Author Topic: Explain My Charge Offs!  (Read 6737 times)

SteveAReno

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Explain My Charge Offs!
« on: June 21, 2016, 08:38:25 PM »
I just started paying closer attention to who stopped paying and I was shocked.  I have eight charge offs.  I have two A2s, one A5, and a B1.  Those all had really decent FICO scores.  What could go wrong so soon in their loans?  A loan or finance officer gets to hear why they stopped paying their loan. Any way for me to learn and pick better?  But what could go wrong with an A2? that's CRAZY.Would a person like this be able to apply for another LC loan?  They ought to have Red stars by their name or some signal.
« Last Edit: June 22, 2016, 07:36:45 AM by SteveAReno »

PhilGD

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Re: Explain My Charge Offs!
« Reply #1 on: June 21, 2016, 10:58:59 PM »
All loan grades are subject to the risk of default. Even amongst A1 loans, default rates are higher than 1%. Borrowers can stop paying their loan for any number of reasons including things we have no hope of predicting such as death, medical emergencies, and divorce.

rawraw

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Re: Explain My Charge Offs!
« Reply #2 on: June 22, 2016, 04:03:47 AM »
I understand this stuff can be confusing to net savers and people without lending experience, but let me try to explain.  There is a reason why no one on this forum funds their account with 1 or 2 loans.  While this would be the most efficient way to deploy cash, it is extremely risky.  There is no way to know who is going to pay you and who will not on Day 1.  What we have to rely on, is that historical performance of certain characteristics informs future performance.  So while we can't predict which A notes will default, we can say with statistical certainty the charge-off rate of a portfolio of diversified A notes will likely fall in a certain range given an economic assumption.  This is different, as it is based on historical relationships and assuming those relationships have not changed. 

When managing your consumer credit portfolio, you should be paying attention to "portfolio" characteristics.  This will give you the best idea of what your expected charge offs should be and if you are above or below that target. 

This is why I divide my LC investments by risk in varying portfolios.  It makes it easy for me to judge the FICO, DTI, Employment, etc. of individual strategies and spot when I'm being too aggressive or not aggressive enough in credit risk.

Feel free to ask if you have any other questions

SteveAReno

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Re: Explain My Charge Offs!
« Reply #3 on: June 22, 2016, 07:43:48 AM »
I understand there would be defaults. But not so many in the A category.   So, Is there a way to get the reason for the specific Charge Off?  Did he/she go bankrupt, lose a job, get greedy, or die?  Regular loan personnel at a bank or finance company would be able to find or determine the cause and learn from it-well not when someone dies but could see a pattern.   
« Last Edit: June 22, 2016, 07:45:35 AM by SteveAReno »

rawraw

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Re: Explain My Charge Offs!
« Reply #4 on: June 22, 2016, 07:57:53 AM »
I understand there would be defaults. But not so many in the A category.   So, Is there a way to get the reason for the specific Charge Off?  Did he/she go bankrupt, lose a job, get greedy, or die?  Regular loan personnel at a bank or finance company would be able to find or determine the cause and learn from it-well not when someone dies but could see a pattern.
No, no reason besides the collection logs tell you if bankrupt occurs. And you have to define the word many. This was 2 out of how many? And how old is your portfolio? A young portfolio and a small portfolio will exhibit much more noise than a seasoned one

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dbailey75

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Re: Explain My Charge Offs!
« Reply #5 on: June 22, 2016, 10:39:10 AM »
I think I had one default because the borrower died, RIP. can't argue with that one.

fliphusker

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Re: Explain My Charge Offs!
« Reply #6 on: June 22, 2016, 11:44:35 AM »
I understand there would be defaults. But not so many in the A category.   So, Is there a way to get the reason for the specific Charge Off?  Did he/she go bankrupt, lose a job, get greedy, or die?  Regular loan personnel at a bank or finance company would be able to find or determine the cause and learn from it-well not when someone dies but could see a pattern.
If you get a bankruptcy it will look like this, "6/7/16 (Tuesday)    Borrower provided Bankruptcy counsel information".  My nice lil straight roller after one payment.  My account if not very old, not even three months and not big, so these hurt a lot early.  Dropped mine 5% as I will not see a dime back from it. 

SteveAReno

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Re: Explain My Charge Offs!
« Reply #7 on: June 22, 2016, 11:44:49 PM »
I have 164 loans with 8 charge offs.  I am getting over 200 loans very soon when the transfer is complete.  Half of the charge offs were people that looked really good so I was just surprised.  My current return is 7.7I do feel much better after talking to LC customer service.  They showed me how to drill down to the collection notes and get a better feel for what happened.

I hope the loans gone bad are reported to the credit bureaus by LC.   I have read some other pier lending companies are not very good at reporting. 

RaymondG

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Re: Explain My Charge Offs!
« Reply #8 on: June 23, 2016, 10:55:49 AM »
I have 164 loans with 8 charge offs.  I am getting over 200 loans very soon when the transfer is complete.
The charge-off ratio is really high for a young account.  Maybe just not luck. But I am seeing a surging lates/charge-offs in my account in past 30 days.

SteveAReno

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Re: Explain My Charge Offs!
« Reply #9 on: June 24, 2016, 08:36:52 AM »
Anyone:
What is the benchmark or what is considered an average "Charge Off" ratio?  Raymond says mine is really high for a young account -4.8% of my accounts. 
I started loaning in early 2014.

rawraw

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Explain My Charge Offs!
« Reply #10 on: June 24, 2016, 10:23:36 AM »
Go to LendingClub statistics page and do a weighted average default rate based on each grades default rate and the composition of your portfolio

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Fred93

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Re: Explain My Charge Offs!
« Reply #11 on: June 24, 2016, 03:30:27 PM »
Anyone:
What is the benchmark or what is considered an average "Charge Off" ratio?  Raymond says mine is really high for a young account -4.8% of my accounts. 
I started loaning in early 2014.

Be careful.  Many people calculate different numbers and call them "default ratio" or "charge off ratio" or "loss ratio".  There is considerable confusion.

The useful number is ANNUAL loss ratio.  The numerator is net losses  in one year, and the denominator is your account balance.

Net losses means chare-offs minus recoveries.

Such an annual ratio is in a form that is intuitive, because you can directly compare it to another annual ratio ... the interest rate on your loans!

On the other hand, some people calculate ratios for all time, which gives different people different numbers because different people have accounts of different ages.  Other people calculate ratios for the life of a loan.  (LC publishes such numbers in their annual report.)  This confuses people because you haven't held all your loans for their entire life.  You can take the cumulative default numbers LC gives you and estimate a reasonable annual default ratio from them. 

Finally, different people will have different loss ratios because we have different grades of loan.

Average annual loss ratios go from 1.7%/year for A to 11%/year for F.  The average for C is 5.24%.  My goal is to be under 4.5%