Author Topic: Offering Hardship Plans for Borrowers and Protecting Returns for Investors  (Read 19979 times)

jheizer

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At Lending Club, we are committed to improving experiences for both borrowers and investors. We're excited to announce that after a beta test, we will begin offering hardship plans to borrowers effective May 4, 2017. Hardship plans allow borrowers to temporarily make interest-only payments to accommodate an unexpected life event. As part of this change we are also making additional data fields related to these plans available for investors.
 
Lending Club continuously looks to put lending industry best practices to work. Hardship plans are commonly offered to borrowers in the lending industry because they allow borrowers time to adjust to a life event (like a medical emergency, temporary job loss, unexpected car or home repairs, death in the family, or other events). Hardship plans are in accordance with commercially reasonable efforts to service and collect on loans, as well as with our prospectus, which provides us flexibility to work with a borrower to structure a new payment plan if needed.
 
Our hardship plan program specifically targets borrowers who are more likely to return to repaying their loan. Under the plan, borrowers are allowed to temporarily make interest-only payments for a period of 3 months to accommodate an unexpected life event. After 3 months, regular payment terms and obligations resume. Only borrowers who fulfill specific characteristics (such as a demonstrated history of repayment) and who claim a hardship will be offered plans. Importantly, borrowers' loans must be either current or between 1 and 30 days past due to qualify for a hardship plan.
 
We believe the hardship program will work to protect investor returns as borrowers whose loans may otherwise progress to charge-off status have the opportunity to make interim payments and some portion may revert to current status.
 
Finally, we are adding 15 new data attributes of borrowers who utilize hardship plans to investor reports and the API. The fields will only apply for hardship plans offered as of May 4, 2017 and going forward. You can find more information on these new data fields here.
 
Offering hardship plans is both consistent with our values - doing the right thing by borrowers while they're getting back on their feet - and helps to protect investor returns. We will potentially look to expand to different types of hardship plans in the future as we gain further insight into borrower behavior and continue to listen to customer feedback.
 
Please feel free to reach out with any questions - we welcome your feedback.
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jheizer

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I'm not smart enough to know if this is really a good thing or not.  If they are going to file for bankruptcy one full payment may be better than two or three interest only payments. Etc.
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Fred93

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They will find out. 

Probably good to try things to find out what happens. 

I put in a question asking how this affects folio.

anabio

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Hey...looks like LC is taking my advice that I gave about six months ago in this thread: http://forum.lendacademy.com/index.php/topic,4065.msg37293.html#msg37293

I thought and still think it is a good deal for both borrowers and lenders. It won't help me any because the vast majority of my loans have only 1 to 2 more months left before payoff.
As Will Rogers stated: : I'm not as concerned about the return on my money as I am the return of my money

jheizer

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On second thought as I sit here finalizing my 2016 taxes, I'll take any pennies back that I can get.
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fliphusker

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They will find out. 

Probably good to try things to find out what happens. 

I put in a question asking how this affects folio.
What do you mean with your question?
I am sure Dr Everett is much more anxious about this than I am. But I expect this to probably break FOLIO for a few days/week. I am going to assume LC gave them a heads up about this awhile back so they could get fields ready. Or will they simply ignore these new fields like they do so many other fields? This would be a perfect time for FOLIO to revamp their site, but we all know that will not occur.
I will be very interested to see how PC, LR and NSR will handle this.
jheizer-I will take 3 interest only payments, generally, over one full payment before  BK.
I am very curious to see the FOLIO discounts for these. I am ok with risk, but see these as too risky to go after no matter what their excuse is. Curious to see how others will discount these notes. (Had a terrible month in March and could have used it to start then.)
But realistically most of the higher rate loans, this will not slice off much of the total payment within the first few years. I see this used much more on low-interest loans or loans maybe later in their maturity when the principle is the main thing being paid back.

rawraw

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This would be worrisome for other forms of credit to me. But given the fact it's unsecured loans and the recovery rate seems really low anyway, this seems like a good idea. Seems much more beneficial to borrowers than lenders though.

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Fred93

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You are all reacting as if this MEANS SOMETHING.  It is possible that LC's words mean nothing at all, and essentially nothing has changed.

Borrowers could always pay less than owed.  Didn't need a plan.  This meant they went late.

Borrowers could always negotiate a "payment plan", which also meant they went late.

Borrowers will now be able to negotiate a "hardship plan", which I believe will mean that they go late.

What has changed?

The words on the developer pages say that the hardship plan WILL NOT CHANGE existing fields.  That can be interpreted several different ways.  One interpretation is that a loan will still go IGP, Late, default, etc when it is past due on the original terms.

If that is the correct interpretation, then nothing has changed, except some different words are exchanged between LC and the borrower.  Perhaps this is just a way to make borrowers more aware that instead of just stopping payment, they can make partial payments.

Of course it is impossible to know if my tentative interpretation is correct, because LC HAS NOT EXPLAINED HOW THIS IS GOING TO WORK.  They just defined some new data fields and presumed that no explanation is necessary.

I doubt if any external software/service providers are going to update their software until they gain more understanding of how this actually works.  In other words, there are many questions, such as: When a borrower starts a hardship plan, and pays less than the agreed upon payment, does the loan transition to "IGP", "Late", etc, or does the loan status stay "current"?  Will the new hardship fields be available to folio customers?  ...or will I be surprised to learn that a note I just bought is on a hardship plan?  If the loan status transitions thru "IGP", "Late", "Default" as it would have before the hardship plan, is there a difference in what happens after default?  Does the hardship plan change the timing of charge-off?  What happens after charge-off?  Does recovery work the same way?

If the answer to all these questions is "same", then nothing has really changed, and the program is mostly in your imagination.

In fact, in the past some of you have argued that it is difficult to learn which loans are on a "payment plan", as the info is hidden in the loan detail page, which you cannot access via API.  Perhaps all they have done here is make that info more explicit. 

If the answer to any of those questions is that loans stay in the "current" status, or the delinquency is otherwise hidden, then I think we all have huge problems with this.

The above list of questions is not exhaustive.  It is not my job to elucidate how the hell this thing works by asking questions.  I find it offensive to be forced to play "20 questions" to learn how something works.

LC needs to wake up and explain themselves.  The problem is that from the inside they don't understand when they need to explain or document something like this. 

Historically, we learn how some new feature works by waiting until it starts running, and observing the data.  That's how we learned how the "joint" loans worked, for example.  The documentation there was similarly inadequate.


jheizer

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Historically, we learn how some new feature works by waiting until it starts running, and observing the data.  That's how we learned how the "joint" loans worked, for example.  The documentation there was similarly inadequate.

That's kind of what I decided last night.  I started writing an email to them and was like screw it.  Not worth the time.  I'll just see and go from there. 
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Osito

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I have one that went late now shows current and states that they are on payment plan.  Just FYI I have a total of 114 notes of these 5 paid 1 late on payment plan and the other late.  It is noted if they are on payment plan on notes

Fred93

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I have one that went late now shows current and states that they are on payment plan

Please look at the numbers.  Are they in fact current to the original loan terms?  It is my understanding that the loan status indicates whether they are current to the original loan terms, independent of the "payment plan".

Osito

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I have one that went late now shows current and states that they are on payment plan

Please look at the numbers.  Are they in fact current to the original loan terms?  It is my understanding that the loan status indicates whether they are current to the original loan terms, independent of the "payment plan".

It shows 16-30 days late but they are on a payment plan.  With the next payment not being until 5/3/17.  ( this is the most current one). But I do have another one that was late but that one now is on payment plan and is showing current. 

Fred93

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I have one that went late now shows current and states that they are on payment plan

Please look at the numbers.  Are they in fact current to the original loan terms?  It is my understanding that the loan status indicates whether they are current to the original loan terms, independent of the "payment plan".

It shows 16-30 days late but they are on a payment plan.  With the next payment not being until 5/3/17.  ( this is the most current one). But I do have another one that was late but that one now is on payment plan and is showing current.

Ok, so you just refuse to look at the numbers and tell us what the loan's situation is relative to the original terms?

fliphusker

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Talked to my girl today at LC (ya still trying to get the funky FICO score thing solved). So talked to her a bit about how things would work for hardship plans.
These are very different than how Payment plans work. Payment plans allow you to pay less but your loan is not extended. Payment plan you pay less but have to get the full payments caught up to come out of IGP or whatever state it is in.

They do not replace repayment plans.
We know that Hardship plan is 3 months. It is only the interest paid during those months. (so would be basically ridiculous for anyone to use one of these the first year or so.) Three months get tacked onto the end date of the loan. So a 36-month loan would become 39-month loan. Same way with 60-63.
The borrower can not be 30 days past due on the note and can not be in default.
The borrower once they enroll in the plan and make their first payment they revert back to current status for their loan. I did not ask but my assumption is that they will be clearly marked on the note like repayment plans are.

As we see from the following fields, we will get some info at least on what is going on with them.
Hardship_Type Describes the hardship plan offering
Hardship_Reason Describes the reason the hardship plan was offered

Anyone with a majority of their notes with age on them should be very happy with this. As a FOLIO buyer who does not buy notes within the first year, I am very satisfied with this. I will take 3 months of interest payments even if they declare BK after.

Fred93

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Talked to my girl today at LC (ya still trying to get the funky FICO score thing solved). So talked to her a bit about how things would work for hardship plans.

Thank you.  This clarification is helpful.


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The borrower once they enroll in the plan and make their first payment they revert back to current status for their loan.

Whoa!  So this totally changes the meaning of "current" in the status field !!!  Presuming this is correct, we'll have to alter all the back-testing software everywhere to work differently, etc.  Same for folio buying, eh?

"current" now means that you are complying with the original terms, making payments on time per the original terms.  You're saying it will no longer mean this.  Holy cow.




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As we see from the following fields, we will get some info at least on what is going on with them.
Hardship_Type Describes the hardship plan offering
Hardship_Reason Describes the reason the hardship plan was offered

Yea.  There are FIFTEEN new fields re the hardship program.  Did you notice that there are TWO start dates?  Wow.  It isn't clear to me yet how to logically combine these fields to obtain information we used to rely on.  Such as... "loan is current", or "never late", etc.  The hardship fields tell you when the hardship program begins and ends, so even tho these fields are present, you might be beyond the hardship program, in which case "current" really will mean current?  ... but wait... it would be "current with interest an allowed 3 month delay"... but at least means the borrower is paying full sized payments again, right?