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Post by extremis on Mar 12, 2017 18:11:46 GMT
Mogo's car loans without buyback guarantee (along with Hipocredit loans) still offer a decent interest rate. The problem is, of course, the high risk associated with them. The risk is partly mitigated by collateral, but LTVs are usually too high and collateral's (vehicle) value quickly depreciates with time (not to mention ridiculously high collection costs). I think Mogo should provide us with more information on the borrowers' financial state. At the very least, income, total liabilities and occupation should be listed. Nord Lizings provides such info and even Banknote that offers buyback guaranteed loans gives some information on borrowers' financial state.
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fric
Member of DD Central
Posts: 199 
Likes: 79
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Post by fric on Mar 13, 2017 7:20:10 GMT
I agree. I have only a very few of those - I only buy them if I can find some with LTV less than 70%. If you can get it at 60ish, I feel relatively safe, that all (or most of it) principal will be recovered in case of a default. But those 80s, 90s - that's surely a loss in case of a default.
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Post by rahafoorum on Mar 13, 2017 11:01:00 GMT
Why would you even invest into those? It's a pure gamble, given that you don't know either of the two most relevant criteria for deciding about an investment:
1. What return can you expect? (no idea?)
2. What risk are you taking? (no idea?)
Theoretically you can do some analysis on the dataset to see what the expected default rate will be, but that probably won't be too useful given the lack of data and useful fields in there.
Clearly the loans aren't accurately priced for investors, when there is exact same interest rate for a large, high LTV and long duration loan and a smaller, lower LTV and shorter term loan. Or do you really think they all are exactly same risk when you account for data not visible for investor?
I'd assume Mogo issues loans at risk-based pricing, so if they take their cut (which seems to be majority of the actual interest rate) and leave you with a small portion of the proceeds, then the investment can't really be worth the risk, can it?
Investors that keep putting money into gambling and/or unworthy investments because there is no better options on the platform, are the main reason why there are no good investments left in many cases. Stop it and stick to your investment criteria. If nothing matches it, move your money elsewhere.
If no-one funds this gamble, then they'll either sell them with BBG, give additional information to make it possible and reasonable to invest there (unlikely though, since I doubt half of them are even close to being worth investing at these rates today), raise the interest rates to levels where it might become reasonable or go back to paying a lot more and with stricter criteria through issuing bonds. Either way, you don't gamble with your hard earned money and don't incentivize originators to lower the interest rates to unreasonable levels.
It's also good to keep in mind that if you currently earn 5-8% return then in long term the average return on those loans will be considerably less because you have not accounted for any negative economic periods here. If stocks gave you only 5-8% return in good times, you'd be screwed. Not sure how much these loans will suffer, but I'm pretty sure that defaults will rise and the collateral will go down in both liquidity and price when sh*t hits the fan. If the interest rates today don't account for that, they won't be changed to include it after the fact either.
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