Author Topic: What percent of IGP notes will default?  (Read 1391 times)

mark78

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What percent of IGP notes will default?
« on: March 06, 2018, 07:01:59 PM »
I've started buying statistically significant numbers of notes on the secondary market in the past two months. Based on LC historical data, I expect a certain number of defaults. So far, I have no defaults, but several have gone into the grace period (IGP) for the first time. What percent of those should I expect to eventually default?

Anil has https://www.peercube.com/blog/category/peercube/10 that suggests 41% if I read it correctly, but I think it's based on notes that both originated and terminated in 2014- probably a skewed dataset.

In case it matters, I buy mostly EFG grade, 60 months, never late.

Fred93

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Re: What percent of IGP notes will default?
« Reply #1 on: March 06, 2018, 08:38:17 PM »
Go to this page... https://www.lendingclub.com/info/demand-and-credit-profile.action
Click on the "loan statistics" tab.
Scroll to the bottom of the page.

There you will find a chart "loan status migration" which shows you the statistics for chargeoffs of loans that enter certain statuses. 

It says that net 30% of in-grace-period loans charge off.

There's also a link below the chart which gives you more detailed information.

I would guess that the number would be higher for EFG loans, but that is a guess.  I have no evidence.  Further it is almost impossible to get evidence, because the IGP status is not encoded into the historica loan payments file that Lendingclub makes public.  For other statuses, such as 30-days-late, one can use Lendingclub's numbers from the chart, or calculate your own numbers from the loan payments file.  Not so for IGP.

pressure9pa

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Re: What percent of IGP notes will default?
« Reply #2 on: March 06, 2018, 09:36:18 PM »
What percent of those should I expect to eventually default?



Of course this is not the whole answer either.  A note that becomes current, pays for many months, and then later defaults performs much better than a note that goes into the grace period, and then no further payments are received. 

I'm not suggesting that you're not accounting for that difference, only that your literal question would put both of the examples above in the same category of "eventually defaults".

mark78

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Re: What percent of IGP notes will default?
« Reply #3 on: March 07, 2018, 02:43:36 AM »
Thanks Fred93. I've become used to slicing and dicing myself, so haven't looked at that page in a while. If I multiply my IGPs by 30%, it matches my predicted number of defaults, so that's reassuring.

AnilG

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Re: What percent of IGP notes will default?
« Reply #4 on: March 07, 2018, 05:46:28 AM »
There are lot of caveats to all the numbers and sources mentioned before.

1. Lending Club statistics is based on amount lost and not count of loan defaulted. LC mentions 30% default from IGP that means amount lost was 30%. The actual number of loans defaulted will be higher as some loans may have made some repayments.

2. Lending Club statistics are only for defaults happening within 9 months after loan entered IGP. If an IGP loan doesn't default within 9 months, it is not part of this statistic. This number will always be lower than the actual IGP loans that "eventually" default.

3. The actual IGP to default will most probably be higher than quoted in PeerCube post as that post only covered a short period after loan origination and didn't consider eventual outcome of all loans originated in the time period that went IGP and eventually then to Default or Fully Paid.

All defaulted and late loans at one time or another were in IGP status. So a better statistics is IGP loans that eventually fully paid.
« Last Edit: March 07, 2018, 06:42:32 AM by AnilG »
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Anil Gupta
PeerCube Thoughts blog https://www.peercube.com/blog
PeerCube https://www.peercube.com

Rob L

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Re: What percent of IGP notes will default?
« Reply #5 on: March 07, 2018, 09:32:16 AM »
I would guess that the number would be higher for EFG loans, but that is a guess.  I have no evidence.

We do have some pretty strong anecdotal evidence the number is higher for at least F and G. It's well known that LC recently decided to stop offering these two risk grades to individual investors. Could be wrong but I don't think it was because they were outperforming their expectations regarding lender returns.

mark78

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Re: What percent of IGP notes will default?
« Reply #6 on: March 07, 2018, 04:01:15 PM »
I don't intentionally target E, F, and G. I have a model based on the historical data that takes into account the expected charge-off rates over time (although not the effect pressure9pa mentions), and the model picks the secondary notes with the highest expected returns. I'd buy A-grade or Z-grade notes if I thought they had the highest expected ROI. I don't think LC says anything about expectations regarding lender returns on the secondary market- there are too many other factors including number of payments already made, markup/discount, never-late, and change in credit rating.