Results as of 31 July 2015
For now, I thought I’d give an update on how my investment with Harmoney is going. I’ve been putting in cash every month over the last eleven months. I’ll have more to say on how I formulated my Harmoney investing strategy soon, but first I thought I would present my results to date.
Unfortunately there have been no data releases from Harmoney of overall performance of loans on the platform. There has been very little information online for investors to gauge results.
I’ve been an investor through the Harmoney platform since early September 2014 so these results are for the first eleven months.
|Results as of 31 July 2015:|
|(1) Notes invested in||174|
|(2) Notes paid off||26|
|(3) Notes written off||1|
|(4) Notes with principal remaining||147|
|(5) Notes in arrears||9|
|(6) Wt. average age of portfolio (months)||4.3|
|(7) Total dollars deposited||$3,250.00|
|(8) Outstanding principal||$3,406.20|
|(9) Cash available||$10.96|
|(10) Total return net of fees, tax (17.5%) and write-offs||10.90%|
|(11) Imputed before tax return (net of fees and write-offs)||13.21%|
Line 1 – Invested in 174 notes
So far I’ve only ever funded one note per loan, or $25. This makes sense considering my small account balance and I’m going for maximum diversification. At some point when my balance is larger, I’ll fund multiple notes for low risk loans. I try to reinvest cash quickly if I have more than $25 available. If I’m wanting a particular grade, I usually don’t have to wait more than a couple of days.
Line 2 – 26 notes have been paid off
As you can see the number of notes paid off is rather high. The reason for this is that Harmoney is actively marketing to current borrowers to borrow more. They call these rewrites.
In May, we introduced rewrites into the marketplace, offering a selection of creditworthy borrowers with at least three months of full, on-time repayments the option of “topping up” their loans.
Rewrites are important for both the borrowers and the investors on our marketplace. Many people need to top up their loan at some point – just like they may need a mortgage increase or a credit limit raise. Our ability to provide rewrites encourages borrowers to remain on Harmoney’s marketplace – a much better outcome for investors than the borrower rewriting the loan with another provider and leaving the marketplace altogether.
Allowing borrowers with excellent credit to increase their loan amount is part of improving the quality of the overall portfolio. Whenever a borrower applies for a rewrite, they undergo a full credit reassessment. If the application is approved, the original loan must be rewritten as the terms investors originally agreed to will have changed.
The reason rewrite volume has been high over the last few months is because we had a backlog of requests. We expect this to settle down to a normalised level.
Source: Harmoney July 2015 Investor Newsletter
I’m not completely happy about the service fees on rewrites because it means paying the 1.25% fee on the principal even when the loan was only held for a few months. This drag on returns is unexpected and I’m disappointed that Harmoney couldn’t waive the fee when loans are rolled over into new ones. I see it as double dipping or charging the service fee on the same principal twice when the borrower is only repaying it once.
Line 3 – 1 note has been written off
This is the first write-off I’ve had so far. The borrower made three payments and then stopped paying. After six months of no payments the principal was written off. No details of collection proceedings or the borrowers situation are available on the site. The note was rated C4. I’m really hoping that Harmoney releases statistics on arrears and write-offs by credit grade so that investors have some confidence in the credit grading of loan applications.
Line 5 – 9 notes are in arrears
The notes in arrears figure fluctuates quite a bit. I wish Harmoney would break down the arrears by how many days late borrowers are, i.e. 1-30, 31-60, 61-90, and >90 days past due. It is impossible to determine because when viewing an individual note because you can only see the amount and date of the last payment made (which may have been a partial payment and/or late).
Line 6 – A weighted average of 4.3 months
My portfolio is actually younger than I thought considering I started in September. My monthly deposits have been larger the last few months which has skewed this figure and the rewrites do not help either. This is of interest because after a year, default rates should go down as notes get older. Based on the young age of my portfolio, I am expecting more defaults to come.
Line 10 – A 10.9% return after tax and fees
Because the amounts and dates of my monthly investments vary, I’ve calculated my return using the XIRR function. It works like an IRR or individual rate of return function but it allows for uneven and irregular cash flows. I only track deposits and the current balance (outstanding principal + in funding + cash). So far, I’ve made no withdrawals. This return is after the deduction of fees and tax. See footnote for sample data and formula 1.
Up until June, my after tax return was hovering around 12.5%. Unfortunately then I had my first note written off which resulted in the loss of about $24. This write-off dropped my return to about 10.5% but since then it has been moving back up.
Line 11 – Equivalent to 13.21% return before tax
Imputed before tax return was obtained by dividing line 10 by (1 – my 17.5% RWT tax rate) or 0.825. This result of 13.21% is a bit lower than I would have predicted. The weighted average NAR for my portfolio is about 15.5% (about a C2 grade) so I would predict a result nearer that. I do currently have 19 notes less than a month old that haven’t made payments yet, so I think this figure will improve as those first payments are made.
Harmoney Performance Display
Finally, I present some screen shots of my dashboard taken on 31 July 2015. I’m showing these for those of you who haven’t signed up and are wondering how results are displayed. I do recommend keeping your own records and calculating your own returns.
Dollars deposited are positive cash flows and dollars withdrawn and the final balance are negative.
A B 1 03/09/2014 $500 2 16/09/2014 $125 3 07/10/2014 $216 4 12/11/2014 $216 5 13/11/2014 -$1069.56 6 XIRR Return 9.34% 7 Formula: =xirr(B1:B5, A1:A5)