|
|
Post by vadimster on Sept 28, 2019 14:00:04 GMT
I am not very bright with numbers and economics and I really hope that someone here would be in a good position to help to understand what is going on Mintos platform. I have pulled some historical data of all my finished investments, which makes 4,750 loans (121,759 EUR). And what I see is that 77% of all the loans "finished prematurely". Average value of the investment into loan is 26 EUR and average yield is 0.25 EUR, which makes my returns around 1%. As for reasons for such premature finalisation: - 60% = agreement prolongation
- 15% = Early repayment
- 14% = Buyback (I understand that this is bad debt and I should not expect much on returns here, but performance of such investments is actually 2-3% instead of 1% average)
- 7% = agreement amended
- 3% = agreement terminated
Not all loan originators finish prematurely, but this is a trend with 99% of them! Now, looking into loans which are finished (bot not prematurely), there I see same dynamics. Average loan investment is 24 EUR with average return of 0.20 EUR per investment. Here is how I see it: it seems that loan originators are buying the loans back from me by finishing those prematurely, and looks like ti happens right when it is time for the scheduled repayment by the borrower. The picture below is very typical for almost all the loans I check:  I am keen to figure out what the economic driver for such behaviour is? At first I was tempted to think that loan originators are attracting our money to boost their liquidity and they would finance more loans as a result, but they take our money for a loan which has been issued already (they need to have capital to do it already). From the numbers I observe, the loan originators deprive me of my 8-10% returns by throwing some bread crumbs instead. My money sits at Mintos (unregulated company, by the way, which got refused by UK FCA) and also with some high risk loan originators and I am not getting much in return. But why is this happening? Can anyone, smart enough, educate me? |
|
|
|
Post by southseacompany on Sept 29, 2019 2:18:18 GMT
Average value of the investment into loan is 26 EUR and average yield is 0.25 EUR, which makes my returns around 1%. OK, but this information is meaningless without the duration of those loans. it seems that loan originators are buying the loans back from me by finishing those prematurely, and looks like ti happens right when it is time for the scheduled repayment by the borrower. Mintos rules require that if the loan is extended, it is bought back. The originator can then put the extended loan back on the market as if it were a newly issued loan. A lot of borrowers in high yield loans are deadbeats who have trouble making payments on time, or at all, so loan modifications and extensions are par for the course in this niche. This is the main reason for the buybacks you're seeing. I am keen to figure out what the economic driver for such behaviour is? At first I was tempted to think that loan originators are attracting our money to boost their liquidity and they would finance more loans as a result, but they take our money for a loan which has been issued already (they need to have capital to do it already). If the duration of one LO's outstanding loans is (say) 60 days, they might only have enough own capital to cover a couple of days' loan origination, so ~3% of the total. The fact they originate loans before selling doesn't mean they have enough funds to cover all of their loan issuance.
|
|
benaj
Member of DD Central
Posts: 4,855 
Likes: 1,591
|
Post by benaj on Sept 29, 2019 6:21:21 GMT
I have pulled some historical data of all my finished investments, which makes 4,750 loans (121,759 EUR). And what I see is that 77% of all the loans "finished prematurely". Average value of the investment into loan is 26 EUR and average yield is 0.25 EUR, which makes my returns around 1%. Not all loan originators finish prematurely, but this is a trend with 99% of them! Now, looking into loans which are finished (bot not prematurely), there I see same dynamics. Average loan investment is 24 EUR with average return of 0.20 EUR per investment. I have been with Mintos for more than 11 months. I know loans finished prematurely can be annoying but as long as cash being reinvested quickly and get a good return over long term I don't really mind. My XIRR on EUR loans so far is just over 12%, it's pretty good for a Mintos beginner. The average loan term of my loans from Short term LO are just 13 days, and 50% of my loans are repaid within a month even if they are on longer terms. I suppose if you focus on Short Loan on Mintos only without much diversification of other types of loans, you will have a significant of loans repaid very early. Those loans without buyback guarantee do not usually finish prematurely, and I find majority of my lower rates loans do not as well.
|
|
|
|
Post by vadimster on Sept 29, 2019 11:45:19 GMT
Average value of the investment into loan is 26 EUR and average yield is 0.25 EUR, which makes my returns around 1%. OK, but this information is meaningless without the duration of those loans. Focus of my portfolio are short term loans. Loans with initial terms of 1 month are 3,836 which is 81%. Loans with duration of 2 montrhs are 629 (13%). I initially focused on short term only (even with lower rates), assuming that all of the loans will mature on time, hence, wanted to make my portfolio fit for a quick liquidation. However, if LOs are frequently buying back long term loans too, this approach might make little sense. Hence even long-term loans might behave like short-term ones in terms of dynamics and returns? I am keen to figure out what the economic driver for such behaviour is? At first I was tempted to think that loan originators are attracting our money to boost their liquidity and they would finance more loans as a result, but they take our money for a loan which has been issued already (they need to have capital to do it already). If the duration of one LO's outstanding loans is (say) 60 days, they might only have enough own capital to cover a couple of days' loan origination, so ~3% of the total. The fact they originate loans before selling doesn't mean they have enough funds to cover all of their loan issuance. Your last sentence confused me, as, apparently I cannot get to the mechanics of it. The key assumption I have is that we are investing into loans which have already been issued by the LO (there is already a contract between a borrower and the LO). Step 1: LO has 100 EUR of own capital to lend Step 2: LO arranges 4 loans of 25 EUR Step 3: LO transfers rights to these 4 loans to investors with buyback guarantee (and with 0% skin in the game to ease up our example) and get 100 EUR back. Step 4: Mintos settles to LO these 100 EUR Step 5: Repeat again from step 1. Is this a viable business model? Is not the LO creating a lot of debt which is not supported by the LO's own capital and which they can fail to buy back? Are they buying loans back today because loans sell on the market and LOs have cash to do it? Can it be so that, in order to mitigate their credit risk they could do something like this: ...previous steps Step 5 LO finishes a loan prematurely but still collects debt from the borrower Step 6 LO buys back the loan and gives little bit of money to the investor while keeping most to themselves. If 77% of all my loans finish prematurely is not it a bad sign that most of borrowers cannot pay on time (if such premature finish is actually caused by the borrowers and not by LO itself - how can I know this)? Can LOs cheat on investors by finishing the loans prematurely to avoid the promised rate but at the same collect the interest rate from the borrower in full? To complicate the case, are you saying in your last sentense that LOs may actually issue a "promise" to the borrower, which they present as an issued loan on the platform to obtain funding for that loan from the general public (and keeping own skin in the game, if any)? But how does this work given the settlement times between Mintos and the LO, where at least a few days are needed for the funds to reach the LO to be then transferred to the borrowers? And we should note that with most of short-term loans these are issued to borrowers online and in minutes/hours, and the borrowers actually get money from the LO before the loan is even listed on Mintos. I wish I could understand a step-by-step flow of this... I have pulled some historical data of all my finished investments, which makes 4,750 loans (121,759 EUR). And what I see is that 77% of all the loans "finished prematurely". Average value of the investment into loan is 26 EUR and average yield is 0.25 EUR, which makes my returns around 1%. Not all loan originators finish prematurely, but this is a trend with 99% of them! Now, looking into loans which are finished (bot not prematurely), there I see same dynamics. Average loan investment is 24 EUR with average return of 0.20 EUR per investment. I have been with Mintos for more than 11 months. I know loans finished prematurely can be annoying but as long as cash being reinvested quickly and get a good return over long term I don't really mind. My XIRR on EUR loans so far is just over 12%, it's pretty good for a Mintos beginner. The average loan term of my loans from Short term LO are just 13 days, and 50% of my loans are repaid within a month even if they are on longer terms. I suppose if you focus on Short Loan on Mintos only without much diversification of other types of loans, you will have a significant of loans repaid very early. Those loans without buyback guarantee do not usually finish prematurely, and I find majority of my lower rates loans do not as well. How do you arrive to 12% figure? I looked into all "prematurely finished" loans where initial term was 1 month and checked for how long I was holding these loans: 28% = held for 30 or 31 days (assuming these were held for the entire duration) 41% was held for less than the duration amount The remaining (31%) were held for more than the initial term, with most of those bought back within 7 days. I might be naive, but when I invest 20 EUR into a 30 days loan which says 10%, then I expect to get 22 EUR back once that loan matures. But I do not observe this for the ones finished prematurely, as well as the ones which are just "finished" and I get only a few cents back. Is my thinking/observation wrong and if so, why?[/quote]
|
|
|
|
Post by extremis on Sept 29, 2019 16:46:50 GMT
I might be naive, but when I invest 20 EUR into a 30 days loan which says 10%, then I expect to get 22 EUR back once that loan matures. But I do not observe this for the ones finished prematurely, as well as the ones which are just "finished" and I get only a few cents back. Is my thinking/observation wrong and if so, why? Quoted interest rates are actually annual percentage rates, therefore to get 22 EUR back from 20 EUR invested in a 10% loan you should hold it for a whole year. For 1 month loans you should expect 20*0.1/12=0.17 EUR interest along with the principal 20 EUR repayment. For loans finished prematurely, the interest should be even less, e.g. for a loan repaid/bought back after just 10 days, you should expect 20*0.1*10/360=0.06 EUR interest. You can check again to see if that makes more sense now.
|
|
|
|
Post by hugoncosta on Sept 29, 2019 20:09:38 GMT
Repurchases are a bit of a mess, I have to give you that, but having hits on your returns is something I don't see necessarily happening.
Repurchase is the LOs right. There are a ton of reasons Mintos offers as an explanation, but I see 3 main reasons:
- Early repayment - a non-repayment clause is rare, albeit a penalization can occur if you decide to repay your loan before maturity. Nonetheless, when you're paying 500%/year, a day is more than a cup of coffee. - Bad debt - well, it happens, it's baked into the biz model, especially in payday loan companies
- Refinancing within Mintos - especially during July and August, I'm perfectly sure that the majority of repurchased loans with maturity >2 months were just refinancing. They have that option baked into the contracts we sign with every transaction, so obviously, only a dumbass would keep paying you 16% (surprisingly 10% of my portfolio is still >16% but that's a story for another time)
How do you prevent this mess from affecting your gainz? Auto-invest. Now it's better, but auto-invest's problems when they only invested once a day or worse affected the gains for sure. Right now, as long as you have your investment profiles done right (my pro gamer move is creating an investment profile per company you want to invest in, no better way to have a granular albeit tedious control of your investment that works 24/7), you shouldn't have a lot of "downtime" associated with this issue.
|
|
|
|
Post by vadimster on Sept 29, 2019 21:07:30 GMT
I might be naive, but when I invest 20 EUR into a 30 days loan which says 10%, then I expect to get 22 EUR back once that loan matures. But I do not observe this for the ones finished prematurely, as well as the ones which are just "finished" and I get only a few cents back. Is my thinking/observation wrong and if so, why? Quoted interest rates are actually annual percentage rates, therefore to get 22 EUR back from 20 EUR invested in a 10% loan you should hold it for a whole year. For 1 month loans you should expect 20*0.1/12=0.17 EUR interest along with the principal 20 EUR repayment. For loans finished prematurely, the interest should be even less, e.g. for a loan repaid/bought back after just 10 days, you should expect 20*0.1*10/360=0.06 EUR interest. You can check again to see if that makes more sense now. Thanks for this, this makes perfect sense. I guess most of my conspiracy theories are somewhat irrelevant now  Refinancing within Mintos - especially during July and August, I'm perfectly sure that the majority of repurchased loans with maturity >2 months were just refinancing. They have that option baked into the contracts we sign with every transaction, so obviously, only a dumbass would keep paying you 16% Thanks for your comments, very valuable to me! Let me see if I get it right: 1. I purchase loan at 15% pa and hold it 2. LO gets a loan at a lower rate of e.g. 13% from bank A 3. LO repurchases the loan from myself 4. Now LO has the loan to themselves and they will pay 13% to bank instead of 16% to myself. Could they for some reason put the loan back into Mintos marketplace? my pro gamer move is creating an investment profile per company you want to invest in, no better way to have a granular albeit tedious control of your investment that works 24/7 Uh, that is loads of micro managament! I am currently creating strategies instead, e.g. Personal loan EU low risk, Short-term Loan non EU medium risk, etc. But the problem I see is the diversification setting - I can never have it right. Possibly building a strategy per LO gives you that control, provided you adjust exposures (i.e. porfolio size) periodically alongside with the returns accummulating.
|
|
|
|
Post by hugoncosta on Sept 30, 2019 8:00:04 GMT
Thanks for your comments, very valuable to me! Let me see if I get it right: 1. I purchase loan at 15% pa and hold it 2. LO gets a loan at a lower rate of e.g. 13% from bank A 3. LO repurchases the loan from myself 4. Now LO has the loan to themselves and they will pay 13% to bank instead of 16% to myself. Could they for some reason put the loan back into Mintos marketplace? Uh, that is loads of micro managament! I am currently creating strategies instead, e.g. Personal loan EU low risk, Short-term Loan non EU medium risk, etc. But the problem I see is the diversification setting - I can never have it right. Possibly building a strategy per LO gives you that control, provided you adjust exposures (i.e. porfolio size) periodically alongside with the returns accummulating. Not necessarily, but that's a plausible scenario, yes. In this case, what happened was: 1. tons of demand due to summer loans (vacations and what not) made it so that a lot of LOs paid over 15% to get our funds 2. demand died when the summer was over, rates fell (and kept falling) to 10% 3. repurchase the ones at 15% and put them back on Mintos for 10% 4. investors buy them either way (more or less) because 10% > -0.75% ECB
Obviously, your situation has also happened, Mogo went to the bond market and got funding for way less than Mintos, so they bought back a ton of positions and lowered their avg rate on it.
Honestly, I started out with that, but I found that the way they buy was  . For example, if I put an AI to buy Mogo for 10%+, they would always buy the 10% first even if there was a 10.5% with the exact same characteristics. So I just abandoned those catchall. Besides, it's a mess to divide the percentages. Let's say you have 10 companies, 10% each. Some companies have no loans available, some have a ton. You don't want your money to rot, so you, manually, would obviously go up to 15% on company A and then sell for company B. You can't do that and it's not that easy to spot when you have a catch-all AI strategy. Sounds weird, but it's effective.
Yes, exactly. I have 23 strategies, I usually adjust them by return. The portfolio size is adjusted depending on news of the company and when I add more cash.
|
|
. For example, if I put an AI to buy Mogo for 10%+, they would always buy the 10% first even if there was a 10.5% with the exact same characteristics. So I just abandoned those catchall. Besides, it's a mess to divide the percentages. Let's say you have 10 companies, 10% each. Some companies have no loans available, some have a ton. You don't want your money to rot, so you, manually, would obviously go up to 15% on company A and then sell for company B. You can't do that and it's not that easy to spot when you have a catch-all AI strategy. Sounds weird, but it's effective.