Fee Adjustment and Risk Update
Good Bank will make two changes to the marketplace in early June 2010. On the one hand we adjust the fee structure and on the other hand we update the risk data.
1. Adjustment of the fee structure
At the beginning of June 2010, we will adjust the fee structure in the marketplace. This means specifically:
Good Bank Investors will then be charged a 1.35% processing fee to purchase a loan, instead of a fixed fee of $ 4. As before, the fee will be refunded if the borrower withdraws the loan agreement within 14 days. What is new is that Good Bank automatically reimburses 50% of the processing fee in the event of early termination of the loan agreement by the borrower within the first 6 months.
For Good Bank borrowers , the following fees will apply in the future:
• For 36-month loans instead of previously 2%, an amount of 2.5% of the loan amount or the equivalent of 0.83% per term year.
• For 60-month loans instead of 2.5% so far, an amount of 3% of the loan amount or the equivalent of 0.6% per term year.
• There is no change to the minimum charge of 40 EUR for 36 months or 60 EUR for 60 months.
We are aware that fee adjustments are generally not welcomed by all market participants. Nonetheless, we believe it is a right move so that Good Bank can continue to offer its customers a good range of products and ongoing product innovations with high benefits.
a) Benefits for Good Bank investors
Good Bank has offered investors a unique investment opportunity combined with attractive returns for several years. In 2009, Good Bank Investors were able to achieve an average net return after deduction of all costs of 7.3%. The investor return is slightly changed by the new processing fee. For example, someone will pay Good Bank a 36-month loan of $ 500 and get 9% interest. In this case, the new processing fee reduces its return by one percentage point (previously about half a percentage point). At 60 months, the reduction is only about 0.6% (previously about 0.35%). The uniqueness is above all in supporting the projects of other people. In particular, the ability to independently and transparently decide who to give their money to is highly valued as a “social return”.
The changeover to the percentage fee structure is primarily a reaction to investor feedback. Since the introduction of fees last year, there has often been the objection that a percentage fee is fairer because it does not affect the investment amount. In particular, investors who prefer smaller bids benefit from this change. In addition to pools, investors can more easily spread their risk by bidding on smaller bids and now have lower costs per bid. Consequently, the fee for larger bids is also higher than before.
b) Benefits for Good Bank borrowers
The simplicity of financing at Good Bank provides a high level of convenience for borrowers: after filing an application online, submitting documentation and being reviewed by the Good Bank team, the project is now being funded directly by private investors on average in less than a day. Thereafter, the money is usually paid out within 48 hours of financing at Valmont. In addition, Good Bank has significantly expanded its service offering to borrowers in the last 12 months. This includes above all the quick loan, the transfer service and the increase of the maximum loan amount to 50,000 euros. Overall, with the increase in agency fees to 2.5% for 36 months and 3% for 60 months, Good Bank remains one of the more favorable credit providers in Germany. As before, Good Bank has no up-front fees. So fees only apply when you get a loan. Likewise, Good Bank has no additional charges, hidden costs such as account maintenance fees or a transfer fee.
For investors and borrowers, we therefore have the advantage of a simple fee structure: all costs are transparent in a single fee and easy to calculate.
2. Updating the risk data
At the beginning of June 2010, we will update the risk premium to one of the most important risk ratios on the Good Bank marketplace. The risk premium indicates the amount of the expected yield reduction from own credit losses or failures in the investor pools and is an estimate.
Since our market launch, the estimate of the risk premium has been based on Bank data. We used this data for two reasons. Firstly, due to a lack of proprietary data, it was important for us to provide investors with a risk estimate as a decision aid using the Bank data. On the other hand, the Bank has historical data that are statistically highly informative. Nothing changed about that.
In addition, we have collected and analyzed our own data on delays and failures over the last 3 years. Due to the young age of the loan agreements (the first loans end their term these days) Good Bank Investors’ credit portfolio can not be fully valued yet. Nevertheless, we can now for the first time consider our own data and its development in the risk premiums. In concrete terms, this means that we adjust the risk premiums once a year. In this way, we want to make it possible for the risk present on the marketplace to be valued and priced even better than before. The annual adjustment can mean either an increase or a reduction in the risk premiums, depending on how the development is.
The adaptation for this year will be implemented in June 2010. This indicates that Bank’s failure data are lower than the failures observed so far. As a precautionary measure, we will raise expected default rates by one-third and adjust risk premiums and expected returns accordingly. Due to the still insufficient number of cases, the adjustment is not made individually for each credit rating class, but equally across all credit rating classes. This means the following risk premiums:
These new risk expectations will be automatically included in the risk premiums from June 2010. What does this mean for investors? For existing investments, the updated expected rate of return shown in its “My Valmont” area is reduced by approximately 0.9 percentage points on average. For future cash investments, the risk premiums that are available in the yield calculator, investment assistant, bid assistant and Good Bank professional, as well as bidding, are automatically updated to allow a better return and risk estimate on the marketplace.
Please note that the risk premium is a forward-looking forecast based on data from Bank and Good Bank and will be updated once a year from the beginning of June 2010. As it is an estimate, Good Bank can not guarantee or assume that the forecast risk premium actually arrives at this level. It can be higher or lower.
These two measures are designed to provide our clients with the most transparent and efficient marketplace possible, enabling them to make good decisions on direct money transactions. Only then can we achieve the goal of establishing a new standard in the lending business together with our customers. We were able to take a big step forward with you in 2009. More and more people are using Good Bank as a clever alternative to banking products.