After publishing my recent post on Harmoney loan rewrites, I contacted Harmoney and offered them the chance to respond.
This is the response I received from Mark Bardi of Investor Services..
1) How is eligibility for top-up assessed?Borrowers eligible for a rewrite or “top up” of their loans must have good credit and act responsibly by having made at least three months of payments on time and in full. Rewrites are a common practice in the consumer lending industry, as borrowers are refinancing their loans all the time. If we don’t offer our best customers the opportunity to rewrite their loan, a competitor certainly will.
2) Isn’t the borrower already offered the maximum limit at the time the original loan is set up?Most responsible borrowers initially take out a loan to address a specific need; not necessarily up to their approved limit.
3) Will the rewritten loan be at a higher grade and interest rate due to the same income, but higher debt level?Not necessarily, the decision to rewrite is entirely up to our borrowers; so most of the time it’s an improvement to their situation. The borrowers credit is re-assessed at the time a new loan contract is rewritten, so the interest rate could go down, up, or stay the same.
4) Isn’t it then cheaper for the borrower to keep the original loan and get a second small loan somewhere else for the extra?See above. The option to rewrite loans is a huge benefit for our borrowers. If they find a better deal somewhere else, they’d probably take that offer instead.You’re correct in saying that rewrites will have an impact on our investors net annualised returns (as seen in your example) and create a bit more account maintenance. Based on our experience, we expect rewrites to account for approximately one quarter of the average investor’s portfolio. (Rewrites have been a little higher recently because of a backlog of requests). As a result, rewrites will impact the average investor’s annualised yield by less than 1%. Therefore, rather than an annual return of, say, 12% (net of losses and fees), the investor will have a return of approximately 11% (net of losses, fees, and rewrites). We think the returns we’re offering our investors are still far more attractive than the alternatives, such as the NZX or term deposits.Is there anything I missed?
I’d like to thank Mark for taking the time to respond to the issues raised in my last couple of posts.
Ultimately it is up to each investor to decide if they are happy to continue using the Harmoney platform.
As Mark and I both agree, the interest rate earned through peer-to-peer lending is better than other options available to investors.
Harmoney investments, however, are a lot less passive now. You can’t just pop your money in there and not check it for 6 months!
I’d still like to see the service fee at zero for loans paid off due to being rewritten, a longer assessment time (say 1 year) before eligibility for a top-up, and a note on rewritten loans offered for funding that they will be free from rewrite risk if they are at the borrower’s maximum limit.