Author Topic: Verified income  (Read 6668 times)

rawraw

  • Hero Member
  • *****
  • Posts: 2570
    • View Profile
Re: Verified income
« Reply #15 on: April 01, 2013, 07:23:31 AM »
I don't know if shorting the stock would be a good hedge -- seems like a risky proposition. 

Quote
If an applicant passes the initial credit screening criteria, the applicant is assessed by Lending Club’s proprietary scoring models which can either decline or approve the applicant. The initial scoring model provides the applicant with a score, which when combined with the applicant’s FICO score and certain other credit attributes arrives at a Model Rank. The Model Rank is based upon an internally developed algorithm which analyzes the performance of Borrower Members and takes into account the applicant’s FICO score, credit attributes, and other application data. The Model Rank is between 1 and 25 and corresponds to a Base Risk Sub-Grade as follows:
This is what I was talking about.  It wasn't like this before.

nscap

  • Newbie
  • *
  • Posts: 3
    • View Profile
Re: Verified income
« Reply #16 on: April 02, 2013, 06:09:19 PM »
Thanks for the enlightening discussion... Rawraw to your point, I guess I am just a little wary of trying to equate to RMBS as in this case, there is no collateral behind the LC loans at all. So, sans that, I feel like the only real form of analysis one can do is income. I guess the flip side is the borrower can lose their job and the income could disappear which is perhaps somewhat analogous to house prices dropping in 08 blowing up the collateral on the loans, but I guess that is just an inherent risk with this kind of investing?

That may have made more sense in my head than typing it out...

rawraw

  • Hero Member
  • *****
  • Posts: 2570
    • View Profile
Re: Re: Verified income
« Reply #17 on: April 02, 2013, 06:49:15 PM »
Thanks for the enlightening discussion... Rawraw to your point, I guess I am just a little wary of trying to equate to RMBS as in this case, there is no collateral behind the LC loans at all. So, sans that, I feel like the only real form of analysis one can do is income. I guess the flip side is the borrower can lose their job and the income could disappear which is perhaps somewhat analogous to house prices dropping in 08 blowing up the collateral on the loans, but I guess that is just an inherent risk with this kind of investing?

That may have made more sense in my head than typing it out...

The problem is for prime borrowers, it annoys them to ask for too much information. They'll quit and get financing elsewhere

Iris

  • Newbie
  • *
  • Posts: 1
    • View Profile
    • Email
Re: Verified income
« Reply #18 on: May 31, 2013, 12:59:05 PM »
My analysis of the data has shown a marked difference in default rates between
verified and unverified loans in the  same class--this is especially true for
the lower classes. Verified loans do better.
 
LC's prospectus says that they verify 60% of loan applications, and in an NYT
article from a couple of years ago, Lending Club’s co-founder, Renaud Laplanche
explains LC's verification policy, saying: "The main reason why we do not
perform income verification on 100% of the loans is to avoid adverse selection:
the borrowers who have perfect credit history and do not exhibit any particular
risk factors (who fall into the 40% we do not verify) are also those who have
the least tolerance for a cumbersome income verification process, and are most
likely to abandon that process and seek funding elsewhere. They are, however,
the exact kind of borrowers we want to retain."
 
Unfortunately, Laplanche's explanation does not make much sense to me given
other LC data. First, while the group of preferred borrowers is estimated at 40%
of the loan applications, LC accepts only about 10-15% of its loan applications.
If we make the plausible assumption that LC would want to accept loans from
among their better applicants, then the funded loans should only be taken from
among the unverified group--contrary to what the data shows. Any ideas as to how
to resolve the apparent inconsistency?
 
Irit

core

  • Hero Member
  • *****
  • Posts: 1784
  • Your loss is my gain
    • View Profile
Re: Verified income
« Reply #19 on: May 31, 2013, 01:14:27 PM »
Since nowadays loads are fully funded WAY before verification is complete, I don't see why any of this matters now.  If you stick with verified loans only then you'll get a great return on $0 invested.

Might be an interesting academic discussion but I'm more interested in making money.

Laslow

  • Newbie
  • *
  • Posts: 22
    • View Profile
Re: Verified income
« Reply #20 on: May 31, 2013, 02:21:22 PM »
Although we're no longer able to use income verification as a criteria for filtering, I feel it still has it's uses. How many loans are declined because they failed income verification? We don't have access to this info, but I bet that verification has saved us from many defaulted notes.

core

  • Hero Member
  • *****
  • Posts: 1784
  • Your loss is my gain
    • View Profile
Re: Verified income
« Reply #21 on: May 31, 2013, 03:07:59 PM »
How many loans are declined because they failed income verification? We don't have access to this info

Sure we do.  It's in the prospectus.  40% of all loans selected for verification do not pass.  As I have written before elsewhere, that either says something good about LC's selection algorithm, or something very bad about the honesty of these borrowers.