Author Topic: My secret weapon for lower defaults  (Read 4993 times)

priuspilot

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My secret weapon for lower defaults
« on: October 27, 2012, 09:06:37 AM »
English.

You can have a great credit report, but if you're too lazy to write 1-3 sentences stating the purpose of the loan, why would I lend money to you? Even something simple like "This loan is to lower the rate on 3 credit cards I have."

Also, if you're borrowing at 20% interest to consolidate your student loans? You're either full of it and using it for something else, or you're seriously financially inept and will probably get into worse financial trouble somehow.

/rant

Wrats6

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Re: My secret weapon for lower defaults
« Reply #1 on: October 27, 2012, 11:35:09 AM »
PriusPilot - I agree 100 percent, especially on describing the purpose of the loan.  So what is your default rate with these secret weapons?

1000Ways

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Re: My secret weapon for lower defaults
« Reply #2 on: November 02, 2012, 09:34:35 PM »
How about spelling and grammar?  Any correlation with defaults and proper English? (as I double check my post for mistakes...)

nonattender

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Re: My secret weapon for lower defaults
« Reply #3 on: November 03, 2012, 02:01:08 PM »
Years ago, during Prosper 1.0, some of the lenders did a regression analysis on listing descriptions - not terribly deep, not terribly scientific - which found high correlation between use of words like "desperate" (or other variations on the spelling of that word :), "payday", "help", and - the real killer - "god" (as in, "God bless you!")...  I hand read listings, to this day, and rarely see such, but definitely do a double-take the rare times that I do.

One thing I think some of you are missing (and it's fun to watch since I came to the realization (the hard way) during Prosper 1.0) happens to be that a lot of the people - especially those in the higher risk categories - are not as "sophisticated" as you now are.

Ergo, when I see things like "forced discipline" of refinancing, say, a couple of 25% cards and a 29.99% card into a fixed rate, 3yr, amortized loan, at a similar (or higher) rate, I'm not terribly shocked - and I'm not exceptionally leery of this behavior, most cases.

Your mileage may vary, but, occasionally, hyper-rationality about others also being rational can be the knife that cuts your throat!
A little nonsense now and then is relished by the wisest men.

Peter

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Re: My secret weapon for lower defaults
« Reply #4 on: November 03, 2012, 09:27:20 PM »
There is a blogger who has focused on word use in Lending Club loan descriptions. I don't use this kind of analysis but I know many investors who really like it. Check it out here if you are interested:
http://lendingtuber.blogspot.com/
Publisher of the Lend Academy blog

See my returns here: http://www.lendacademy.com/returns

lendingtuber

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Re: My secret weapon for lower defaults
« Reply #5 on: November 05, 2012, 09:47:16 AM »
To my mind using loan description lengths has been counterintuitive. My initial research seemed to indicate that the shorter the loan description the more likely a loan was to be paid or current. It's definitely worth doing your own research on the numbers before using description length as a strategy.

Here's what I found about a year ago:
For Lending Club: http://lendingtuber.blogspot.com/2011/09/loan-description-length-lending-club.html
For Prosper: http://lendingtuber.blogspot.com/2011/09/loan-description-length-prosper.html
For Prosper by Credit Grade: http://lendingtuber.blogspot.com/2011/09/loan-description-length-by-credit-grade.html


The new site Interest Radar seems to indicate a similar pattern for Lending Club loans with their "None", "Short", and "Long" description lengths:
http://www.interestradar.com/analysis?DescriptionLevel=0&DescriptionLevel=1&DescriptionLevel=2&ShowBreakdown=1&SortColumn=1

Words like "payday," while not used very often, still seem to be indicative of failure to payback loans: http://shoofile.com/loanwords/lendingclub/payday.html

I've set up a site where anyone interested can see how the payback of common words in Lending Club titles and descriptions is related to loan payback rates: http://shoofile.com/loanwords/index.html I've actually been working on an update for the site to include loan description length information, but I don't know when I'll have a chance to complete it.

Peter

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Re: My secret weapon for lower defaults
« Reply #6 on: November 05, 2012, 03:49:33 PM »
Thanks for chiming in. I am sure many people will find this interesting.
Publisher of the Lend Academy blog

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priuspilot

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Re: My secret weapon for lower defaults
« Reply #7 on: November 05, 2012, 04:27:02 PM »
Ok, this is turning everything I thought I knew upside down. I just used the interest radar filter and it confirms what you said: loans with NO description had a lower loss % than those with a full one

lendingtuber

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Re: My secret weapon for lower defaults
« Reply #8 on: November 07, 2012, 10:05:50 AM »
I'm still working on separating out the data by grade, but I just did a quick-and-dirty look across all loans and have uploaded new pages to the word analysis site:

Lending Club loans with a completely blank description: http://shoofile.com/loanwords/lendingclub/%5B%5B%5B%5B%5BBLANK%5D%5D%5D%5D%5D.html

Lending Club loans with a description 400 characters or less: http://shoofile.com/loanwords/lendingclub/%5B%5B%5B%5B%5BDESC400%5D%5D%5D%5D%5D.html

Lending Club loans with a description more than 400 characters:
http://shoofile.com/loanwords/lendingclub/%5B%5B%5B%5B%5BDESCLONG%5D%5D%5D%5D%5D.html

Even across the years the trend seems the same: the longer the description the less likely a loan is to be paid back. It's also interesting to note that the average grade of loans with more than 400 characters is a C2 whereas the average grade for listings with 400 characters or less is C1 (which is Lending Club's overall grade average, too.)

nonattender

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Re: My secret weapon for lower defaults
« Reply #9 on: November 07, 2012, 03:32:45 PM »
Different borrower funnels / levels of information prompting, per credit grade, is my "hidden variable" guess.  ;)
A little nonsense now and then is relished by the wisest men.

lendingtuber

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Re: My secret weapon for lower defaults
« Reply #10 on: November 07, 2012, 08:16:26 PM »
Different borrower funnels / levels of information prompting, per credit grade, is my "hidden variable" guess.  ;)

If this were true I think we'd expect to see a higher average grade for no-description loans vs. 400 character or less loans vs. 401 or more loans. Instead we see no-description loans with an average grade of C1, <=400 character loans with an average grade of C1 and >400 character loans with an average grade of C2 (Lending Club has a C1 average overall, if my calculations are correct.)

Though in this case the median loan grade for each group would likely be more informative.

graceful

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Re: My secret weapon for lower defaults
« Reply #11 on: December 16, 2012, 04:06:30 PM »
I'll chime in (since I'm doing such a good job of avoiding the bookkeeping I'm supposed to be doing).

Loans that fund with no description have strong enough data that they attract investors. The rest fail to fund and when they come back, will write a description (maybe).

The long descriptions tend to bely the lie. When you tell me three things that don't make sense, I don't trust you.

Anything that is odd should be explained. But when I took out a test loan for myself, I discovered that I had to write the description without being able to see any of the data. So we can't expect borrowers to be exact in responding to the numbers.

Graceful
Off to do the bookkeeping before the Packer's game is over and I have to leave the office