Lend Academy Network Forum
Lending Club Discussion => Investors - LC => Topic started by: avid investor on December 14, 2014, 07:30:42 PM
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So, now that we can get the latest status and payment information for each of the notes we hold through the new API, it's no longer necessary to download the .CSV all the time to get the info. Yeah! Among other things (like calculating ROI), I want to get better aging info for past due accounts beyond "31 -120 days". Always thought that was BS, as it tells you nothing about the trends in your notes (like are you going to have a huge write-off next month, or is this amount more evenly distributed 30/60/90/120?
So, in order to break this down, I considered using "today - last payment date = days old". Well, that's only true if the borrower pays the full amount each month until they just stopped paying. If they fall 90 behind, then make a single payment, they're still 60 days behind when the payment was only 20 days ago. So, obviously that is wrong.
Then, I thought that I would determine the aging by amount expected to-date vs. amount paid, using the method:
1) determine "loan performance days" as TODAY - issue date of the loan
2) determine "loan performance months" as "loan performance days" / 30 (truncated to the lower integer)
3) multiply amortized monthly payment by # of loan performance months to get to "payments expected to date"
4) determine payment amount past due by "payments expected to date" - (loan performance months X monthly payment amount)
5) months behind = total past due / monthly payment amount
This seems to work quite well, until I came across a loan (#1539580) where the borrower fell behind, made a huge payment, and then has skipped the last two payments. Of course, he is past due because payments are due each month (you can't just pay ahead). However, LC shows him as 31-120 when my method, of course, has him 7 months ahead.
Bottom line is, will LC write this guy off if he makes no payments for 3 more months, or will they let him go as long as he is ahead of the amortization schedule?
Anybody know?
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I have tried to work it out and got no place. Since it's LendingClub Math® that really shouldn't be a surprise.
See also:
http://www.lendacademy.com/forum/index.php?topic=2731.0
http://www.lendacademy.com/forum/index.php?topic=1797.0
http://www.lendacademy.com/forum/index.php?topic=595.0
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This seems to work quite well, until I came across a loan (#1539580) where the borrower fell behind, made a huge payment, and then has skipped the last two payments. Of course, he is past due because payments are due each month (you can't just pay ahead). However, LC shows him as 31-120 when my method, of course, has him 7 months ahead.
There is a "water-fall" logic on how loan payments are usually applied, roughly:
1. outstanding fees
2. accrued interests of prior months
3. principal payments of prior months
4. accrued interest of current month
5. principal payment of current month
6. prepayment of principal
If the payment is large enough to reach step 6 above, the loan is made Current, and the principal is reduced by the excess from step 5. There is no such thing as 7-month ahead of Current.
Once a loan is Current, if there is no payment again in the next 2 months, the loan will still be considered late (although at lower outstanding principal than scheduled).
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Always thought that was BS, as it tells you nothing about the trends in your notes (like are you going to have a huge write-off next month, or is this amount more evenly distributed 30/60/90/120?
You can consider this as a "queuing theory" / Markov Chain problem, when loans move from one status to the next with some probabilities. You should be able to calculate the transition probabilities from the payment history file.
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This seems to work quite well, until I came across a loan (#1539580) where the borrower fell behind, made a huge payment, and then has skipped the last two payments. Of course, he is past due because payments are due each month (you can't just pay ahead). However, LC shows him as 31-120 when my method, of course, has him 7 months ahead.
There is a "water-fall" logic on how loan payments are usually applied, roughly:
1. outstanding fees
2. accrued interests of prior months
3. principal payments of prior months
4. accrued interest of current month
5. principal payment of current month
6. prepayment of principal
If the payment is large enough to reach step 6 above, the loan is made Current, and the principal is reduced by the excess from step 5. There is no such thing as 7-month ahead of Current.
Once a loan is Current, if there is no payment again in the next 2 months, the loan will still be considered late (although at lower outstanding principal than scheduled).
Thanks Fred. As I said, I know that they require a payment each month regardless of how much has been paid previously. I was simply stating with reference to an amortization schedule. So what you are saying is basically "yes", that the borrower would be defaulted and written off in the scenario I provided.
To truly age a loan that has gone from behind to excess principle paid, to behind again, you would then have to switch to methods back to the first one I stated above. In other words, look at the last payment date.
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Always thought that was BS, as it tells you nothing about the trends in your notes (like are you going to have a huge write-off next month, or is this amount more evenly distributed 30/60/90/120?
You can consider this as a "queuing theory" / Markov Chain problem, when loans move from one status to the next with some probabilities. You should be able to calculate the transition probabilities from the payment history file.
Again, my goal is not to address probabilities of payment. It is simply to track trends. For that purpose, I am less concerned with "this loan" than "how many" are 30/60/90/or 120 days behind. Since this is the largest "bucket" of delinquent loans for any account (simply because it spans the largest time period - the others are in grace, 16-30 days, and eventually default), it is more useful to break down the loans into more traditional aged receivables categories if you want to see if this is a tidal wave of the future (i.e. your LC investment model is collapsing) or just a blip from a bad season (i.e. people going broke over Christmas).
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I have tried to work it out and got no place. Since it's LendingClub Math® that really shouldn't be a surprise.
See also:
http://www.lendacademy.com/forum/index.php?topic=2731.0
http://www.lendacademy.com/forum/index.php?topic=1797.0
http://www.lendacademy.com/forum/index.php?topic=595.0
Interesting that in topic 2731, Fred advocates using the Last Payment Date. But as I said, that's not reliable when the last payment didn't bring the loan current. I think you would really have to use a combination of both methods I described. Use the amortization method until you encounter a note that would otherwise compute as "paid ahead", and then for that note, use the date comparison method. Does that make sense?
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Since LendingClub uses a bank to do the origination, it probably complies to the retail classification guidelines of banks. In that, it will have things like the 90% payment or multiple payment rules. See if this makes it work:
https://www.fdic.gov/regulations/laws/rules/5000-1000.html
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There is no such thing as 7-month ahead of Current.
Not necessarily. Here's a loan didn't get Charged Off for NINE MONTHS after they stopped paying. It might just be a coincidence, but up until then they had been making increased payments. Of course, it could have been Late that whole time, I'm not sure (is there a way to go back in time a get a snapshot of a loan?)
https://www.lendingclub.com/account/loanPerf.action?loan_id=663493&order_id=1255433¬e_id=3619200
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Yeah, that seems to be true. I finished implementing my two-phase aging methodology, and spot-checked against loan payment histories in LC. This method works regardless of whether the loan was (essentially) paid ahead, always late, late-then-made-current-and-now-again-late, etc. and gives a more accurate look on where your delinquencies are in the process. The worst that can happen here is if someone had paid a lot down earlier on, and then became late. The alternate method kicks in and shows him (say) 60 days late, and it will age to 120+ of course eventually. Then, if LC doesn't charge it off (as in the one you mention here), it will just stay in the 120+ category, which is still accurate with LC accounting, since they put the loan into the 31-120 category in the first place at a time when the amortization schedule would have considered it "current".
Note that I am only adjusting aging for the notes that have been thrown in the 31-120 category. The rest I leave alone with LC's designation.
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You can consider this as a "queuing theory" / Markov Chain problem, when loans move from one status to the next with some probabilities. You should be able to calculate the transition probabilities from the payment history file.
Again, my goal is not to address probabilities of payment.
Implicit in my statement is actually the concept of "probability of default", which is a fundamental metric used on most models.
However, you might be addressing the problem differently.
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There is no such thing as 7-month ahead of Current.
Not necessarily. Here's a loan didn't get Charged Off for NINE MONTHS after they stopped paying. It might just be a coincidence, but up until then they had been making increased payments. Of course, it could have been Late that whole time, I'm not sure (is there a way to go back in time a get a snapshot of a loan?)
https://www.lendingclub.com/account/loanPerf.action?loan_id=663493&order_id=1255433¬e_id=3619200
I checked the payment history file, that loan was Current until 2014-03-01 with payment of $71, and then no payment in March and jumped to Late (31-120 days) on 2014-04-01.
The payment file contains monthly snapshots, so it does not have the granularity of mid-month status changes. Since March is a 31-day month, setting the status to Late31-120 on Apr-1 was possible.
I need to leave (for work :P), I'll check again why it didn't get charged off until 9 months.
The loan was never in any "n-month ahead of Current." ;-)
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Only allow me to attach one file at one post. Here is another one. The one I bought after huge payment and got charged it off.
https://www.lendingclub.com/account/loanPerf.action?loan_id=2836994&order_id=15324433¬e_id=17205290
You didn't have to attach the .pdf files; the note links suffice.
Now that you did, we know your first name. ;-)
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This one is Prosper, not LC, but I have one where the borrower made a large payment back in Feb 14 and since that payment was made the loan has shown the principle balance as 6 cents and the next payment is 7 cents not due until May of 2016.
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I've seen this kind of thing before. Here's what I think happens. (hypothetical) The guy set up a separate bank account for his LC loan payment. He was often a little late transferring the monthly payment into this account, so payments completed in grace period several times. The guy makes a big payment that he THINKS has paid off the loan, but actually the extra interest from those slightly late payments have added up and he needs to pay a little more. He gets pissed that LC continues to try to draw money, calls him, etc, so he closes the account and tells them to go to hell.