Recent Posts

Pages: [1] 2 3 ... 10
1
Investors - LC / Re: LC Email: "The Next Generation Credit Model"
« Last post by Rob L on Today at 07:48:48 PM »
Is this LC's version of a partially inverted yield curve? It does make intuitive sense that interest rates should be higher on notes with longer maturity. The fact that this is not the case is perplexing.

Okay inverted yield curve; now I'm worried a recession may be just around the corner.  ???
Oh wait; these aren't treasury bonds; never mind.
2
Investors - LC / Re: LC Email: "The Next Generation Credit Model"
« Last post by SLCPaladin on Today at 07:35:05 PM »
Is this LC's version of a partially inverted yield curve? It does make intuitive sense that interest rates should be higher on notes with longer maturity. The fact that this is not the case is perplexing.
3
Investors - LC / Re: LC Email: "The Next Generation Credit Model"
« Last post by Rob L on Today at 06:27:06 PM »
+1 on all of the above. "Makes no sense".
If you were LC would you not be embarrassed by this?
4
Investors - LC / Re: LC Email: "The Next Generation Credit Model"
« Last post by lascott on Today at 05:10:18 PM »
Makes no sense. If the losses are lower, they shouldn't be F/G grade loans. The Credit Grades are supposed to be credit rating, on a risk-return continuum, of the loans being offered, 'A' lowest risk and 'G' highest risk. By claiming F/G/60 will have lower interest rate than F/G/36 because it has lower losses, the Credit Grade is no longer a rating for assessing risk and return of loans LC offers. Grades are turning into just a few "independent" buckets in which they distribute the loans with no relationship between them. Basically, they are undermining their own argument about selecting loans based on Credit Grade only. People using LC automated investing will be shafted.

Data-driven but knowledge-unaware, most probably performed by people who see data just as bunch of numbers and have no basic knowledge of credit modeling and aptitude for interpretation what data telling them.
 
They expect lower projected annualized net credit loss on F/G loans on 36 months compared to 60 months: 17.95% vs 16.99%. My guess is that the prepayment for 60 months F/G loans is high enough that the credit losses is actually lower (compared to 36 months). Hence perversely they are able to offer lower interest rate on 60 months F/G loans as you still get higher net projected return with a term premium of app. 1% (9.84% vs 8.89%). I guess lots of 60 month F/G loans refinance into 36 months D/E loans after 1 - 2 years.

But yes it does seem heavily data driven.
A college course I looked at recently being taken by a family member had the various types of 'premiums' that go into defining rates (eg. grade is a range of rates).  Maturity (time) Risk Premium is one of the parts of the formula. It seems they could have made two maturity of grades i.e. C36 and C60.   Perhaps they simplified it to make it easier to understand for the borrowers and investors.

Quote
Premiums Added to k* for Different Types of Debt

ShortTerm Treasury: only IP for ShortTerm inflation
LongTerm Treasury: IP for LongTerm inflation, MRP

ShortTerm corporate: ShortTerm IP, DRP, LP
LongTerm corporate: IP, DRP, MRP, LP

k = k* + IP + DRP + LP + MRP.

k   = Required rate of return on a debt security.
k*   = Real risk-free rate.
IP   = Inflation premium.
DRP   = Default risk premium.
LP   = Liquidity premium.
MRP   = Maturity risk premium.

Related page with short defns: The Five Components Of Interest Rates
http://www.investopedia.com/exam-guide/cfa-level-1/quantitative-methods/time-value-money-interest-rates.asp
5
Investors - LC / Re: LC Email: "The Next Generation Credit Model"
« Last post by Data Junkie on Today at 03:42:44 PM »
"We expect loan volume to shift toward higher quality grades (grades A and B) because some borrowers will qualify for lower interest rates under the new model..."

Kind of reminds me of another quote by Will Rogers:  "When the Oakies left Oklahoma and moved to California, it raised the I.Q. of both states."
6
Investors - LC / Re: Throwing in the Towel
« Last post by Skeptical on Today at 03:29:54 PM »
@anabio

You are right. Sometimes circumstances are beyond a debtor's control. That is part of the uncertainty and the risk. And I have no problem with that. I would call a person who pays 12 months on loan and then defaults-a normal deviation. Now someone who fails to pay one penny, I would call that an abnormal deviation. There is a big difference between the two and if I purchased a note that defaulted after 12 months, that would make sense to me.

My wife and I have borrowed money in the past. But with the intention of paying it back. We would never borrow more than we could rightfully pay back. Maybe it is a mistake for me to think that everyone who takes out a loan on LC views his/her debt this way. Obviously they do not.

This is a new asset class. P2P lending does not have enough history to determine how these loans will perform under varying economic circumstances. The key is to pick the notes that will not default and avoid those that will default. How? Is there any reasonable way to allocate these notes? I'm not sure. With stocks or bonds, this is much easier. I invest in stocks some investors would not touch. But I have a plan and practice risk management. I don't know how to practice risk management with these notes. Buy only A rated notes? Your return would make this strategy trivial.

Circumstances happen to people beyond their control. I'm not a cold-hearted person. But someone never paying one penny on a loan tells me to be careful, cautious and reconsider if this asset class is for me.
7
Investors - LC / Re: LC Email: "The Next Generation Credit Model"
« Last post by Fred93 on Today at 03:08:05 PM »
Makes no sense.

Agreed. 

My guess is that the current model was data-fit (seems likely overfit) over some time interval, and then these estimates were produced by somebody else using some prognostication method (like maybe average over some different, shorter, historical interval).
8
Investors - LC / Re: LC Email: "The Next Generation Credit Model"
« Last post by AnilG on Today at 02:48:23 PM »
Makes no sense. If the losses are lower, they shouldn't be F/G grade loans. The Credit Grades are supposed to be credit rating, on a risk-return continuum, of the loans being offered, 'A' lowest risk and 'G' highest risk. By claiming F/G/60 will have lower interest rate than F/G/36 because it has lower losses, the Credit Grade is no longer a rating for assessing risk and return of loans LC offers. Grades are turning into just a few "independent" buckets in which they distribute the loans with no relationship between them. Basically, they are undermining their own argument about selecting loans based on Credit Grade only. People using LC automated investing will be shafted.

Data-driven but knowledge-unaware, most probably performed by people who see data just as bunch of numbers and have no basic knowledge of credit modeling and aptitude for interpretation what data telling them.
 
They expect lower projected annualized net credit loss on F/G loans on 36 months compared to 60 months: 17.95% vs 16.99%. My guess is that the prepayment for 60 months F/G loans is high enough that the credit losses is actually lower (compared to 36 months). Hence perversely they are able to offer lower interest rate on 60 months F/G loans as you still get higher net projected return with a term premium of app. 1% (9.84% vs 8.89%). I guess lots of 60 month F/G loans refinance into 36 months D/E loans after 1 - 2 years.

But yes it does seem heavily data driven.
9
Investors - LC / Re: Throwing in the Towel
« Last post by Data Junkie on Today at 10:48:39 AM »
I, too, had one of those "immediate default" notes and it fueled my misanthropic inclination.  I decided to explore those a little further, and identified many common characteristics, but the aggregate of those characteristics were not revealing (as you might expect).  There is, as Skeptical said, no metric for morality!

I guess another reason I haven't given up completely is that most loans do not default (but a significant number do).  For example, of completed B&C loans, approx 16% defaulted, or about 1 in 6.  This is not my area of expertise by any means, but that seems really high if that includes a significant number of average joes and jills.  My goal is, can I identify with confidence those that will not default?  If I can do that then maybe I can move on to choosing loans with higher interest rates.  Of late, I am gunshy and leaning towards A's from the ones my code is identifying.

This has been another example of my jumping in the pool before learning to swim.  Fortunately it was on the shallow end.  But it has also been a good excuse to indulge my coding hobby, and I've learned a lot about reading credit reports which will help me, I think, with my newest hobby, a rental property.

Thanks. Skeptical, for sharing your opinion and experience.
10
Investors - LC / A Surprise Bump in Bad Card Loans
« Last post by rubicon on Today at 10:22:21 AM »
Credit card lenders are seeing some of the highest delinquency rates in years

https://www.wsj.com/articles/a-surprise-bump-in-bad-card-loans-1505899800

Pages: [1] 2 3 ... 10