Harmoney

[myles]

I think I've figured it out...

Loans don't (typically) start defaulting until at least 2 months into the loan (borrowers can pay the first couple of instalments), with the arrears process then taking 180+ days (6 months), plus a month for the processing gets you to 9 months. However, it does appear that default rates may be on the decline as typically some defaults come through well before the 180 days...

So trying to get some meaningful information on defaults is going to have to be based on at least 9 month old data [unless you use arrears info]

The reason I'm interested in this is because it allows you to create stats like the table below for current loans - the missing detail in being able to determining this is the default rate, so it needs to be 'calculated' based on historic info (or something else), which can be problematic...

Loans	Principal	Interest	Fee	Default	Tax	Income	MRAR
1251	$121344.46	$26996.53	($4049.48)	($3002.13)	($2834.64)	$17110.29	14.10%

Grade	Loans	Principal	Interest	Fee	Default	Tax	Income	MRAR
A	10	$373.55	$47.46	($7.12)	($18.97)	($4.98)	$16.38	4.39%
B	143	$12631.25	$2071.81	($310.77)	($134.26)	($217.54)	$1409.24	11.16%
C	493	$46936.72	$9339.55	($1400.93)	($1238.18)	($980.65)	$5719.79	12.19%
D	436	$46098.19	$11152.73	($1672.91)	($602.01)	($1171.04)	$7706.77	16.72%
E	167	$15235.64	$4357.85	($653.68)	($1008.70)	($457.57)	$2237.89	14.69%
F	2	$69.11	$27.14	($4.07)	($0.00)	($2.85)	$20.22	29.25%

The above is calculated on my 'current' loans using 'default rates' from loans older than 10 months, going back a further 12 months to get a weighted average. Ignoring A's and F's due to low numbers (note I'm using a tax rate of 10.5%), it actually looks pretty close to what I'm getting (compared to XIRR calculation on total loans).

I've been looking around to see what others (academics) have done to try to determine default rates - some are using a 'derived' weighting on arrears so it looks at more recent data.

Has anyone else looked into this and come up with any good options?

Note: My B grade loans are weighted on the high side (i.e. mostly B3, B4, B5, so B grade is showing higher than what an average spread would be).

[leesal]

Numbers start to be a bit dodgy at those levels - pretty much across the board for those with significant detail (an obvious bump up in E). Partial PP looks like a waste of time and the values are too small to have much meaning.

Attachment 9993

Note: This could be influenced by other criteria that I use to select loans e.g. loan/income ratio?

Nice observation. Going to really watch that. I've been keen to grab pp loans, due to the extra premiums available at the same grading (and few reports of envocations). Your data suggests a near doubling of risk at the B to D grades. Am also noticing that that 3 or my 4 defaults, and 3 of 4 60-90 days are pp loans.

[leesal]

You are correcty Myles about the 9 months give or take, I'm benchmarking my cohorts against HM's static loss data - H1 2018 is currently at 0% 3 months through - which is the same as all the other cohorts except 2016 H1 at a tiny 0.03%. Looks like the 7th month (approx 13 months through), is when defaults from a cohort start approaching a meaningful level as the 120+ days start converting to charge-offs.

Capture.JPG

[leesal]

I think I've figured it out...

Loans don't (typically) start defaulting until at least 2 months into the loan (borrowers can pay the first couple of instalments), with the arrears process then taking 180+ days (6 months), plus a month for the processing gets you to 9 months. However, it does appear that default rates may be on the decline as typically some defaults come through well before the 180 days...

So trying to get some meaningful information on defaults is going to have to be based on at least 9 month old data [unless you use arrears info]

The reason I'm interested in this is because it allows you to create stats like the table below for current loans - the missing detail in being able to determining this is the default rate, so it needs to be 'calculated' based on historic info (or something else), which can be problematic...

Loans	Principal	Interest	Fee	Default	Tax	Income	MRAR
1251	$121344.46	$26996.53	($4049.48)	($3002.13)	($2834.64)	$17110.29	14.10%

Grade	Loans	Principal	Interest	Fee	Default	Tax	Income	MRAR
A	10	$373.55	$47.46	($7.12)	($18.97)	($4.98)	$16.38	4.39%
B	143	$12631.25	$2071.81	($310.77)	($134.26)	($217.54)	$1409.24	11.16%
C	493	$46936.72	$9339.55	($1400.93)	($1238.18)	($980.65)	$5719.79	12.19%
D	436	$46098.19	$11152.73	($1672.91)	($602.01)	($1171.04)	$7706.77	16.72%
E	167	$15235.64	$4357.85	($653.68)	($1008.70)	($457.57)	$2237.89	14.69%
F	2	$69.11	$27.14	($4.07)	($0.00)	($2.85)	$20.22	29.25%

The above is calculated on my 'current' loans using 'default rates' from loans older than 10 months, going back a further 12 months to get a weighted average. Ignoring A's and F's due to low numbers (note I'm using a tax rate of 10.5%), it actually looks pretty close to what I'm getting (compared to XIRR calculation on total loans).

I've been looking around to see what others (academics) have done to try to determine default rates - some are using a 'derived' weighting on arrears so it looks at more recent data.

Has anyone else looked into this and come up with any good options?

Note: My B grade loans are weighted on the high side (i.e. mostly B3, B4, B5, so B grade is showing higher than what an average spread would be).

I'm not sure about the value of estimating default rates to give estimated returns, always seemed to me to be somewhat manufactured. Instead I tend to run my actuals alongside benchmarks derived from HM data (Weighted Ave of HM assigned expected default rates ), and run comparisons on the monthly cohorts. Each line in the table has a separate sheet where forecasts are derived from plugged in data (the expected interest rate, and expected default and some others), and the running and projected defaults/RAR etc are returned. EG the first capture represents all loans, 2nd is only "D" grade.

Attachment 10008

Attachment 10009

[myles]

I'd rather get my average (not estimated) rates from my own data which is likely to be a better match than using Harmoney 'all in' averages?

[RMJH]

Massive amount of loans just uploaded. I have never seen so many. Loan listing stats don't seem to be updating though. Almost feels like a glitch!

[alundracloud]

Massive amount of loans just uploaded. I have never seen so many. Loan listing stats don't seem to be updating though. Almost feels like a glitch!

There were 28 available at one point- first time I've ever needed to scroll over to page 2:

28loans.jpg

[joker]

Massive amount of loans just uploaded. I have never seen so many. Loan listing stats don't seem to be updating though. Almost feels like a glitch!

Yes updating was a problem this morning...I found (too late) that the platform failed to show that I was already invested in several loan. As a consequence, I have doubled and tripled up on some loans. Have emailed Harmoney for a fix/cancellation of the over-investment...not holding my breath. Be wary of this issue - I have encountered it previously.

[RMJH]

Yes updating was a problem this morning...I found (too late) that the platform failed to show that I was already invested in several loan. As a consequence, I have doubled and tripled up on some loans. Have emailed Harmoney for a fix/cancellation of the over-investment...not holding my breath. Be wary of this issue - I have encountered it previously.

Ha, yes, too good to be true! I had up to 10X on individual loans! Still made a big dent in the pile of uninvested funds though and Harmoney spotted the problem so not over-exposed on any individual loans.

[Vagabond47]

Bugger, had my first loan get charged off today. E2 from Dec 2017. Looks like 3 payments were made, then nothing. 97% of principal lost on that one, and one more that is getting rather close to the 180day mark too. Also an E2, from the very same day as the first.