Author Topic: How does Default status work?  (Read 8296 times)

statslender

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How does Default status work?
« on: February 16, 2016, 09:46:47 PM »
I'm trying to figure out Lending Club basics, so I downloaded the LoanStats3c data (2013-2014 originations) from https://www.lendingclub.com/info/download-data.action

According to http://kb.lendingclub.com/investor/articles/Investor/What-do-the-different-Note-statuses-mean, defaulted loans haven't paid in 121 days. But I'm seeing 7 loans in Default with last payment in December 2015.

What gives? Are these notes truly in Default?

Apologies if this was answered somewhere else - I'm new.

skierx

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Re: How does Default status work?
« Reply #1 on: February 16, 2016, 10:23:12 PM »
I am also interested to learn how LC handles these loans. I currently have two notes that are in default one has one payment received and the other has no payments received, both loans were for significant sums of money. Has anyone else experienced a default where there were little or no payments received? How does LC deal with these seemingly fraudulent borrowers?

Fred93

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Re: How does Default status work?
« Reply #2 on: February 16, 2016, 10:44:38 PM »
defaulted loans haven't paid in 121 days. But I'm seeing 7 loans in Default with last payment in December 2015.

What you said above isn't quite right.  A loan is supposed to default when it has been in arrears for 4 months.  (I believe that's the most precise way to say it.)  Doesn't matter when the "last payment" was.  Last payment could be yesterday.  If the payment didn't bring the note current, then it won't stop default.  It is very common to have a loan where the borrower gets behind, then makes some partial or even whole payments without getting caught up and then defaults.

Just FYI tho, LC isn't always 100% consistent, and that's just the way it is.  There are occasional funny cases in the database.

Fred93

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Re: How does Default status work?
« Reply #3 on: February 16, 2016, 10:48:37 PM »
I currently have two notes that are in default one has one payment received and the other has no payments received, both loans were for significant sums of money. Has anyone else experienced a default where there were little or no payments received?

Sure.  Anyone who has invested in a few hundred loans has had some.

Quote
How does LC deal with these seemingly fraudulent borrowers?

I don't know of anywhere they have told us what they do.  I hope they investigate some of them, but we just have no information.

statslender

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Re: How does Default status work?
« Reply #4 on: February 16, 2016, 10:59:12 PM »
Thank you - makes perfect sense now.

lascott

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Re: How does Default status work?
« Reply #5 on: February 17, 2016, 12:32:24 AM »
I don't know of anywhere they have told us what they do.  I hope they investigate some of them, but we just have no information.
By chance I read this old article today where these "straight rollers" were mentioned.

http://www.lendacademy.com/the-collection-practices-at-lending-club/
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skierx

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Re: How does Default status work?
« Reply #6 on: February 17, 2016, 12:56:47 AM »
I don't know of anywhere they have told us what they do.  I hope they investigate some of them, but we just have no information.
By chance I read this old article today where these "straight rollers" were mentioned.

http://www.lendacademy.com/the-collection-practices-at-lending-club/

The situation described in that article is exactly what happened with my note, the borrower took out a loan for $35,000 and never made a payment. After checking my account today LC has already moved the loan from default to charged off, there is nothing in the collections log that would indicate they took any legal action. It seems that LC's collections efforts in regard to this loan were seriously lacking, its quite disappointing.

Fred

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Re: How does Default status work?
« Reply #7 on: February 17, 2016, 03:21:32 AM »
It seems that LC's collections efforts in regard to this loan were seriously lacking, its quite disappointing.

The collections process in general is highly regulated.

Last time I checked, LC employs a 2-pronged approach:
- internal collection team
- third-party debt collection agencies

See also http://kb.lendingclub.com/investor/articles/Investor/What-tools-does-Lending-Club-have-to-deal-with-delinquent-borrowers/

As a lender, the following is enough: Lending Club reports delinquent borrowers to credit bureaus every month.

Also, I can always sell late notes on Folio, so I am not stuck holding the bag of bad notes.

rawraw

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Re: How does Default status work?
« Reply #8 on: February 17, 2016, 05:58:39 AM »
I don't know of anywhere they have told us what they do.  I hope they investigate some of them, but we just have no information.
By chance I read this old article today where these "straight rollers" were mentioned.

http://www.lendacademy.com/the-collection-practices-at-lending-club/

The situation described in that article is exactly what happened with my note, the borrower took out a loan for $35,000 and never made a payment. After checking my account today LC has already moved the loan from default to charged off, there is nothing in the collections log that would indicate they took any legal action. It seems that LC's collections efforts in regard to this loan were seriously lacking, its quite disappointing.
IIRC LC makes the investor whole in cases of fraud.

Fred93

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Re: How does Default status work?
« Reply #9 on: February 17, 2016, 06:04:55 AM »
IIRC LC makes the investor whole in cases of fraud.

We don't have the information necessary to validate this or disprove it, therefore I refuse to consider it a "fact".

We don't even know what fraction of the time LC knows that fraud has occurred, and we don't know what fraction of those times they "make the investor whole".

yojoakak

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Re: How does Default status work?
« Reply #10 on: February 17, 2016, 10:55:05 AM »

rj2

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Re: How does Default status work?
« Reply #11 on: February 18, 2016, 03:31:42 PM »
"As a lender, the following is enough: Lending Club reports delinquent borrowers to credit bureaus every month."

Why is that enough? It takes what, seven years for bad debt to roll off a credit report? So if a fraudulent borrower hits up both LC and Prosper for, say, $70k, then just doesn't pay, they have effectively added $10k/yr to their income. Tax free.

Then they can do it again in seven years.

Doesn't seem like reporting is enough unless there is additional legal action being taken people will eventually come to see LC as a giant online ATM.

Fred

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Re: How does Default status work?
« Reply #12 on: February 19, 2016, 03:02:23 AM »
"As a lender, the following is enough: Lending Club reports delinquent borrowers to credit bureaus every month."

Why is that enough? It takes what, seven years for bad debt to roll off a credit report? So if a fraudulent borrower hits up both LC and Prosper for, say, $70k, then just doesn't pay, they have effectively added $10k/yr to their income. Tax free.

Then they can do it again in seven years.

Doesn't seem like reporting is enough unless there is additional legal action being taken people will eventually come to see LC as a giant online ATM.

You've been burned, bro? ;-)

I have 12,000 notes in my portfolio currently -- almost 20,000 if you include the matured/charged-off ones.  When a bad borrower tricked LC and me into lending to him, I just lick my wounds and move on.


Fred93

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Re: How does Default status work?
« Reply #13 on: February 19, 2016, 04:48:16 AM »
Why is that enough? ... Then they can do it again in seven years. ... Doesn't seem like reporting is enough unless there is additional legal action being taken

Sadly, legal action is very expensive and uncertain.  That's just the way it is.  Because of this all banks and other lending companies use it sparingly.

Because of the anonymity, it is very difficult to track what LC is doing exactly.  You can scan the various court web sites for cases involving Lending Club.  Back in the early days of Prosper, when borrowers often put enough info in their listing descriptions to identify themselves, I used to scan the court web sites and find specific cases, and lenders used to follow them and discuss progress.  What I learned thru this is just what I said above.

From an emotional point-of-view I agree with you.  People who cheat us ought to be slammed.  One of my early Prosper loans was to a guy who was a former state senator from an eastern state.  A grade loan.  He stopped paying after just a few payments.  He continued to be quite a public figure, having opened a gay bar that got a lot of news.  I was astonished and angry.  My anger did nothing useful.  Nothing I could do.  In those early days, Prosper hadn't yet learned how to manage nonpayers.  Both P & LC are much more sophisticated now.  I have learned to back off and let them manage. 

From a more logical perspective, what matters to an investor is that the lending company do enough to keep fraud under control and produce good numbers.  That's what all lending companies try to do.

So you can look at results, and decide whether you want to buy Bank of America stock, Wells Fargo stock, etc, or buy notes thru Lending Club or Prosper.

The various lending laws pretty much prohibit you from getting involved personally, so you need to step back and the guys who can make these decisions do so.

Fred93

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Re: How does Default status work?
« Reply #14 on: February 19, 2016, 04:51:30 AM »
I have 12,000 notes in my portfolio currently

Fred has WAY too many loans in his portfolio.  I have a much more reasonable 4,146 active loans.