Author Topic: wide range of FICO scores for A loans  (Read 3862 times)

twigster

  • Jr. Member
  • **
  • Posts: 95
    • View Profile
    • Email
wide range of FICO scores for A loans
« on: September 27, 2017, 12:40:51 PM »
I started converting over my portfolio to A loans since December of 2016.  At that time I had basically no A loans, now I have about 1100.  Since they are all fairly new loans (just reinvesting to buy new A loans), there haven't been that many bad loans yet, so far there are 6 in late 16+ through charged off.  I notice that there is a tendency for the bad loans to have lower initial fico scores (say 680-684) and the initial FICO range is very broad for A loans in general. 

I will note that I backtested screening on FICO in nsr and that screening on FICO has a slight negative outcome historically.

Yesterday I did a screen on existing loans to invest in with FICO greater than 750.  Most of those returned were A loans, although there was a wide range.  There were even some E and F loans in there.  I didn't see right off why the E and F loans with above a 750 FICO would be assigned that grade level.  I have attached screen shots of two of the these high FICO high interest rate loans.

I have general confusion of how lending club uses FICO in the underwriting process and why certain loans with lousy FICO could get an A grade and loans with really good FICO could get a E grade.  I would expect the assigned grade to be more correlated with FICO than it appears to be.  An insights appreciated.


nonattender

  • Hero Member
  • *****
  • Posts: 725
  • I am not here.
    • View Profile
Re: wide range of FICO scores for A loans
« Reply #1 on: September 27, 2017, 02:12:51 PM »
They're going to hate me for using this analogy, but, you know how there's a certain amount of rat-dropping that's acceptable in hotdogs?

Suspect the same thing is going on here - kinda like mixing up a bucket of paint - you add enough of everything in the bucket to hit target percentage, after losses, and there's your bucket of A's.

Now, this works out fine if everyone gets, say, 100 A's - but when further "filtering" is applied on top of this - whether by the sophisticates or the naive - then it's possible to get a bucket full of paint that has a sufficient number of the wrong pigment flakes in it that the color is a mismatch to the desired shade.

I can write that in the parlance, if I want, but I figure it's better just to let the analogy stand and have you guys think about it for yourselves.
A little nonsense now and then is relished by the wisest men.

Fred93

  • Hero Member
  • *****
  • Posts: 2231
    • View Profile
Re: wide range of FICO scores for A loans
« Reply #2 on: September 27, 2017, 02:59:10 PM »
Yes, there is a wide range of FICO scores present within each loan grade.  Last year I did a little analysis of this and was shocked by the spread.  Here's the chart I made.



By the way, here's an old long thread about this:  http://forum.lendacademy.com/index.php/topic,4149.0.html
« Last Edit: September 27, 2017, 03:11:24 PM by Fred93 »

rawraw

  • Hero Member
  • *****
  • Posts: 2792
    • View Profile
Re: wide range of FICO scores for A loans
« Reply #3 on: September 30, 2017, 01:52:09 PM »
FICO doesn't have the income data. I suspect this is a key variable (DTI, etc) that allows low FICO in A. Not positive though

twigster

  • Jr. Member
  • **
  • Posts: 95
    • View Profile
    • Email
Re: wide range of FICO scores for A loans
« Reply #4 on: September 30, 2017, 03:34:57 PM »
Quote
FICO doesn't have the income data. I suspect this is a key variable (DTI, etc) that allows low FICO in A. Not positive though



I did take a closer look, the one bad loan with a very low FICO did have $7,500 per month income and also it was verified income.  So I would agree that it does look like this is a factor.  They must be underwriting 'correctly' in that by backtesting higher FICO scores on nsr yields lower results.  I am still though starting to screen on FICO as these (nsr) are historical results and the differential in results is not that great.   

rawraw

  • Hero Member
  • *****
  • Posts: 2792
    • View Profile
Re: wide range of FICO scores for A loans
« Reply #5 on: October 01, 2017, 12:40:23 AM »
Quote
FICO doesn't have the income data. I suspect this is a key variable (DTI, etc) that allows low FICO in A. Not positive though



I did take a closer look, the one bad loan with a very low FICO did have $7,500 per month income and also it was verified income.  So I would agree that it does look like this is a factor.  They must be underwriting 'correctly' in that by backtesting higher FICO scores on nsr yields lower results.  I am still though starting to screen on FICO as these (nsr) are historical results and the differential in results is not that great.   

Be careful with back testing, since rates have changed. You want to look at loss rates and compare them to current pricing.

lascott

  • Hero Member
  • *****
  • Posts: 1433
    • View Profile
    • Appreciate my post and want to try LendingRobot? URL below
Re: wide range of FICO scores for A loans
« Reply #6 on: October 03, 2017, 09:24:32 PM »
By the way, here's an old long thread about this:  http://forum.lendacademy.com/index.php/topic,4149.0.html
From that other thread. I was surprised that there would be some below 700.
---
LendingRobot presented criteria across grades in another way that I liked some time ago.
FICO is one of my note purchasing criteria.  I have a floor for each grade I invest in. To me it shows insight into a historical behavioral pattern. Yes, I realize it can be manipulated but I go with the bell curve.

Image: http://i.imgur.com/K0PIELI.png

Tools I use: (main) BlueVestment: https://www.bluevestment.com/app/pricing + https://www.interestradar.com/ , (others) Lending Robot referral link: https://www.lendingrobot.com/ref/scott473/  & Peercube referral code: DFVA9Y

SeanMCA

  • Full Member
  • ***
  • Posts: 200
    • View Profile
    • deBanked
    • Email
Re: wide range of FICO scores for A loans
« Reply #7 on: October 04, 2017, 09:55:08 PM »
whoa!

Yes, there is a wide range of FICO scores present within each loan grade.  Last year I did a little analysis of this and was shocked by the spread.  Here's the chart I made.



By the way, here's an old long thread about this:  http://forum.lendacademy.com/index.php/topic,4149.0.html

I'm a merchant cash advance veteran exploring the p2p lending waters.