5% of my net interest (i.e. after tax) on defaults and I am on a low tax rate. These defaults are on top of the effective 5% taken by Harmoney. I have a diversified portfolio with over 90% in the B, C and D grades. My recent RAR is over 16% and so I am not complaining about that but the RAR will now reduce as the new schedule takes effect and as I replace paid off loans with new ones.

There is more I could say from my onging analysis but this is enough for one post.

You are correct. The new scorecard clearly prices risk less attractively.

I prefer to respect Harmoney as a business operating in the market place. It doesn't matter if investing conditions become less favorable. How can you expect Harmoney to act exclusively in the interests of lenders rather than focusing on its own financial growth? They are still offering a great platform for investing.

[myles]

My analysis across all my loans is that the actual rate that I receive when a loan when it is repaid is approximately 5% p.a. LESS than the headline rate.

That may apply across all of your loans, but I doubt it applies to individual grades of loans i.e. I suspect it would be MUCH less for A Grade loans and MUCH more for F Grade loans?

[icyfire]

It no longer makes sense to invest in grade A loans on Harmoney when you can get the same return at Squirrel Money (SM) at a much lower risk given that SM has a Reserve Fund to cover credit losses.

[Investor]

That may apply across all of your loans, but I doubt it applies to individual grades of loans i.e. I suspect it would be MUCH less for A Grade loans and MUCH more for F Grade loans?

Correct. The analysis was not very calculated.

It no longer makes sense to invest in grade A loans on Harmoney when you can get the same return at Squirrel Money (SM) at a much lower risk given that SM has a Reserve Fund to cover credit losses.

Agreed. I wish that I never invested in any A grade loans as they have limited my RAR thus far. With Scorecard 1.5 they are certainly not an option.

[icyfire]

the Commerce Commission seem to have their knickers in a knot, probably because they (ComCom) didn't do their job properly in the beginning...

You are probably right about ComCom not making the rules tighter right from the outset but my guess is that they didn't anticipate Harmoney charging borrowers a platform fee given that none of the banks charge such upfront credit fees.

[Investor]

You are probably right about ComCom not making the rules tighter right from the outset but my guess is that they didn't anticipate Harmoney charging borrowers a platform fee given that none of the banks charge such upfront credit fees.

The only question was whether or not Harmoney's lending should fall under the Credit Contracts and Consumer Finance Act which it clearly should. I think the Commerce Commission shall have their way with Harmoney.