WOW ... today got my first autolend since 14 December !!!
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WOW ... today got my first autolend since 14 December !!!
thats pretty much it.
I got a spreadsheet that had expected returns for each of the 6 risk grades, based on all the available stats for each (annual default rates, avg time to default, paid off early rate, avg time to pay off early etc) and modeled returns on each one.
It came out D/E was best return - which we already discussed.
I then ran recession scenarios, ie default rates increase by X % over Y period of time, to find out what would happen to expected returns. I found there is a lot of room to move. On portfolio similar to mine (actually the target I had in mind, it was something like 10% / 20% / 20% / 17.5% / 17.5% / 5%, I would need default rates to increase 5 fold, for my EV = 0.
Granted, thats saying they all just increase by 5 fold. Which when the average default rate of an A is 0.17%, increasing this 5 fold is still not even 1%. So still f all. Realistically in a recessions default rates might be more of an (default rate x 3) + 5% type thing.
Would need some more research on modeling how default rates react to recession scenarios.
Also thought about tracking lead indicators that a recession could be coming, ie unemployment rates etc
Does your spreadsheet take into account tax and fees ? Does it take into account early repayments and the effects of having to invest in lots of $25 in order to take avantage of continuous interest earnings ? You would almost need to write a program todo all that ? Paying tax/fees as you earn it - has a huge effect on your earnings at the end.
I think your calculation at the end for returns over years - is not the same as compounding interest.
I think its incorrect to come in at 85 loans at the start and 85 loans at the end - as you would be over time you would be reinvesting in new loans as payback happens etc. The interest you earn would be put into new loans - new loans risk profiles.
Food for thought.
The tax and harmoney fees are very easy to do.
The only thing that gets complex is reinvesting. So i don't have that in the model. You can't really add re invested loans to existing loans as payment periods are different etc, has to be a new line in excel and then this in turn has its own stuff reinvested the next period. Kind of like compound interest, except the compound is its own loans with variable characteristic (interest / default rate, % early payback etc etc).
Though I have modeled the scenario that all payments coming out of harmoney go into a managed fund at 8%.
For simplicity i assume investing in chunks of $100
To be more specific I use IRR, ie goal seek on a particular portfolio balance what default rate multiplier (ie simulation of a recession) makes my IRR go to zero.
I pretty sure I have everything exact, i can download a csv from harmoney, feed it into my model, and on my summary page it spits out a (pretty much to the nearest cent) a reconciliation with my harmoney dashboard.
Attached calculation. Maybe its wrong though. You may wish to go for your managed fund at 8% as you will get more. Does not take into account you would be reinvesting the returned amounts.
What interest rate have you used?
25% on 8200 as per www.bankrate.com amortization calculator type tool.
%15 harm fee.
17.5 Tax.
Roughly a new loan can be undertaken every 10 days. So you lose some interest on those days while you wait.
I should have used 20% for harmony fees structure which would bring it down to 5.37% after tax.
So a critcial part of your spreadsheet is the calculations of reinvestment amounts as they come in - without it it wont be very good.
Somewhere in the forum is a modeling tool which tries to do it more correctly.
Yeah, nah...
The discussion was about E and F loans so you should have used at least 35%...
You've assumed the defaults are from day one which is not reality - perhaps 1/2 on day one and 1/2 at the start of year 2 - Harmoney state avg default time is 18mths...
What about taking tax of the 8%...got to compare apples with apples...
You've assumed loans end at 2 years, again, not reality. Plug in 35% and even without the other details you'll see that 8% won't come near it...
I was just using your numbers and assumptions from your previous post.
Harmony has a graph which you can use to predict defaults - most defaults acording to them happen near the 3 month point and then tail downward
its at the bottom of this page
https://www.harmoney.co.nz/investors/investment-risks
called the hazard curve down the bottom.
Which maps to the below array values - which you can use in your spreadsheet.
2.00, 2.30, 4.00, 5.00, 5.80, 5.70, 5.60, 6.00, 5.70, 5.20, 5.80, 5.00, 4.70, 4.00, 3.60, 3.15, 3.00, 2.70, 2.10, 2.15, 2.00, 1.90, 1.60, 1.40, 1.60, 1.00, 1.20, 1.00, 0.90, 0.80, 0.60, 0.55, 0.50, 0.50, 0.60, 0.15, 0.05, 0.05, 0.05, 0.05, 0.00, 0.00, 0.00, 0.00, 0.00, 0.00, 0.00, 0.00, 0.00, 0.00, 0.00, 0.00, 0.00, 0.00, 0.00, 0.00, 0.00, 0.00, 0.00, 0.00
Cheers
That example was for a completely different and specific purpose and if you read the followup you'll see why...
You are misreading the graph - you need to consider the area under the graph (only around 10% at 3rd month)?, and that would no doubt be very bias toward the F5 loans which have a default rate of 15.38%.
You are really confusing the discussion - try the given values for say an E3 loan at 35.33% annual interest and an annual default rate of 4.11% per year...and subtract the tax from 8%...then compare (still not a fair comparison as you have principal and interest to re-invest which is significant)...
I'll do a version 2
The US article that has been linked around here on how p2p lending goes during a recession is reassuring that we should be ok too, reasonably ok.
Ultimately over time, the ultimate measurement is actualls.. a simple XIRR on a timeline of all your deposits vs all your withdrawals..
I'm pretty sure that XIRR is after tax too, as what I have sitting in my account and have had (withdrawals) already has the tax on it.
(i know, I know, I can't get the whole 80k out right now)
Attachment 8825
Yes, i agree the “outstanding principal” has tax paid. And the other good news is you could perhaps add back the harmony fees – as they should be tax deductable.
Good luck claiming any defaults though – other people have ideas on that.
One word of caution is you yet to have defaults as they are roughly 180+ days outstanding and you have only been in the game
for 260 days – so they will take a chink on your 14% - once they start to come through – however you can predict that
with your arrears balance somewhat.
Cheers
yeah I know I can claim the fees back as an expense, and that my portfolio is not mature so obviously a zero default rate (what it is thusfar) is totally unrealistic.
Seems like I have lucked out a bit, some of the best value loans i found (35% interest, <5% default rate E's) I invested 8 notes in... well 3 of those are in arrears. Really bad strike rate!
Just a clarification please - is this % the Harmoney payments to income? Because we don't see any other commitments in the borrower details and if they have a mortgage the odds are that will account for perhaps 40% of pretax income? Makin a hellish debt commitment if Harmoney takes 17% of aftertax?