Harmoney

[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

[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.