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11-09-2018, 12:34 PM
#3661
yeah, nah
Default Adjusted Return
The following table may be of interest to some. It shows my default adjusted return.
Attachment 9917
Notes:
- current interest rates are used - old rates were better/different
- my selection method/criteria used - so not what someone else would get
- I don't like A5's, I love F1 and F2 - all are anomalies due to low numbers
- D's and E's are my money makers!
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11-09-2018, 12:53 PM
#3662
Member
![Quote](images/misc/quote_icon.png) Originally Posted by myles
The following table may be of interest to some. It shows my default adjusted return.
Attachment 9917
Notes:
- current interest rates are used - old rates were better/different
- my selection method/criteria used - so not what someone else would get
- I don't like A5's, I love F1 and F2 - all are anomalies due to low numbers
- D's and E's are my money makers!
Something does not quite make sense / add up
The invested column is $ or number of notes?
In $ the total invested column does note make sense
if number of notes the interest and payments columns don't make sense
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11-09-2018, 01:06 PM
#3663
yeah, nah
![Quote](images/misc/quote_icon.png) Originally Posted by humvee
Something does not quite make sense / add up
The invested column is $ or number of notes?
In $ the total invested column does note make sense
if number of notes the interest and payments columns don't make sense
All $'s - I should have formatted them that way.
So under Defaulted Loans:
Invested: is $ invested in the loans that have defaulted (i.e. purchase of notes)
Interest: is $ of interest returned from the defaulted loans (prior to defaulting)
Payments: $ paid by borrower prior to loan defaulting
Loss: = Invested - (Payments + Interest) $'s [i.e. what I lost from initial purchase of notes)
Total Invested: is total $'s I have invested in that grade (all loans)
The rest should be obvious?
Last edited by myles; 11-09-2018 at 01:13 PM.
Reason: clarification
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11-09-2018, 01:24 PM
#3664
Member
![Quote](images/misc/quote_icon.png) Originally Posted by myles
All $'s - I should have formatted them that way.
So under Defaulted Loans:
Invested: is $ invested in the loans that have defaulted (i.e. purchase of notes)
Interest: is $ of interest returned from the defaulted loans (prior to defaulting)
Payments: $ paid by borrower prior to loan defaulting
Loss: = Invested - (Payments + Interest) $'s [i.e. what I lost from initial purchase of notes)
Total Invested: is total $'s I have invested in that grade (all loans)
The rest should be obvious?
Ok that makes more sense thanks
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11-09-2018, 02:07 PM
#3665
![Quote](images/misc/quote_icon.png) Originally Posted by myles
The following table may be of interest to some. It shows my default adjusted return.
Attachment 9917
Notes:
- current interest rates are used - old rates were better/different
- my selection method/criteria used - so not what someone else would get
- I don't like A5's, I love F1 and F2 - all are anomalies due to low numbers
- D's and E's are my money makers!
I believe you are calculating your losses wrong:
On the A5 $50 you have lost $43.13 of capital and also lost $1.185 of interest (I assume the IR are annual & we are working over 1 year) for a total loss of $44.315
Or if you like:
You put $500 in and get back $510.64
Your RoR is actually 2.13%
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11-09-2018, 02:57 PM
#3666
Member
Hi Myles
Thanks for sharing.
In addition to Snow Leopard's point, you also did not take into account fees. Assuming your fees is 15%, then following the same A5, you paid 15% on the 10.99% interest received. But you lose the "whole" write off.
One year calculation (assuming no arrears) and taking the case of the A5.
You invested a total of $500 and you had one charge off of $50. Your interest received is $450x10.99% + $4.31 (that $50 charge off) = total interest $53.77 for the year. Less 15% fees is $45.70
Less principal written off $43.13 = net gain after fees of just $2.57. So you end up with just $502.57 at the end of the year or a return of just 0.51% (not the 3.23% in your table).
Fees affect the higher grades more.
Last edited by Cool Bear; 11-09-2018 at 03:11 PM.
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11-09-2018, 03:17 PM
#3667
Member
![Quote](images/misc/quote_icon.png) Originally Posted by Cool Bear
Hi Myles
Thanks for sharing.
In addition to Snow Leopard's point, you also did not take into account fees. Assuming your fees is 15%, then following the same A5, you paid 15% on the 10.99% interest received. But you lose the "whole" write off.
One year calculation (assuming no arrears) and taking the case of the A5.
You invested a total of $500 and you had one charge off of $50. Your interest received is $450x10.99% + $4.31 (that $50 charge off) = total interest $53.77 for the year. Less 15% fees is $45.70
Less principal written off $43.13 = net gain after fees of just $2.57. So you end up with just $502.57 at the end of the year or a return of just 0.51% (not the 3.23% in your table).
Fees affect the higher grades more.
And if you cannot deduct the $43.13 principal written off from your taxable interest, then you would have actually lost money on this one! Even worse if fees are also not deducted for tax purposes.
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11-09-2018, 04:11 PM
#3668
![Quote](images/misc/quote_icon.png) Originally Posted by BJ1
Beacon, there is so much of what I have learnt over a lifetime in money that it is hard to impart, either in this forum or by PM. However, I will add that the majority of families need to allocate above 25% of pretax income to accommodation, be that rent or mortgage (majority, not all by any means) and so the theoretical maximum available for other finance costs should be 10%. I hardly ever lend if the repayment to after tax income exceeds 10% as it is quite likely that, no matter what the applicant says about debt consolidation, there will also be a credit card on drip feed in the background.
Thank you BJ1. Be interesting to watch how the results unfold - your cautious ABCs vs Myles daring CDEs vs Cool Bear Index ( I think he's closest to being an index, out of all who care to consistently share here). Looks like a sunny day all around for Harmoney fans today. Enjoy the sunshine, all!
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11-09-2018, 04:48 PM
#3669
yeah, nah
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.
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11-09-2018, 07:54 PM
#3670
Member
Myles, I agree with your point on that the higher grades may end up having better returns but the true results comes only when all loans in a cohort have seen out their terms.
However, my point on the fees is more about your last two columns - fees on interest from the performing (non charged off) loans. The fees on interest from the non-performing (charged off) loans would hardly affect the returns as you rightly point out.
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