Author Topic: 2015 & recent loan quality  (Read 38654 times)

Rob L

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Re: 2015 & recent loan quality
« Reply #75 on: December 05, 2016, 04:47:19 PM »
I was wondering how much help higher interest rates will be in offsetting the degraded loan quality.
The following table provides an interesting look at cumulative charge off rate versus interest rate.
The numbers look reasonable but I really didn't know what to expect.



LC forecasts "D grade" loans to have a future cumulative charge off rate of 15.1%.
That's an average and isn't broken down by subgrade that I have found.

Rates comparison now and two years ago:
                    Int Rate     Int Rate
 Subgrade      Today      Nov 2014
 ----            ----------   -----------
  D1             16.99%      15.59%
  D2             17.99%      15.99%
  D3             18.99%      16.49%
  D4             19.99%      17.14%
  D5             21.49%      17.86%

The current interest rates at a cumulative charge off rate of 15% put annualized returns in the +5.07% to +9.72% range.
Should the cumulative charge off rate rise to 19% those returns drop to the 1.88% to 6.45% range. That would be a very big increase.
Break even starts at a cumulative annual charge off rate of 21%.
At its worst in 2008 cumulative charge offs for D loans was 23%. F loans reached 33%.
However, we all know that there is nothing constant about D or F except the letter so comparisons are difficult.

For the same cumulative charge off rate of 15% the annualized returns given the Nov 2014 interest rates is in the 4% to 6% range.
At 19% charge offs the 2014 interest rates return break even to 2.79%.

PhilGD

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Re: 2015 & recent loan quality
« Reply #76 on: December 06, 2016, 03:36:08 PM »
I was wondering how much help higher interest rates will be in offsetting the degraded loan quality.
The following table provides an interesting look at cumulative charge off rate versus interest rate.
The numbers look reasonable but I really didn't know what to expect.

Hi Rob, thanks for the great table you put together. Can you explain the calculations you're using to get to annualized return given cumulative charge off rates and interest rates? Thanks!

Rob L

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Re: 2015 & recent loan quality
« Reply #77 on: December 06, 2016, 05:00:29 PM »
I was wondering how much help higher interest rates will be in offsetting the degraded loan quality.
The following table provides an interesting look at cumulative charge off rate versus interest rate.
The numbers look reasonable but I really didn't know what to expect.

Hi Rob, thanks for the great table you put together. Can you explain the calculations you're using to get to annualized return given cumulative charge off rates and interest rates? Thanks!

Sure. Given the original loan(s) amount (this amount is arbitrary), annual interest rate, term and service fee I compute the total net amount received for loan(s) that fully perform and mature. I multiply that amount by (1 - cumulative charge off percentage) giving the total amount received net of fees and charge offs. Finally, I compute the interest rate that produces that amount received given the original loan(s) amount and term.

The Excel formula in the upper left cell (Interest Rate 6%, Charge Offs 0%) (C7) is:
=RATE($B$2,-((($B$2*(-PMT(($B7/12),$B$2,$B$1)*(1-$B$3)))*(1-C$6))/$B$2),$B$1)*12
This is copied and pasted to all the other cells.

Where:
$B$1 is the original loan(s) amount
$B$2 is the term in months
$B$3 is the service fee %

C$6  is the Cumulative Charge Off Row (C6, D6, ... L6)
$B7  is the Interest Rate Column (B7, B8, ... B26)

PhilGD

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Re: 2015 & recent loan quality
« Reply #78 on: December 07, 2016, 12:37:17 AM »
I was wondering how much help higher interest rates will be in offsetting the degraded loan quality.
The following table provides an interesting look at cumulative charge off rate versus interest rate.
The numbers look reasonable but I really didn't know what to expect.

Hi Rob, thanks for the great table you put together. Can you explain the calculations you're using to get to annualized return given cumulative charge off rates and interest rates? Thanks!

Sure. Given the original loan(s) amount (this amount is arbitrary), annual interest rate, term and service fee I compute the total net amount received for loan(s) that fully perform and mature. I multiply that amount by (1 - cumulative charge off percentage) giving the total amount received net of fees and charge offs. Finally, I compute the interest rate that produces that amount received given the original loan(s) amount and term.

The Excel formula in the upper left cell (Interest Rate 6%, Charge Offs 0%) (C7) is:
=RATE($B$2,-((($B$2*(-PMT(($B7/12),$B$2,$B$1)*(1-$B$3)))*(1-C$6))/$B$2),$B$1)*12
This is copied and pasted to all the other cells.

Where:
$B$1 is the original loan(s) amount
$B$2 is the term in months
$B$3 is the service fee %

C$6  is the Cumulative Charge Off Row (C6, D6, ... L6)
$B7  is the Interest Rate Column (B7, B8, ... B26)

Gotcha, thanks for the explanation! I didn't know about that =RATE formula before, so this is really helpful.

jennrod12

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Re: 2015 & recent loan quality
« Reply #79 on: December 08, 2016, 01:33:53 PM »
Awesome chart, Rob - thank you!

Jenn

Rob L

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Re: 2015 & recent loan quality
« Reply #80 on: January 05, 2017, 09:11:50 AM »
From my December statement. A forward looking case for cautious optimism?



rawraw

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Re: 2015 & recent loan quality
« Reply #81 on: January 05, 2017, 10:10:56 AM »
Do you  have any idea what that % would have been in 09ish?  And yes, your chart seems to be a good thing.  Fingers crossed!

BruiserB

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Re: 2015 & recent loan quality
« Reply #82 on: January 05, 2017, 01:08:32 PM »
From my December statement. A forward looking case for cautious optimism?



Does "Late" include In Grace Period?  Or only >16 days?  If the latter, then I am at 5.6% right now as well....I'll have to look back a few months and see if I see a similar trend.

Rob L

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Re: 2015 & recent loan quality
« Reply #83 on: January 05, 2017, 08:20:10 PM »
Do you  have any idea what that % would have been in 09ish?  And yes, your chart seems to be a good thing.  Fingers crossed!

Nah; I started in '13and the data are from my statements. Surely would have been much uglier.

Rob L

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Re: 2015 & recent loan quality
« Reply #84 on: January 05, 2017, 08:31:59 PM »
Does "Late" include In Grace Period?  Or only >16 days?  If the latter, then I am at 5.6% right now as well....I'll have to look back a few months and see if I see a similar trend.

In Grace Period are not included. LC considers these to be performing loans on our monthly statements. Only 16> days are included as late. So, it looks like our numbers this month are similar.

fliphusker

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Re: 2015 & recent loan quality
« Reply #85 on: January 05, 2017, 11:16:24 PM »
One of the fun pitfalls I learned early on with FOLIO.  Notes showing Never Late but had IGP. 
Does "Late" include In Grace Period?  Or only >16 days?  If the latter, then I am at 5.6% right now as well....I'll have to look back a few months and see if I see a similar trend.

In Grace Period are not included. LC considers these to be performing loans on our monthly statements. Only 16> days are included as late. So, it looks like our numbers this month are similar.

AnilG

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Re: 2015 & recent loan quality
« Reply #86 on: January 06, 2017, 07:55:38 AM »
Let me guess you restarted purchase of new notes in October. What the chart would look like if you exclude the notes purchased since your restarted? I am betting not good.

From my December statement. A forward looking case for cautious optimism?
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Rob L

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Re: 2015 & recent loan quality
« Reply #87 on: January 06, 2017, 09:07:38 AM »
Let me guess you restarted purchase of new notes in October. What the chart would look like if you exclude the notes purchased since your restarted? I am betting not good.

From my December statement. A forward looking case for cautious optimism?

Yeah, that's the $64,000 question. What would it look like if I had simply continued to reinvest the entire period? Too many moving parts to know, but eventually it will level off or increase and it will be a good bet the transient is past. Of course the only way to transfer this chart into profitability is to include my WAIR which should should be increasing. I need to chart that too.

rawraw

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Re: 2015 & recent loan quality
« Reply #88 on: January 06, 2017, 10:42:51 AM »
Let me guess you restarted purchase of new notes in October. What the chart would look like if you exclude the notes purchased since your restarted? I am betting not good.

From my December statement. A forward looking case for cautious optimism?

Yeah, that's the $64,000 question. What would it look like if I had simply continued to reinvest the entire period? Too many moving parts to know, but eventually it will level off or increase and it will be a good bet the transient is past. Of course the only way to transfer this chart into profitability is to include my WAIR which should should be increasing. I need to chart that too.
Use vintages to calculate it or exclude the new notes under a certain ageb

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MarinBB

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Re: 2015 & recent loan quality
« Reply #89 on: January 06, 2017, 02:09:44 PM »

Use vintages to calculate it or exclude the new notes under a certain ageb


Has anyone found use for the Portfolios feature on LC? The Portfolio view has a WAIR for the subset of notes in the portfolio. I've thought about slicing my notes in vintage-specific portfolios to get LC to give me returns by vintage. I didn't do it because it seems operationally tedious.

While it's possible to tag a portfolio for a new bid in the API, I don't see how to move an existing note into a portfolio. One can use the website to do this, but there it's not easy to sort existing notes by Issue Date so that one can checkmark them and transfer them into the right Portfolio. The only thing i can think of is to use the Notes Export File to figure out which Note IDs fall into each calendar quarter and then use the website to checkmark IDs that fall into the appropriate calendar date bucket. Surely there's a better way...