Author Topic: How To Predict If A Borrower Will Pay You Back  (Read 678 times)

SLCPaladin

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How To Predict If A Borrower Will Pay You Back
« on: May 10, 2017, 12:35:15 AM »
Matt Levine's Money Stuff linked to this very fascinating article regarding big data and lending:

How to Predict If a Borrower Will Pay You Back

Of course this was back in the day when Prosper had a free text field where borrowers were able - but not obligated - to provide a free-text summary of the purpose of the loan, essentially serving as a pitch to persuade investors to fund their loan.

This part of the article really brightened my day:

"Now, let’s consider language that suggests someone is unlikely to pay their loans. Generally, if someone tells you he will pay you back, he will not pay you back. The more assertive the promise, the more likely he will break it. If someone writes “I promise I will pay back, so help me God,” he is among the least likely to pay you back. Appealing to your mercy—explaining that he needs the money because he has a relative in the “hospital”—also means he is unlikely to pay you back. In fact, mentioning any family member—a husband, wife, son, daughter, mother or father—is a sign someone will not be paying back. Another word that indicates default is “explain,” meaning if people are trying to explain why they are going to be able to pay back a loan, they likely won’t."
« Last Edit: May 11, 2017, 11:27:28 PM by SLCPaladin »

Fred93

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Re: How To Predict If A Borrower Will Pay You Back
« Reply #1 on: May 10, 2017, 12:43:27 AM »
Corrected link...

http://nymag.com/scienceofus/2017/05/what-the-words-you-use-in-a-loan-application-reveal.html?utm_medium=email&utm_source=newsletter&utm_term=170509&utm_campaign=moneystuff

You copied an extra [ at the beginning, making the URL not work.

He's right.  In the early days of Prosper, one of the very first things we learned was that mention of "god" in a loan description correlated very highly with poor loan performance. 

rawraw

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Re: How To Predict If A Borrower Will Pay You Back
« Reply #2 on: May 10, 2017, 04:32:37 AM »
I suspect findings like these are largely p-hacking and not actually statistically relevant.  But could be!

lascott

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Re: How To Predict If A Borrower Will Pay You Back
« Reply #3 on: May 10, 2017, 11:00:33 AM »
I suspect findings like these are largely p-hacking and not actually statistically relevant.  But could be!
I thought I recall a LA podcast or article on one of the biggest Prosper retail investors about a year ago. He hired a developer to write custom code to look at the story text. I couldn't find it with the searches I was doing.
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rawraw

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Re: How To Predict If A Borrower Will Pay You Back
« Reply #4 on: May 11, 2017, 12:48:57 PM »
I suspect findings like these are largely p-hacking and not actually statistically relevant.  But could be!
I thought I recall a LA podcast or article on one of the biggest Prosper retail investors about a year ago. He hired a developer to write custom code to look at the story text. I couldn't find it with the searches I was doing.
Wouldn't doubt it, but that's a separate issue from is this actually a valid finding. It could be, but findings like this are more often than not simple p hacking.

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RomanLegend

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Re: How To Predict If A Borrower Will Pay You Back
« Reply #5 on: June 27, 2017, 02:30:19 AM »
I was really interested in this thread topic when I started.  So obviously I wanted a good upside (8-10%NAR) but I really wanted a better downside, aka 0% defaults, because as long as my money was "working" for me who really cares what I make as long as it is near double digits.

So, I have been investing for about 3 years with lending club with this premise and my default rate is <2%, which I am very proud of.  So I decided to put it in algorithm form and now I am looking for beta testers to test my approach for free.  If anyone is interested message me and I'll send you the website.

Thanks!

fliphusker

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Re: How To Predict If A Borrower Will Pay You Back
« Reply #6 on: June 27, 2017, 07:35:36 PM »
2% defaults, what is your NAR? Always up for pictures. :)
I was really interested in this thread topic when I started.  So obviously I wanted a good upside (8-10%NAR) but I really wanted a better downside, aka 0% defaults, because as long as my money was "working" for me who really cares what I make as long as it is near double digits.

So, I have been investing for about 3 years with lending club with this premise and my default rate is <2%, which I am very proud of.  So I decided to put it in algorithm form and now I am looking for beta testers to test my approach for free.  If anyone is interested message me and I'll send you the website.

Thanks!

RomanLegend

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Re: How To Predict If A Borrower Will Pay You Back
« Reply #7 on: July 16, 2017, 06:54:18 PM »
NAR is 8.58% has been as high as 10.5%.  Defaults are at ~2.9% right now. 

Here is more info for you as well.  YouTube Intro:  https://www.youtube.com/watch?v=dIE5bVgj8eE&t=3s

Register Here for FREE (we are still in Beta Testing):  LCPicks.com

Let me know if you have any questions along the way just send me a message and I'll help out.

Thanks,

-Chris


2% defaults, what is your NAR? Always up for pictures. :)
I was really interested in this thread topic when I started.  So obviously I wanted a good upside (8-10%NAR) but I really wanted a better downside, aka 0% defaults, because as long as my money was "working" for me who really cares what I make as long as it is near double digits.

So, I have been investing for about 3 years with lending club with this premise and my default rate is <2%, which I am very proud of.  So I decided to put it in algorithm form and now I am looking for beta testers to test my approach for free.  If anyone is interested message me and I'll send you the website.

Thanks!

SLCPaladin

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Re: How To Predict If A Borrower Will Pay You Back
« Reply #8 on: July 16, 2017, 10:16:02 PM »
You should consider adding your data to the "Understanding your returns" thread and sharing more data with the group (see instructions in thread for how to do this or just copy and paste screen shots from another user). These screenshots are neat, but to really gain credibility, you need to disclose more data over time such as the average age of your portfolio, breakdown of note by term/grade, etc.

I am not necessarily questioning your method (haven't had the time to look), but everyone's portfolio looks much better early on before the natural defaults hit. The average note age in my portfolio is almost 3 years, so it's a seasoned portfolio. Also, your portfolio is quite small in dollar compared to many other posters sharing their data.

Also, how are you calculating defaults? Your screenshot shows $152 in charge-offs and $4676 in total payments, so that's a default dollar amount of 3.2%.

RomanLegend

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Re: How To Predict If A Borrower Will Pay You Back
« Reply #9 on: July 17, 2017, 12:10:50 AM »
Fair point, I don't mind sharing.



You should consider adding your data to the "Understanding your returns" thread and sharing more data with the group (see instructions in thread for how to do this or just copy and paste screen shots from another user). These screenshots are neat, but to really gain credibility, you need to disclose more data over time such as the average age of your portfolio, breakdown of note by term/grade, etc.

I am not necessarily questioning your method (haven't had the time to look), but everyone's portfolio looks much better early on before the natural defaults hit. The average note age in my portfolio is almost 3 years, so it's a seasoned portfolio. Also, your portfolio is quite small in dollar compared to many other posters sharing their data.

Also, how are you calculating defaults? Your screenshot shows $152 in charge-offs and $4676 in total payments, so that's a default dollar amount of 3.2%.

RomanLegend

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Re: How To Predict If A Borrower Will Pay You Back
« Reply #10 on: July 17, 2017, 12:22:23 AM »
Fair point, I don't mind sharing.



You should consider adding your data to the "Understanding your returns" thread and sharing more data with the group (see instructions in thread for how to do this or just copy and paste screen shots from another user). These screenshots are neat, but to really gain credibility, you need to disclose more data over time such as the average age of your portfolio, breakdown of note by term/grade, etc.

I am not necessarily questioning your method (haven't had the time to look), but everyone's portfolio looks much better early on before the natural defaults hit. The average note age in my portfolio is almost 3 years, so it's a seasoned portfolio. Also, your portfolio is quite small in dollar compared to many other posters sharing their data.

Also, how are you calculating defaults? Your screenshot shows $152 in charge-offs and $4676 in total payments, so that's a default dollar amount of 3.2%.

lascott

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Re: How To Predict If A Borrower Will Pay You Back
« Reply #11 on: July 17, 2017, 12:30:49 AM »
You should consider adding your data to the "Understanding your returns" thread and sharing more data with the group (see instructions in thread for how to do this or just copy and paste screen shots from another user). These screenshots are neat, but to really gain credibility, you need to disclose more data over time such as the average age of your portfolio, breakdown of note by term/grade, etc.

I am not necessarily questioning your method (haven't had the time to look), but everyone's portfolio looks much better early on before the natural defaults hit. The average note age in my portfolio is almost 3 years, so it's a seasoned portfolio. Also, your portfolio is quite small in dollar compared to many other posters sharing their data.

Also, how are you calculating defaults? Your screenshot shows $152 in charge-offs and $4676 in total payments, so that's a default dollar amount of 3.2%.
I'm not currently adding more accounts to the 'understanding your returns' table.  IMO, accounts like the above are just too small to prove anything. I think I saw another screen shot where it showed just over 300 notes (not sure how many are currently active).  I think you can be ultra selective and do well but it only really matters if it scales and the amount of money then makes a difference.  New algorithms and note picking takes probably 18 months to 2 years to prove anything I think. So it may take what 10 new accounts beta testing RLs method that long and in sufficient quantities to 'prove' something. JMHO
Tools I use: (main) BlueVestment: https://www.bluevestment.com/app/pricing + https://www.interestradar.com/ , (others) Lending Robot referral link: https://www.lendingrobot.com/ref/scott473/  & Peercube referral code: DFVA9Y

RomanLegend

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Re: How To Predict If A Borrower Will Pay You Back
« Reply #12 on: July 17, 2017, 12:39:16 AM »
Totally agree with the small data set.  Nothing I can do about that.  That was the cash I had set aside when I started just to test out my theory and I stayed with a fixed amount because at the time I wasn't sure anything I was doing was going to work.  I've also estimated that amount of loans that I will produce is ~15% of the loans dumped over the course of a year.  I will be investing more cash into the account in the near future.

I'm hoping it will be scale-able.  I think I can keep the defaults really low no matter the volume of cash invested, what I'm not as sure about is if I can keep the overall interest rate around 9 or 10%.

You should consider adding your data to the "Understanding your returns" thread and sharing more data with the group (see instructions in thread for how to do this or just copy and paste screen shots from another user). These screenshots are neat, but to really gain credibility, you need to disclose more data over time such as the average age of your portfolio, breakdown of note by term/grade, etc.

I am not necessarily questioning your method (haven't had the time to look), but everyone's portfolio looks much better early on before the natural defaults hit. The average note age in my portfolio is almost 3 years, so it's a seasoned portfolio. Also, your portfolio is quite small in dollar compared to many other posters sharing their data.

Also, how are you calculating defaults? Your screenshot shows $152 in charge-offs and $4676 in total payments, so that's a default dollar amount of 3.2%.
I'm not currently adding more accounts to the 'understanding your returns' table.  IMO, accounts like the above are just too small to prove anything. I think I saw another screen shot where it showed just over 300 notes (not sure how many are currently active).  I think you can be ultra selective and do well but it only really matters if it scales and the amount of money then makes a difference.  New algorithms and note picking takes probably 18 months to 2 years to prove anything I think. So it may take what 10 new accounts beta testing RLs method that long and in sufficient quantities to 'prove' something. JMHO