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Post by mrclondon on Jul 8, 2014 23:42:52 GMT
The recently updated stats table has acquired a footnote Estimated Future Default Losses: 3.2% by Loan Number; 2.1% by Loan Value
Its late and I'm tired so I won't attempt to think this through too much tonight. What is really needed is to convert this to an estimated annual loss value, but irrespective of the actual answer this is clear support for my contention recently on other threads that (especially for higher rate tax payers) high LTV loans at 10/11% are very poor value. My assumtions on risk on FS have been hardening in recent months as a result of the defaults we have seen already. Whilst any shortfalls have been covered by FS thus far, the fact remains that on the first default only 2 of the 4 items of jewellery/watches sold at auction (a typical ratio for that auction house) and values of the MJ stuff have fallen too far in recent months for auction to be viable at present. I now believe the risk of pledged items failing to sell at all is as an important consideration as the LTV percentage. Food for thought ?
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Post by mrclondon on Jul 10, 2014 17:39:04 GMT
In replying on another thread, I recalled a post I made many months ago (possibly on the zopa forum). This pdf brochure from the National Pawnbrokers Association claims that 88% of pledges are redeemed, i.e. 12% aren't. So FS's estimate of 3.2% is significantly lower than the industry norm. This is possibly as a result of the generally higher value loans that FS handle compared to a typical high street pawnbrokers ... where the loss of the item by the borrower would be more keenly felt.
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kermie
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Post by kermie on Jul 10, 2014 19:04:11 GMT
Interesting figures.
However, I interpreted this:
"Estimated Future Default Losses: 3.2% by Loan Number; 2.1% by Loan Value"
to indicate losses on overall loan book capital. This reflects the case when items that are not redeemed could not be sold at sufficiently high price at auction to cover the capital lent plus costs.
The rate covers the whole loan book over time, including items redeemed, and items not redeemed but where the loan was recovered (e.g. by auction).
The pledge redemption rates from NPA is a different thing entirely - this is simply saying out of 100 borrowers, 12 decided to abandon their treasured trinkets. You would certainly expect it to be much greater than the loss rate (since at least some (most?!) of pledges that are not redeemed would be sold at a sufficiently high price to cover the capital/costs).
Or have I misunderstood something?
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ramblin rose
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“Some people grumble that roses have thorns; I am grateful that thorns have roses.” — Alphonse Karr
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Post by ramblin rose on Jul 11, 2014 10:09:03 GMT
Makes sense to me kermie. I'm hoping that mrclondon is right in his hypothesis that the generally higher value items being pawned at FS compared with a typical high street pawnbroker might mean that the borrowers here are a little less likely than average to default. A year on from the start, we don't have a really clear idea how that's going to pan out yet - at least another year is probably needed for that. In the meantime, I'm not basing my strategy on hope, but on insisting on suitably high rates to mitigate some of the risk. |
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