Comparing actual default rates to estimated default rates.
For every risk grade Harmoney provides an estimated annual default rate. This is the probability that a loan will default in each year of the loan – it is an annual rate.
The charts below show a comparison of Harmoney's estimated annual default rate and actual default rates that have occured.
Although the rate is shown as a consistent annual rate in reality defaults are more likely to happen in the first 2 years of the loan as can be seen by the hazard curve here. For this reason we are showing the default rate for each year of the loan. All default rates here are in based of the count of loans, rather than the loss amount. The principal loss amount to Lenders as a result of a default will depend on when in the loan term it is written off. The later in the loan term the more principal has been repaid and the loss to a Lender is lower.
The estimated Annual Default Rate shown is the average rate as this rate was updated when a new scorecard was implemented in August 2017.
The data is for loans funded by both retail and wholesale funders.
A default (Charged off) status indicates that a Borrower has defaulted on their loan, usually due to bankruptcy, sickness, job loss, death, or other unforeseen circumstances. Typically, this means that we’ve exhausted our collections efforts and there’s a low statistical likelihood that we’ll be able to collect any funds from the Borrower; resulting in a capital loss for Lenders.
Past performance is not necessarily an indication of future performance.
Using the charts
Users can expand the charts by clicking on the [+] mark found to the left of the grade values in either the top or bottom half. For more detailed analysis, users may filter on particular origination years or risk grades by using the controls on the right.
Click the Full Screen view icon to make the graphs and data bigger, making the information easier to read.
Data shown is gross level of defaults (i.e. before any debt collection).
How is the actual Default rate Calculated?
The count of defaulted loans over total loans for the period.
For example in 2015, for grade C3, 447 loans were funded and 4 loans defaulted during 2016 to give a default rate of 0.89% in the 2nd year of the loans. This is vs an estimated default rate of 1.19%
How is the cumulative default rate calculated?
The cumulative default rate is calculated by dividing the total number of defaults by the total number of loans funded. For example in 2015, for grade C3, 447 loans were funded and 17 loans defaulted to the end of 2017 creating a cumulative default rate of 3.8%.
How is the average default rate calculated?
The average annual default rate is calculated by dividing the cumulative default rate by the number of years that have elapsed. For example in 2015, for grade C3, 447 loans were funded and 17 loans defaulted up to the the time of writing this, giving a cumulative default rate of 3.8%. The cumulative rate of 3.8% is then divided by 3 years since loan start to calculate a average annual default rate of 1.27% against an estimated default rate of 1.19%.