Author Topic: 2015 & recent loan quality  (Read 54771 times)

.Ryan.

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Re: 2015 & recent loan quality
« Reply #15 on: October 12, 2016, 03:36:27 PM »
I would think that if total portfolio returns stay in the 4-5% range for too long, LC is going to have a very difficult time attracting more capital to fund their loans, from whatever source. I don't think that is near enough of a risk premium for retail or institutional money. If they don't quickly bump their rates or get their underwriting back to where returns get back to around 7%, I won't matter that they hired a "Chief Capital Officer".

100% Agree.

I doubt the recession that many analysts forecast in the next 1-2 year future will help these returns either.

Booleans

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Re: 2015 & recent loan quality
« Reply #16 on: October 13, 2016, 08:05:42 AM »
I doubt the recession that many analysts forecast in the next 1-2 year future will help these returns either.

Haven't "the analysts" been forecasting a recession in the next 1-2 years since the economy started recovering in 2009?

justice42

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Re: 2015 & recent loan quality
« Reply #17 on: October 13, 2016, 09:52:17 AM »
I doubt the recession that many analysts forecast in the next 1-2 year future will help these returns either.

Haven't "the analysts" been forecasting a recession in the next 1-2 years since the economy started recovering in 2009?

And the day it happens (it will eventaully) they'll scream I WAS RIGHT! regradless of the fact they were 10 - 20 years early. Shouldn't go off on a tangent, but there is ALWAYS someone screaming recession, if you always listen to them, you'll never invest or make any money.

Everyone please ignore this post as it's a highjack of the thread.

anabio

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Re: 2015 & recent loan quality
« Reply #18 on: October 13, 2016, 03:25:40 PM »

And the day it happens (it will eventaully) they'll scream I WAS RIGHT! regradless of the fact they were 10 - 20 years early. Shouldn't go off on a tangent, but there is ALWAYS someone screaming recession, if you always listen to them, you'll never invest or make any money.

Everyone please ignore this post as it's a highjack of the thread.

Then why did you respond to it???
As Will Rogers stated: : I'm not as concerned about the return on my money as I am the return of my money

nonattender

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Re: 2015 & recent loan quality
« Reply #19 on: October 13, 2016, 05:56:11 PM »
James Wu at Monja wrote a blog entry about this awhile back.  He filtered by various credit parameters vs time, and found that around mid April 2016, there is some sort of change in LC's population where there are fewer high DTI and high Inquiries_last_6_months.  That's evidence of a change in underwriting of some sort, but it isn't clear exactly what changed.
https://www.monjaco.com/blog/changes-in-lending-club-underwriting-looking-beneath-the-headlines/

Wu's observations aren't the final word on the problem, because I never invested in that corner of credit variables, yet my account is certainly affected (ie my delinquent fraction has grown).

Those are variables one might target to compensate for FICO scoring models that are failing to discount for a CC->installment event, yes?

And the global effect - reflecting a possible FICO inflation across ALL credit grades - seems, also, to fit in with the FICO scoring issue, right?
A little nonsense now and then is relished by the wisest men.

Fred93

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Re: 2015 & recent loan quality
« Reply #20 on: October 14, 2016, 12:01:54 AM »
Those are variables one might target to compensate for FICO scoring models that are failing to discount for a CC->installment event, yes?

And the global effect - reflecting a possible FICO inflation across ALL credit grades - seems, also, to fit in with the FICO scoring issue, right?

In another thread, nonattender has expounded on his theory that some recent changes in borrower behavior (taking out installment loans to pay down credit cards) has confused the FICO scoring algorithms possibly inflating scores of some unworthy folk, and creating this problem. 

Well, maybe, but if that were the case, I would think we'd see it in behavior of consumer loans and credit card accounts at banks, but we don't.  Here's the St Louis Fed delinquency data (not seasonally adjusted).  The last data point is 2016Q2.  Delinquency rates at banks look level, or maybe even still coming down, plus or minus a little seasonal wiggle and noise.

These are whole portfolio numbers, not broken out by vintage.  However, if recent vintages were "bad", you would certainly see the whole portfolio numbers go up, yet we don't.   :o
« Last Edit: October 14, 2016, 12:05:38 AM by Fred93 »

Fred93

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Re: 2015 & recent loan quality
« Reply #21 on: October 14, 2016, 12:11:44 AM »
If the Fed's data isn't good enough, the American Banker's Association does their own survey, and it says installment loan delinquency is at lowest point in the last 15 years. 

Something is different at Prosper and Lending Club vs the banks.
« Last Edit: October 14, 2016, 12:13:59 AM by Fred93 »

nonattender

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Re: 2015 & recent loan quality
« Reply #22 on: October 14, 2016, 12:59:03 AM »
Ok, I warned you.
A little nonsense now and then is relished by the wisest men.

Fred93

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Re: 2015 & recent loan quality
« Reply #23 on: October 14, 2016, 01:34:43 AM »
Ok, I warned you.

To be clear... I'm not sayin' you're wrong.  I'm looking for evidence that might confirm your idea.

Fred93

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Re: 2015 & recent loan quality
« Reply #24 on: October 14, 2016, 01:51:14 AM »
Here's the chart that got me started on this quest to understand the recent changes in loan quality. 

I want to show you that LC's delinquency ratio is no longer tracking the delinquency ratio at banks.  I don't have LC's whole portfolio delinquency numbers vs time.  I suppose I could compute them, but its a big pain in the ass to do.  I do have what I think is an excellent proxy for same.  LC runs a fund called the "Lendingclub Advisors Broad Based Consumer Credit fund".  Sometimes LC documents refer to it as LCBBCCQ.  Its essentially an index fund holding all the grades etc of LC loans.  The fund's monthly reports show the $ late and current, so it was easy to compute the delinquency ratio each month.  I show data thru the August report.  The September report will be available in mid-November.   

I've plotted the all consumer loan "all banks" delinquency ratio computed by the Federal Reserve on the same chart.  This is computed quarterly.  The last point is 2015Q2.  Q3 number will come out in November.

You can see the two curves sorta undulate together, until something changed in April 2016.  The fed curve is drifting downward.  LC's curve is drifting slowly upward, but nothing dramatic until April 2016 when something changes.  Delinquency for my own portfolio took a similar turn at the same time.  (I haven't shown my portfolio here tho.)  When I saw that both my portfolio and LC's broad based portfolio both took a turn at the same time I knew it wasn't just something I'd done.  That's when I started looking more closely into delinquency by vintage, and picked up on the stuff I showed earlier in this thread.



Man, look at that bend in the curve at 04/2016.  That's just dramatic.  You can stand back 10 feet and still see it. 

jpildis

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Re: 2015 & recent loan quality
« Reply #25 on: October 14, 2016, 09:23:33 AM »
I believe all of the bad press about LC has, at the margins, impacted borrowers willingness to stay current on loans.  The vast majority of borrowers wouldn't change their behavior but it only takes a few percent to really move the dial. Furthermore, I'm guessing all of the turmoil has slowed down LC's responsiveness to deal with EFT issues and slow payers.

Rob L

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Re: 2015 & recent loan quality
« Reply #26 on: October 14, 2016, 11:58:44 AM »
Man, look at that bend in the curve at 04/2016.  That's just dramatic.  You can stand back 10 feet and still see it.

Not certain of your date axis labels. The first huge jump is shown by the dot on the 05/2016 line, not 04/2016.
Since the Fed data is quarterly it appears the dots on the axis intervals represent the data for that month (Q1 is months 01, 02 and 03).
If the LC monthly data is aligned with the Fed then the first huge jump is in the data for the month 5/2016; correct?
If so it indicates the dramatic ramp up began in the same month that LC's troubles began (i.e. 5/9/2016).
Correlation isn't causation, but seems to be quite a coincidence.

Fred93

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Re: 2015 & recent loan quality
« Reply #27 on: October 14, 2016, 03:42:00 PM »
Man, look at that bend in the curve at 04/2016.  That's just dramatic.  You can stand back 10 feet and still see it.

Not certain of your date axis labels. The first huge jump is shown by the dot on the 05/2016 line, not 04/2016.

Yes.  I said 4/2016 just because that's where the "elbow" in the curve is.  I probably should have said 5/2016.  The 5/2016 dot represents the state of the portfolio at the end of May, and is the first dot that jumps up.


Quote
indicates the dramatic ramp up began in the same month that LC's troubles began (i.e. 5/9/2016).
Correlation isn't causation, but seems to be quite a coincidence.

That thought had crossed my mind, but I don't know what it might mean.  The thing that happened 5/9 was the resignation of Laplanche.  I don't see how that could cause loans to go bad.  It does seem possible that it could have worked the other way around.  The quest for increased volume might have led to loosening underwriting criteria which might have led to increase delinquencies in newer vintages which might have led to or added to the board's unhappiness with the CEO.  All speculative tho.  I find no evidence for causation.

Frankly I don't understand how it is possible for that statistic to change so fast.  If you look at the delinquency by vintage curves at the beginning of this thread, none of them contain such an "elbow".  They are all smooth.  The fund was adding new loans continuously, thus moving into new vintages smoothly.  How could the fund's delinquency make such a radical change all of a sudden?  Bit of a head scratcher. 

RT45

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Re: 2015 & recent loan quality
« Reply #28 on: October 14, 2016, 05:01:32 PM »
Formerly a "Certified FICO Professional", whatever that means.

I agree with with nonattender that the movement of credit card debt into installment loans is a risk for FICO models.

Traditionally it was assumed that installment loans were more safe or beneficial for scoring, and generally accompanied some type of asset, be it a car, home or degree.

If borrower behavior remains the same and the credit card debt is simply transferred from revolving to installment resulting in a significant FICO increase, then the risk is mis-priced and those borrowers will appear more "safe" than they actually are as a result of refinancing their credit card debt with an installment loan.

nonattender

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Re: 2015 & recent loan quality
« Reply #29 on: October 14, 2016, 05:05:48 PM »
Ok, I warned you.

To be clear... I'm not sayin' you're wrong.  I'm looking for evidence that might confirm your idea.

Look for online cc/debtcon specific feedback loops.  Here's the analogy that came to my mind:

One can drink their own piss, when lost at sea, to stay hydrated - but the more cycles one runs, the less liquidity one will get from it.

I don't think looking at macro data will be helpful for diagnosing this; I think you have to look at the online ships recycling borrowers.

Good luck.  LC out with an 8-K a minute ago, raising rates even higher...  I have no agenda against LC; I'm still holding shares btw...
A little nonsense now and then is relished by the wisest men.