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Lending Club Discussion => Investors - LC => Topic started by: Fred93 on October 31, 2016, 05:25:03 AM

Title: LC FICO vs Loan Grade
Post by: Fred93 on October 31, 2016, 05:25:03 AM
For awhile now I've noticed how each LC loan grade is spread across a wide range of FICO scores.  Justifiable, I suppose, because Grade is a better indicator of LC loan loss than FICO IMHO.  On the other hand investors seem to go nuts over that FICO up/down indicator on the secondary market, as if it were a very sensitive indicator.  I dunno.  I don't have a conclusion here.  I just present a chart...

(https://forum.lendacademy.com/proxy.php?request=http%3A%2F%2Ffred93.com%2Ffbi%2FLC-FICO-vs-Grade-2016-10.png&hash=06e3776b2eeb0d3bf6d99b1b92837983)

Those are mostly 5 point buckets.  The software I used didn't want to play nice, so it made a couple of 10 point buckets over on the right side.  Sorry about that.  Doesn't change the picture much tho.
Title: LC FICO vs Loan Grade
Post by: rawraw on October 31, 2016, 07:27:42 AM
I think you are focusing on level. Early on in my financial career I was told to always look at level and trend. So level is the FICO score. It is a measure of risk. So that level is spread across grades. So what about trend?

Other than payment, FICO is the only variable that updates. If the loans were regraded each month, this would likely be more predictive. But given its all that we have, what information does the trend convey? I believe it conveys how risk has changed since the loan was made. Credit scores have a monthly standard deviation of like 20 points IIRC. I only care about trends outside this normal range. And I believe it conveys very meaningful information, especially for debt consolidation loans, both in the first few months (showing evidence funds were used as disclosed) and over the life as the borrower goes delinquent on other debts, takes new debts out, etc. 

I made my initial decision based on a level of risk. If that risk is gotten worse, then there is a chance the yield is no longer good enough. If I was presented with that loan today, would I still make it? If the answer is no, that loan is sold without hesitation.

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Title: Re: LC FICO vs Loan Grade
Post by: Fred93 on October 31, 2016, 09:03:57 AM
Other than payment, FICO is the only variable that updates.

I get that.  However, that doesn't mean that it is useful or that it if it is that it is obvious how to use it.

I'm not trying to press a point or present a conclusion here.  I made that chart as part of developing an understanding of how to use FICO scores. 

Quote
what information does the trend convey? I believe it conveys how risk has changed since the loan was made.

Good story.  Sounds like there could be some truth to it, but that doesn't make it so.

Quote
I made my initial decision based on a level of risk. If that risk is gotten worse, then there is a chance the yield is no longer good enough.

That statement is correct, obviously.  The question is whether moderate changes in FICO can be used to make an indicator that makes us money.  Giant changes in FICO are surely meaningful, because I see them in so many loans that go bad.  A guy drops by 150 points, that loan is gonna croak.  (except I had one that didn't)   It isn't clear tho whether you can get an indication early enough to do anything useful. 

Is a moderate change in FICO a good indicator that will make us money?  I don't yet know.

It would appear that you and I agree that small changes in FICO are unlikely to be useful indicators.

So as you can see from the chart, a borrower could have had an initial FICO anywhere from 660 to 815, and still could have been graded "A", and gotten the lowest interest rates.   (A range of 155 points - or maybe more!)  Astonishing but true.

Suppose Joe's score was 750 when he took out the loan.  Now, a year or two later, his FICO score drops by say 50 points, and suddenly you think you need more interest?  Maybe you do.  Maybe it dropped because something bad happened.  However, on the day the loan issued, he could have had a FICO of 700 and still got the same exact interest rate. How come that interest rate was good enough then for a guy with a 700 FICO then, and suddenly its not good enough for a guy with 700 FICO now?

This inconsistency makes me unhappy.

I'm glad you mention the noise level (standard deviation) in FICO scores.  That's an important piece of understanding how to use them.  I don't claim to have the rest of the pieces yet.

I know many people talk about "FICO trend", as if they can look at those curves of FICO vs time and learn something.   I have a conceptual problem with that.  I see patterns too, just like everybody else, but I don't know that they are meaningful.  Here's the thought experiment that makes me a skeptic:  The history of FICO vs time is known to the credit reporting agency that computes the current FICO score.  They're pretty smart, and would use every piece of information they have to compute the current FICO score, and make it as good a predictor of future default as possible.  This means that if there is useful information in the shape of the curve, they have already used that information to come up with the latest FICO score.  If that's right, you can look at the shapes and "see things", but they will provide you no useful information.

Title: Re: LC FICO vs Loan Grade
Post by: lascott on October 31, 2016, 09:37:37 AM
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
(https://forum.lendacademy.com/proxy.php?request=http%3A%2F%2Fi.imgur.com%2FK0PIELI.png&hash=ecc41692318b5a539d7917cfcb412891)
Title: Re: LC FICO vs Loan Grade
Post by: Rob L on October 31, 2016, 10:01:57 AM
Funny, but I just happened to run an interesting test yesterday that seems to be relevant here. It was a quick and dirty test and may have been flawed so take the result with that in mind! Caveat Emptor. Still ...

The hypothesis tested was that a drop of N FICO points below FICO edit of previous month for a Never Late loan could serve as a leading indicator to sell that loan. Since the loan is Never Late it should be possible to sell it on Folio at a discount no worse than -9% and avoid a potentially much larger loss if/when the loan charged off. From the pmthistall.csv file I extracted all vintage 2013 Q1, grade D term 36 month loans. All are fully matured now (either Fully paid or Charged off). Bottom line was that I could find no value for N that resulted in improved profitability. I did not search for a sales discount less than -9% that would make this a profitable strategy and think it unlikely one exists. It wasn't even close.

Title: LC FICO vs Loan Grade
Post by: rawraw on October 31, 2016, 10:53:03 AM
Have you read this yet?

https://www.peercube.com/blog/post/fico-score-trends-and-defaults-for-lending-club-loans

And I wish there was a way to automate the FICO spike detection. When my account was only a few hundred notes, I monitored it and sold those that didn't spike or started to lose the spike. But it's impossible with thousands of notes.

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Title: Re: LC FICO vs Loan Grade
Post by: Rob L on October 31, 2016, 11:06:57 AM
Have you read this yet?
https://www.peercube.com/blog/post/fico-score-trends-and-defaults-for-lending-club-loans

Yeah, quite a while ago. The take away points must have still been in my head; thus the Caveat Emptor.
There is still more work that can be done here.

PS: I took a look at my spreadsheet and noticed that I was measuring month to month spikes, not from origination.
Not necessarily an invalid criteria, but certainly a different one.
Title: Re: LC FICO vs Loan Grade
Post by: jz451 on October 31, 2016, 12:30:34 PM
I wonder if trying to determine an n level of FICO drop of each month for each grade would be a better determining factor, so say a loan is 6 months old w/ an a score at origination of 670, at month 7-n what would the score have be to indicate a possible default?
Funny, but I just happened to run an interesting test yesterday that seems to be relevant here. It was a quick and dirty test and may have been flawed so take the result with that in mind! Caveat Emptor. Still ...

The hypothesis tested was that a drop of N FICO points below FICO edit of previous month for a Never Late loan could serve as a leading indicator to sell that loan. Since the loan is Never Late it should be possible to sell it on Folio at a discount no worse than -9% and avoid a potentially much larger loss if/when the loan charged off. From the pmthistall.csv file I extracted all vintage 2013 Q1, grade D term 36 month loans. All are fully matured now (either Fully paid or Charged off). Bottom line was that I could find no value for N that resulted in improved profitability. I did not search for a sales discount less than -9% that would make this a profitable strategy and think it unlikely one exists. It wasn't even close.


Title: Re: LC FICO vs Loan Grade
Post by: fliphusker on October 31, 2016, 03:37:05 PM
Bigger FICO drops can happen for a reason and not necessarily because of missing payments.  FICO is very sensitive to running a high balance on a CC.  I did this earlier in the year with a balance transfer card.  (Was probably really dumb to do as I do not run balances monthly.)  But I got a limit of 1k on a 0% balance transfer CC and topped it off.  My FICO dropped 47 points.  My overall utilization did not change but because I had such a high utilization on just one card it made my FICO go nuts.  The crazy thing here though that when I made a $25 payment to take the utilization under 80% my FICO jumped over 20 points.  How silly is that?  That is the problem with FICO scores is it does not tell you exactly what is going on with them. 
I do not sell my notes just because of a FICO drop, not sure where I would start selling them due to a drop.  When I buy notes on FOLIO I would not touch a down FICO of let's say 50 points in the past couple of months even with a 20% discount.  Now toss in the fact that the notes might have an IGP recently on it and that note becomes toxic for me.  I do not buy many notes on FOLIO so I can be very picky, but even with being picky I have had FOLIO notes with up FICO and perfect 15-month payment history go bankrupt out of the blue.  (Seeing more go IGP recently which has me more than a bit concerned.)
Rob makes a point where he looks at the FICO not from origination.  If I am looking at a 60 month note that the FICO score was destroyed in the first year, do I care what the original FICO score is?  Or do I only care about how the FICO has rebounded after whatever devastated the score?  I wish I knew what killed the score at the time.  CC utilization is way more favorable than missing or defaulting on payments. 
These are things that make FOLIO notes tough to buy and where the poor pricing makes it even tougher to deal with. 
Title: Re: LC FICO vs Loan Grade
Post by: Fred93 on October 31, 2016, 04:12:58 PM
Funny, but I just happened to run an interesting test yesterday...

The hypothesis tested was that a drop of N FICO points below FICO edit of previous month for a Never Late loan could serve as a leading indicator to sell that loan. ... From the pmthistall.csv file I extracted all vintage 2013 Q1, grade D term 36 month loans. All are fully matured now (either Fully paid or Charged off). Bottom line was that I could find no value for N that resulted in improved profitability.

Wow.  I've been thinking what to do and I was forming a plan to do something very much like this.  Formulate an algorithm, and then apply it to the payment history file and see if it was possible to set parameters (such as an amount of FICO drop) which allowed one to decide when to sell and improve returns.  You beat me to it!
Title: Re: LC FICO vs Loan Grade
Post by: Fred93 on October 31, 2016, 04:21:10 PM
https://www.peercube.com/blog/post/fico-score-trends-and-defaults-for-lending-club-loans

Yes.  Unfortunately, there's no "time" information in that analysis.  For all we know, the LC loan nonpayment event may be causing the FICO drop!  I need data that shows me that FICO drops BEFORE the LC loan nonpayment event, so that I could sell early and get out, or be warned before buying in.

He makes an argument that his data shows the FICO drops before default, but that's 4 months too late.  We need to know before the 1st nonpayment event.  There's no evidence in that article to help with this question.
Title: Re: LC FICO vs Loan Grade
Post by: rawraw on October 31, 2016, 04:26:33 PM
https://www.peercube.com/blog/post/fico-score-trends-and-defaults-for-lending-club-loans

Yes.  Unfortunately, there's no "time" information in that analysis.  For all we know, the LC loan nonpayment event may be causing the FICO drop!  I need data that shows me that FICO drops BEFORE the LC loan nonpayment event, so that I could sell early and get out, or be warned before buying in.

He makes an argument that his data shows the FICO drops before default, but that's 4 months too late.  We need to know before the 1st nonpayment event.  There's no evidence in that article to help with this question.
When I used to track my performance via interest radar, a significant amount of the loans I sold later defaulted

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Title: Re: LC FICO vs Loan Grade
Post by: Rob L on October 31, 2016, 04:56:15 PM
My overall utilization did not change but because I had such a high utilization on just one card it made my FICO go nuts.  The crazy thing here though that when I made a $25 payment to take the utilization under 80% my FICO jumped over 20 points.  How silly is that?

FWIW - similar story; about a year ago we got a Citibank MasterCard that pays 2% cash back on everything. The down side is that the credit limit on the Citibank card is maybe 1/3 that of several other high limit cards we have. So, we use the Citibank card for every purchase possible (we don't carry a month to month balance). In a typical month our charges are 50% of the card limit (minimum) and often 80%+. Depending on the time of the month and balance on that one card our FICO (per Credit Karma) swings up or down 30 points or more. As a percent of our total card limits the amount charged each month is gotta be 5%-10% max, but because it's all on a single card FICO goes bananas. (I know; we should get the limit upped on the Citibank card but haven't gotten around to it.)
Title: Re: LC FICO vs Loan Grade
Post by: Fred on November 01, 2016, 03:32:11 AM
Suppose Joe's score was 750 when he took out the loan.  Now, a year or two later, his FICO score drops by say 50 points, and suddenly you think you need more interest?  Maybe you do.

Yes, I do.

I compare FICO score of a borrower to credit agency's (S&P, Moody's, Fitch) rating of a company.   When, say, Moody's downgrades the rating of a company, the company's existing bond price decreases, causing the yield to go up, thus "more interest."

Title: Re: LC FICO vs Loan Grade
Post by: Fred on November 01, 2016, 03:39:11 AM
From the pmthistall.csv file I extracted all vintage 2013 Q1, grade D term 36 month loans. All are fully matured now (either Fully paid or Charged off). Bottom line was that I could find no value for N that resulted in improved profitability.

How did you measure "profitability" from pmthistall.csv file?
Title: Re: LC FICO vs Loan Grade
Post by: Fred on November 01, 2016, 03:44:20 AM
For the secondary market, IMO, loan "Status" is a more significant measure of risk than FICO score or trend.
Title: Re: LC FICO vs Loan Grade
Post by: Fred93 on November 01, 2016, 04:32:14 AM
Suppose Joe's score was 750 when he took out the loan.  Now, a year or two later, his FICO score drops by say 50 points, and suddenly you think you need more interest?  Maybe you do.
Yes, I do.

I compare FICO score of a borrower to credit agency's (S&P, Moody's, Fitch) rating of a company.   When, say, Moody's downgrades the rating of a company, the company's existing bond price decreases, causing the yield to go up, thus "more interest."

In the bond situation, interest rates are very tightly coupled to credit ratings, therefore this is a very clear relationship.

In the case of LC loans, the relationship between FICO score and the interest rates at the start of a loan is very weak.  Extremely weak.  Shockingly weak.  See the curves above.

That's a big difference.

Another difference, and I think this is central to the whole thing ... At the start of a loan, we have a lot of other information in addition to the FICO score.  Later we have nothing but the FICO score (for a current & neverlate loan).  Thus the FICO score has different value to us in these two situations.

Any quantitative evaluation of the value of the FICO score has to take into account the difference in these two situations.


Title: Re: LC FICO vs Loan Grade
Post by: fliphusker on November 01, 2016, 04:50:28 AM
Rob I have a Citi too and if they want to give me cash for using their card and not carry a balance I am solid with that.  I have numerous CC that do the same thing and I use them for different reasons during the year.  Citi is very good about upping my limit when I do not ask for it.  My credit is what is called in the garden and just growing.  I have nothing that I am going to use my credit for anytime soon.  So I am ok with whatever monthly hits I take.  If you are taking a monthly hit and utilizing that much you need to be asking for an increase.  They bumped me out of the blue to 5500 and not asking for it.  But ya see where buying on the FOLIO market is crazy as your own FICO swings. 
Ya sell on FOLIO you know it is not easy. 
My overall utilization did not change but because I had such a high utilization on just one card it made my FICO go nuts.  The crazy thing here though that when I made a $25 payment to take the utilization under 80% my FICO jumped over 20 points.  How silly is that?

FWIW - similar story; about a year ago we got a Citibank MasterCard that pays 2% cash back on everything. The down side is that the credit limit on the Citibank card is maybe 1/3 that of several other high limit cards we have. So, we use the Citibank card for every purchase possible (we don't carry a month to month balance). In a typical month our charges are 50% of the card limit (minimum) and often 80%+. Depending on the time of the month and balance on that one card our FICO (per Credit Karma) swings up or down 30 points or more. As a percent of our total card limits the amount charged each month is gotta be 5%-10% max, but because it's all on a single card FICO goes bananas. (I know; we should get the limit upped on the Citibank card but haven't gotten around to it.)
Title: Re: LC FICO vs Loan Grade
Post by: Fred93 on November 01, 2016, 05:25:47 AM
Depending on the time of the month and balance on that one card our FICO (per Credit Karma) swings up or down 30 points or more.

This is the thing we must learn to tame. 

Are you a worse credit risk on those 30 point downswings?
Title: Re: LC FICO vs Loan Grade
Post by: nonattender on November 01, 2016, 05:45:33 AM
Depending on the time of the month and balance on that one card our FICO (per Credit Karma) swings up or down 30 points or more.

This is the thing we must learn to tame. 

Are you a worse credit risk on those 30 point downswings?

I'm a "deadbeat", like Rob, who PIF every month on CC's...  I don't think I'm to be tamed, I think I'm (and so's Rob, probably) an edgecase/anomaly who would never consider borrowing money at online lender rates, so, probably very few of these in the mix.
Title: Re: LC FICO vs Loan Grade
Post by: rawraw on November 01, 2016, 06:12:09 AM
Suppose Joe's score was 750 when he took out the loan.  Now, a year or two later, his FICO score drops by say 50 points, and suddenly you think you need more interest?  Maybe you do.
Yes, I do.

I compare FICO score of a borrower to credit agency's (S&P, Moody's, Fitch) rating of a company.   When, say, Moody's downgrades the rating of a company, the company's existing bond price decreases, causing the yield to go up, thus "more interest."

In the case of LC loans, the relationship between FICO score and the interest rates at the start of a loan is very weak.  Extremely weak.  Shockingly weak.  See the curves above.
Your curves make no attestation to the relationship between FICO scores and interest rates.  You've just shown that various FICOs can fall into various grades, which is largely due to other note characteristics.  This is far from showing is it shockingly weak connection to interest rates.
Title: Re: LC FICO vs Loan Grade
Post by: Fred on November 01, 2016, 09:35:02 AM
(https://forum.lendacademy.com/proxy.php?request=http%3A%2F%2Ffred93.com%2Ffbi%2FLC-FICO-vs-Grade-2016-10.png&hash=06e3776b2eeb0d3bf6d99b1b92837983)

Perhaps it would be better if the Y-axis is % rather than $ (i.e., for each grade, show % of population of loans having the FICO score in x-axis -- the area under the curve for each grade should sum to 100%)?
Title: Re: LC FICO vs Loan Grade
Post by: Rob L on November 03, 2016, 07:29:08 PM
I put considerably more work into the problem and feel somewhat more confident in my results.
Hypothesis; sudden drop in monthly Fico score of a NeverLate suggests a potential sale on Folio to limit losses from
probable charge off is a smart move. My analysis of 2013 Q1 Grade D loans does not bear this out.
One is never better off to sell, even if a "sucker" is found to buy.

EDIT: THIS CHART IS IN ERROR AND CONTAINS A MAJOR FLAW. IGNORE IT AND SEE CORRECTION BELOW

(https://forum.lendacademy.com/proxy.php?request=http%3A%2F%2Fi.imgur.com%2FFo56oNV.png&hash=5075075f652893839a0c49e2ff86fa40)
Title: Re: LC FICO vs Loan Grade
Post by: Rob L on November 03, 2016, 07:34:09 PM
Depending on the time of the month and balance on that one card our FICO (per Credit Karma) swings up or down 30 points or more.

This is the thing we must learn to tame. 

Are you a worse credit risk on those 30 point downswings?

For the foreseeable future I am zero credit risk. Hopefully I will remain so.
Title: Re: LC FICO vs Loan Grade
Post by: Fred93 on November 03, 2016, 07:40:14 PM
Hypothesis; sudden drop in monthly Fico score of a NeverLate suggests a potential sale on Folio to limit losses from
probable charge off is a smart move. My analysis of 2013 Q1 Grade D loans does not bear this out.
One is never better off to sell, even if a "sucker" is found to buy.

Good stuff!

I notice that you used FICO change from prior month.  Can you easily change your software to do the same calc for FICO change from loan-origination-time FICO?
Title: Re: LC FICO vs Loan Grade
Post by: Rob L on November 03, 2016, 09:41:02 PM
Hypothesis; sudden drop in monthly Fico score of a NeverLate suggests a potential sale on Folio to limit losses from
probable charge off is a smart move. My analysis of 2013 Q1 Grade D loans does not bear this out.
One is never better off to sell, even if a "sucker" is found to buy.

Good stuff!

I notice that you used FICO change from prior month.  Can you easily change your software to do the same calc for FICO change from loan-origination-time FICO?

Yeah, probably look at that tomorrow; but if it works you really don't expect me to post it do you?  ;D
Title: Re: LC FICO vs Loan Grade
Post by: rawraw on November 04, 2016, 07:58:44 AM
I put considerably more work into the problem and feel somewhat more confident in my results.
Hypothesis; sudden drop in monthly Fico score of a NeverLate suggests a potential sale on Folio to limit losses from
probable charge off is a smart move. My analysis of 2013 Q1 Grade D loans does not bear this out.
One is never better off to sell, even if a "sucker" is found to buy.

(https://forum.lendacademy.com/proxy.php?request=http%3A%2F%2Fi.imgur.com%2FFo56oNV.png&hash=5075075f652893839a0c49e2ff86fa40)
I've rarely (perhaps never) in my 7 plus years had to sell a never late FICO drop at a 5 percent discount. Not sure where that came from

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Title: Re: LC FICO vs Loan Grade
Post by: Rob L on November 04, 2016, 01:59:18 PM
I've rarely (perhaps never) in my 7 plus years had to sell a never late FICO drop at a 5 percent discount. Not sure where that came from

Hypothesis; sudden drop in monthly Fico score of a NeverLate suggests a potential sale on Folio to limit losses from
probable charge off is a smart move. My analysis of 2013 Q1 Grade D loans does not bear this out.
Other Grades may perform differently.

Chart updated with spread of Folio Mkup/Disc sales values suggested by rawraw above.

EDIT: THIS CHART IS IN ERROR AND CONTAINS A MAJOR FLAW. IGNORE IT AND SEE CORRECTION BELOW


(https://forum.lendacademy.com/proxy.php?request=http%3A%2F%2Fi.imgur.com%2F8TUJtJ2.png&hash=ffa8d9260c86952c84ff4fa62b475f9e)
Title: Re: LC FICO vs Loan Grade
Post by: rawraw on November 04, 2016, 02:03:05 PM
I think that's way more useful, because it makes no assumption on price (the 0% line).  Is that still sequential change? 

How are you calculating return?  The problem is FICO drop loans have already paid interest and principal in most cases.  Not sure if you thought through how to address this
Title: Re: LC FICO vs Loan Grade
Post by: Rob L on November 04, 2016, 05:25:05 PM
I think that's way more useful, because it makes no assumption on price (the 0% line).  Is that still sequential change?
Don't understand the question regarding sequential change?
 
How are you calculating return?  The problem is FICO drop loans have already paid interest and principal in most cases.  Not sure if you thought through how to address this

Working with an extract of the latest pmthistall.csv file one monthly payment at a time. Five loans were removed from the extract as they appeared not fully matured (just data cleaning and the remaining loan total was 2337).

Buy and hold total $ received is the sum of the RECEIVED_AMT column plus sum of PCO_RECOVERY column minus sum of PCO_COLLECTION_FEE column. This total is a constant dollar value regardless of the numbers of loans sold and held.

For loans not sold the $ received is computed on a per loan basis as described above. Only NeverLate loans may be sold. For loans sold the proceeds is the sales price (remaining principal balance times 1+Mkup/Disc%) - 1% Sales Fee. There is no accrued interest and the sale is made the same month the Fico change trigger is observed.

Then I just add up the total for loans not sold and the total for loans sold to get total proceeds. Finally the percentage returns versus buy and hold is the sum of the ((proceeds from loans held and proceeds from loans sold) divided by the buy and hold total $ received) - 1.

As a sanity check setting the Fico change trigger to -500 results in no loans sold, $27,615,782.78 total proceeds from loans held which exactly matches the buy and hold total.

On the other hand setting the Fico change trigger to +500 results in 2284 loans sold AND 53 held. Who are these 53?Why did my software hold rather than sell.
Well 7 were rollers and made no payments, 16 were semi-rollers making only one payment, and 30 paid in full the first month. Since ya gotta get past month one to be Never Late these loans didn't make it. For the record if all 2284 were sold at a 5% markup it still  falls behind buy and hold by 8.71%.

Meanwhile I feel somewhat out here on a limb. The results are not what I would have expected, but they are what they are.
It would not bother me in the least for somebody out there to point out the errors of my ways. Would not be a first.
Title: Re: LC FICO vs Loan Grade
Post by: Rob L on November 04, 2016, 05:35:17 PM
Hypothesis; Drop in monthly Fico score after loan origination of a NeverLate suggests a potential sale on Folio to limit losses from
probable charge off is a smart move. Again my analysis of 2013 Q1 Grade D loans does not bear this out.
Other Grades may perform differently.

EDIT: THIS CHART IS IN ERROR AND CONTAINS A MAJOR FLAW. IGNORE IT AND SEE CORRECTION BELOW

(https://forum.lendacademy.com/proxy.php?request=http%3A%2F%2Fi.imgur.com%2FUKw5uvA.png&hash=28c88367c53d30f71cc0eb33af353e54)

Not what I would expect... Go figure...


Title: Re: LC FICO vs Loan Grade
Post by: rawraw on November 04, 2016, 08:31:08 PM
Is this analysis assuming you sell and hold cash vs holding notes to maturity or default?  It seems like from your methodology that is the case.  And these are no longer month-to-month changes in FICO, right?  Thanks for posting
Title: Re: LC FICO vs Loan Grade
Post by: Rob L on November 04, 2016, 09:13:17 PM
Is this analysis assuming you sell and hold cash vs holding notes to maturity or default?  It seems like from your methodology that is the case.  And these are no longer month-to-month changes in FICO, right?  Thanks for posting

Yes, once you have sold or the loan matured (Paid Full or Charged Off) the proceeds go to cash. End game for that investment.
Yes, the new chart is Fico change from origination to either a sell event or to maturity.
Title: Re: LC FICO vs Loan Grade
Post by: rawraw on November 05, 2016, 05:53:56 AM
Is this analysis assuming you sell and hold cash vs holding notes to maturity or default?  It seems like from your methodology that is the case.  And these are no longer month-to-month changes in FICO, right?  Thanks for posting

Yes, once you have sold or the loan matured (Paid Full or Charged Off) the proceeds go to cash. End game for that investment.
Yes, the new chart is Fico change from origination to either a sell event or to maturity.
Does that make sense? I think everyone reinvents the proceeds back into new notes.

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Title: Re: LC FICO vs Loan Grade
Post by: Rob L on November 05, 2016, 10:39:41 AM
Is this analysis assuming you sell and hold cash vs holding notes to maturity or default?  It seems like from your methodology that is the case.  And these are no longer month-to-month changes in FICO, right?  Thanks for posting

Yes, once you have sold or the loan matured (Paid Full or Charged Off) the proceeds go to cash. End game for that investment.
Yes, the new chart is Fico change from origination to either a sell event or to maturity.
Does that make sense? I think everyone reinvents the proceeds back into new notes.

Sounds like a fair point.
However, if proceeds were reinvested in similar loans using the same sell/hold strategy I don't think it would change the results.
It would just make the game go on longer (assuming I have started with a large enough sample size of loans to begin with). No?
Anyway, I'll leave proof / disproof of that up to the reader. Really a guess on my part, but I get your point.
Title: Re: LC FICO vs Loan Grade
Post by: rawraw on November 05, 2016, 11:03:10 AM
Is this analysis assuming you sell and hold cash vs holding notes to maturity or default?  It seems like from your methodology that is the case.  And these are no longer month-to-month changes in FICO, right?  Thanks for posting

Yes, once you have sold or the loan matured (Paid Full or Charged Off) the proceeds go to cash. End game for that investment.
Yes, the new chart is Fico change from origination to either a sell event or to maturity.
Does that make sense? I think everyone reinvents the proceeds back into new notes.

Sounds like a fair point.
However, if proceeds were reinvested in similar loans using the same sell/hold strategy I don't think it would change the results.
It would just make the game go on longer (assuming I have started with a large enough sample size of loans to begin with). No?
Anyway, I'll leave proof / disproof of that up to the reader. Really a guess on my part, but I get your point.
But the game going longer results in more cash flow, which is what your comparing.

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Title: Re: LC FICO vs Loan Grade
Post by: Rob L on November 05, 2016, 06:08:28 PM
Is this analysis assuming you sell and hold cash vs holding notes to maturity or default?  It seems like from your methodology that is the case.  And these are no longer month-to-month changes in FICO, right?  Thanks for posting

Yes, once you have sold or the loan matured (Paid Full or Charged Off) the proceeds go to cash. End game for that investment.
Yes, the new chart is Fico change from origination to either a sell event or to maturity.
Does that make sense? I think everyone reinvents the proceeds back into new notes.

Sounds like a fair point.
However, if proceeds were reinvested in similar loans using the same sell/hold strategy I don't think it would change the results.
It would just make the game go on longer (assuming I have started with a large enough sample size of loans to begin with). No?
Anyway, I'll leave proof / disproof of that up to the reader. Really a guess on my part, but I get your point.

But the game going longer results in more cash flow, which is what your comparing.

Yeah, I know. Why did you have to mess with my mind on this! I do value my sleep!
Maybe better way would be XIRR on all buy and hold and second XIRR on sell Fico change strategy.
Or, perhaps what would be the required returns for idle money that equaled buy and hold.
Head hurts and I'm outa gas here. This has gone way beyond my pay grade.
However, I will stick with long term, no change in investment strategy, equals results I provided.
If that is wrong I'll be happy to concede the point.
Title: LC FICO vs Loan Grade
Post by: rawraw on November 05, 2016, 06:18:20 PM
The interesting question, that I never thought of fully, is the assumption the game continues. So this has been helpful to my thinking. My returns always decline when I stop selling fico drops and I used to track it a few years ago to see if I was avoiding more defaults. But I always implicitly assumed the game continues forever. So appreciate the conversation
Title: Re: LC FICO vs Loan Grade
Post by: Rob L on November 06, 2016, 06:34:26 PM
Okay, so I slept. There is a part of my mind that works "in the background"; not a conscious process, but solutions to problems seem to just pop out from nowhere. Thus it was this morning when I woke up and instantly knew I'd made an awful mistake in this analysis and I even knew exactly what it was. It was plainly a stupid error and I'd just as soon not tell the world how dumb I'd been. Let me instead correct the charts I've posted and provide replacements. They certainly seem more reasonable to me; not to say there's no more dumb stuff in there! Once again Caveat Emptor! None of the revised charts addresses the "time value of money" after loans are sold which "rawraw" has quite validly suggested as a factor that should (possibly) be part of the analysis. LOL! if my analysis continues to screw thing up so badly that will be small potatoes.

(https://forum.lendacademy.com/proxy.php?request=http%3A%2F%2Fi.imgur.com%2FnPQT8Dw.png&hash=d8e08b7d07828b94e37ce5031831ccf0)



(https://forum.lendacademy.com/proxy.php?request=http%3A%2F%2Fi.imgur.com%2Fe58DspV.png&hash=45bc960ca296f974ec3957beb7b5556b)




(https://forum.lendacademy.com/proxy.php?request=http%3A%2F%2Fi.imgur.com%2FvB1hsRH.png&hash=bdfda2a6f530b63972a4caeecc405bdb)

Good the Patriots had a bye week or I'd never had an opportunity to correct my mistake.


Title: Re: LC FICO vs Loan Grade
Post by: SLCPaladin on November 06, 2016, 11:22:26 PM
This is awesome work. I'm not sure I fully understand the data though. It seems like your first chart, from the most recent set of charts, shows that a FICO change of -90 to -100 which are sold for 1) a 5% discount 2) at par or 3) a 5% premium all have a 0% difference in return when compared to buy and hold. I don't see how that would be possible. It seems the return for selling the note at a 5% premium should be at least 5% higher than a note sold at par. Maybe I simply am not understanding the data you're presenting.
Title: Re: LC FICO vs Loan Grade
Post by: Rob L on November 07, 2016, 09:08:19 AM
This is awesome work. I'm not sure I fully understand the data though. It seems like your first chart, from the most recent set of charts, shows that a FICO change of -90 to -100 which are sold for 1) a 5% discount 2) at par or 3) a 5% premium all have a 0% difference in return when compared to buy and hold. I don't see how that would be possible. It seems the return for selling the note at a 5% premium should be at least 5% higher than a note sold at par. Maybe I simply am not understanding the data you're presenting.

The first chart is sales based on month to month FICO change.
There are so few loans with a month to month FICO change of -90 or -100 they don't add up to any meaningful % of the total no matter what they do. A -90 drop month over month results in 96 loans sold and 2241 loans held. For a -100 drop the numbers are 45 sold and 2292 held. (For simplicity I'm using number of loans as a proxy for $ amount in this reply. Dollar value computations were used to create the charts.)
Title: Re: LC FICO vs Loan Grade
Post by: SLCPaladin on November 07, 2016, 04:29:18 PM
Am I to understand a note with -20 month-to-month change in FICO sold at a a 5% discount would result in a -2.2% return vs. simply holding the note? Likewise, a -20 month-to-month change in FICO that is sold at a 5% premium would net a 1.5% increase in yield vs. selling the note on Folio? Of course, we're tlaking about 2013 Q1 36-term D notes that you analyzed. I just want to make sure I'm understanding the chart. If I understand correctly, your data -- at least for this subset -- implies that it is almost always better to sell a dip in FICO score as long as you are selling for par or at a premium, is this an accurate summary?
Title: Re: LC FICO vs Loan Grade
Post by: Rob L on November 07, 2016, 07:00:57 PM
Yes, exactly; you got it. Breakeven at 0% Mkup/Disc (including 1% service fee) appears to be a 25 point FICO drop. Who woulda thought ...
Now all we have to worry about is that I wake up tomorrow with another epiphany invalidating my results published to date. Caveat Emptor!

Don't necessarily think I screw up more than most (certainly not much less), but I freely admit when I do.
Think that's been an important contributor to whatever success I've had in my other endeavors.

However, I'm sleeping better and don't have anything rattling around in the back of the head except "rawraw's" time value of money.
That would argue the results are even somewhat pessimistic.

Keep in mind we are talking about D grade notes here! I'm sure the results for less risky loans (lower interest rate) would be quite different.
Title: Re: LC FICO vs Loan Grade
Post by: rawraw on November 08, 2016, 05:36:32 AM
I've never tracked it, but it seems anecdotally that you are correct.  I'm not as concerned with a FICO drop from 800 to 750 but I am extremely concerned with a 660 to 610.
Title: Re: LC FICO vs Loan Grade
Post by: Rob L on November 08, 2016, 05:09:03 PM
Yeah, I think you're exactly right.
It's not often mentioned but odds versus FICO score is not a straight linear relationship.
Actually the log of odds (i.e. fully paid's / charge off's) is very close to linear FICO scores.
Straight line on a log graph and all that. Or so I've heard ...

BTW: I chose D grade loans to analyze simply because they make up 65% of my portfolio.
Maybe I should be doing a bit of Folio selling again.
Title: Re: LC FICO vs Loan Grade
Post by: fliphusker on November 08, 2016, 05:18:06 PM
I never did get my free toaster.  Just be sure to price those never late notes at -5% for me.  :P
I have not read this thread closely will do so later as it is quite interesting stuff.
Yeah, I think you're exactly right.
It's not often mentioned but odds versus FICO score is not a straight linear relationship.
Actually the log of odds (i.e. fully paid's / charge off's) is very close to linear FICO scores.
Straight line on a log graph and all that. Or so I've heard ...

BTW: I chose D grade loans to analyze simply because they make up 65% of my portfolio.
Maybe I should be doing a bit of Folio selling again.
Title: Re: LC FICO vs Loan Grade
Post by: SLCPaladin on November 08, 2016, 09:27:02 PM
Yes, exactly; you got it. Breakeven at 0% Mkup/Disc (including 1% service fee) appears to be a 25 point FICO drop. Who woulda thought ...
Now all we have to worry about is that I wake up tomorrow with another epiphany invalidating my results published to date. Caveat Emptor!

Don't necessarily think I screw up more than most (certainly not much less), but I freely admit when I do.
Think that's been an important contributor to whatever success I've had in my other endeavors.

However, I'm sleeping better and don't have anything rattling around in the back of the head except "rawraw's" time value of money.
That would argue the results are even somewhat pessimistic.

Keep in mind we are talking about D grade notes here! I'm sure the results for less risky loans (lower interest rate) would be quite different.

There is still something about your data that I can't wrap my head around. On the right-hand side of your graph where you have a -100 drop in FICO you show about a 1% return for notes sold at a 5% premium and a 0.5% return for notes sold at a 5% discount. I can't figure out how a swing of 10% would only make a .5% difference in returns. It seems like there should be a bigger delta between these two data points. The front part of the curve seems to make sense, but the data converges after about -50 and I can't see why this would be the case.
Title: Re: LC FICO vs Loan Grade
Post by: Rob L on November 09, 2016, 04:48:19 PM
As you proceed from left to right on the chart to which you refer above, the amount of FICO drop required to initiate a Folio sale increases. There are fewer and fewer loans that meet the sales criteria, hence more loans held. The buy and hold total receipts is always constant, $27,221,921.10. The graph shows simply (total receipts of loans held or sold at a given FICO change) / (total buy and hold receipts; a constant).

Here's a table including numbers of loans sold or held:

(https://forum.lendacademy.com/proxy.php?request=http%3A%2F%2Fi.imgur.com%2Fd09dS77.png&hash=e44e742cc080e72e57d63bdd11f17a14)

So, the dollar difference contribution of Mkup/Disc for the 286 loans sold at -100 point FICO change is small relative to the buy and hold total receipts constant of $27,221,921.10. Maybe this is a poor way of displaying the results, but that's what you're seeing. If you have a suggestion of a better way I could possibly look into it.

BTW: This also explains why the month over month FICO change graph converges to zero benefit or loss since there are almost no loans with a month over month change of -100 or more FICO points.
Title: Re: LC FICO vs Loan Grade
Post by: rawraw on November 09, 2016, 05:15:17 PM
I'm still amazed that the threshold is so low.  I always looked for 50-75
Title: Re: LC FICO vs Loan Grade
Post by: Rob L on November 09, 2016, 05:59:34 PM
I'm still amazed that the threshold is so low.  I always looked for 50-75

I always had Anil's numbers in the back of my head from his analysis a few years back and -40 was the number I remembered.
Title: Re: LC FICO vs Loan Grade
Post by: rawraw on November 09, 2016, 06:19:45 PM
I'm still amazed that the threshold is so low.  I always looked for 50-75

I always had Anil's numbers in the back of my head from his analysis a few years back and -40 was the number I remembered.
The interesting thing is fico drops of such a small amount sell way easier.  Perhaps I need to push my threshold back somewhat on high grade notes

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Title: Re: LC FICO vs Loan Grade
Post by: Rob L on November 09, 2016, 07:14:53 PM
I never did get my free toaster.  Just be sure to price those never late notes at -5% for me.  :P

I had deal where Wells Fargo was sending me a free toaster for opening an account I didn't know I opened.
When it arrives I'll send it straight off to you.
Just to be sure I don't get sued by WF, this was a joke.
(Although, I do have a checking account and an event happened that made me furious with them!)
Title: Re: LC FICO vs Loan Grade
Post by: Fred93 on November 10, 2016, 05:03:23 AM
I have more or less validated your results.  I say more-or-less, because I never seem to do anything quite the way somebody else did it.  For example, I ran all completed 36 mo loans originated after 2011, whereas you ran just 2013.  I ran the "test" only in months where the loan was current, whereas I presume you ran it in months where the loan was current or late.  I did this because I thought it would be better to look for current loans to sell, as late loans sell at very poor prices.  There are probably more differences, as there are many details.  In any case, I get curves of the same shape as yours, although the numbers are a little different.  So I call that validated -- more or less.

But then...  This analysis depends mightily on what fraction of loans in the universe are detected.  In other words, the set you intend to sell.  I believe you used the word "sold" to describe them, as certainly the simulation presumes they are sold.

For grade D  and a 60 point FICO drop (presuming I am understanding your numbers), you see 27% detected.  633/(633+1704)  I see 20.5% .  Ok.  Given our differences in algorithm and data set, those are similar numbers.

But then... I ran this same test on my current portfolio.  It only detects 4.2% of my loans!  Yipes.  That's way different than either 27% or 20.5% !  Red flag.

Now you might think, well the fraction detected just affects the level of profitability, so I would have less profit from a selling program.  Yea, but if the number is this far off, then the other stats, like the fraction of detected who go on to default may be way off too.  This leads to possibly bogus selection of threshold, etc.  I feel like the robot from Lost in Space is waving his arms and yelling "Danger danger". 

Here's what I think is going on.  When I use all loans in the history file, that's a really broad set of loans.  I broke them down by grade, but nothing else.  My portfolio quite different than that, because when I bought those loans, I used a bunch of filter criteria beyond grade, such as: inquiries, DTI, years of credit history, income, and so forth. 

What I'm saying is that it seems likely that historical info from the full payments file is not representative of my portfolio, so statistics gathered on this broad unfiltered set do not apply to my portfolio. 

So maybe the problem is even harder, and we must filter the history, selecting only loans that pass some filter criteria similar to the filters we used to select the loans in our portfolios, and only then will we have statistics that we can use to guide us in how we should expect our portfolio loans to behave.

Doing one grade at a time was a good idea.  The statistics are different for different grades.  Maybe it just wasn't nearly enough differentiation.
Title: Re: LC FICO vs Loan Grade
Post by: nonattender on November 10, 2016, 07:30:17 AM
Yes, if you're really choosy up-front, you won't have so many that drop and need to be sold.  (I heard you say, in nine paragraphs.)

Another way to say that might be:  "For every up-front selection criterion, there is an uniquely optimal back-end sell-signal trigger."

(And you can go more granular from there, until it stops being worth it.)

Title: Re: LC FICO vs Loan Grade
Post by: Fred93 on November 10, 2016, 08:42:34 AM
Yes, if you're really choosy up-front, you won't have so many that drop and need to be sold.  (I heard you say, in nine paragraphs.)

Dude!  I may be wordy ... but YOU count paragraphs!

And sadly, the return improvements from these two activities (upfront selectivity and later fico-drop-watching) aren't additive. 

Quote
Another way to say that might be:  "For every up-front selection criterion, there is an uniquely optimal back-end sell-signal trigger."

Yea.

Quote
(And you can go more granular from there, until it stops being worth it.)

May have occurred last Tuesday.
Title: Re: LC FICO vs Loan Grade
Post by: Rob L on November 10, 2016, 10:02:07 AM
I have more or less validated your results.  I say more-or-less, because I never seem to do anything quite the way somebody else did it.  For example, I ran all completed 36 mo loans originated after 2011, whereas you ran just 2013.  I ran the "test" only in months where the loan was current, whereas I presume you ran it in months where the loan was current or late.  I did this because I thought it would be better to look for current loans to sell, as late loans sell at very poor prices.  There are probably more differences, as there are many details.  In any case, I get curves of the same shape as yours, although the numbers are a little different.  So I call that validated -- more or less.
I'm really glad to hear that!! I always wonder if I've forgotten something and/or made some major screw up.

My test was to potentially sell current AND neverlate loans only. Loans not neverlate were never sold no matter whet the FICO drop. I feel like selling loans that are damaged goods (not neverlate) is a completely different process. My attempt was to model a process that monitors only never late loans one month at a time and to immediately sell the ones where the FICO drop threshold is tripped in the month the drop was detected.


But then...  This analysis depends mightily on what fraction of loans in the universe are detected.  In other words, the set you intend to sell.  I believe you used the word "sold" to describe them, as certainly the simulation presumes they are sold.

For grade D  and a 60 point FICO drop (presuming I am understanding your numbers), you see 27% detected.  633/(633+1704)  I see 20.5% .  Ok.  Given our differences in algorithm and data set, those are similar numbers.

But then... I ran this same test on my current portfolio.  It only detects 4.2% of my loans!  Yipes.  That's way different than either 27% or 20.5% !  Red flag.

Now you might think, well the fraction detected just affects the level of profitability, so I would have less profit from a selling program.  Yea, but if the number is this far off, then the other stats, like the fraction of detected who go on to default may be way off too.  This leads to possibly bogus selection of threshold, etc.  I feel like the robot from Lost in Space is waving his arms and yelling "Danger danger". 

Here's what I think is going on.  When I use all loans in the history file, that's a really broad set of loans.  I broke them down by grade, but nothing else.  My portfolio quite different than that, because when I bought those loans, I used a bunch of filter criteria beyond grade, such as: inquiries, DTI, years of credit history, income, and so forth. 

What I'm saying is that it seems likely that historical info from the full payments file is not representative of my portfolio, so statistics gathered on this broad unfiltered set do not apply to my portfolio.

Probably the big difference is that I chose a set of loans that were all fully matured (3 year loans, more than 3 years elapsed, final MOB loan status either Fully Paid or Charged Off). Testing a portfolio in progress will naturally yield many fewer sales occurrences since loans still have lots of time in front of them to trip the sell button. Of course there will be a difference due to loan selection criteria and a big difference across loan grades (intererst rates) in the portfolio.


So maybe the problem is even harder, and we must filter the history, selecting only loans that pass some filter criteria similar to the filters we used to select the loans in our portfolios, and only then will we have statistics that we can use to guide us in how we should expect our portfolio loans to behave.

Doing one grade at a time was a good idea.  The statistics are different for different grades.  Maybe it just wasn't nearly enough differentiation.

Title: Re: LC FICO vs Loan Grade
Post by: Fred93 on November 10, 2016, 05:00:03 PM
Testing a portfolio in progress will naturally yield many fewer sales occurrences since loans still have lots of time in front of them to trip the sell button.

Oh, of course that's right.  Each borrower has many opportunities over time to let his FICO score drop, and in the history file all of 'em are evident.

But... head spins... seems like that effect should be on the average something like a factor of 2, or a bit more.  Loans in my portfolio probably on the average have lived about half their life vs the full loans we extracted from the history.  Then of course some of the loans in my portfolio that have dropped FICO have already gone bad, so don't show up on the snapshot, which is why I say a bit more than 2.  ...but that's not right either, because I'm ignoring history on the loans in my account.  I'm just looking at present FICO.  But it's not a factor of 36 either, because your FICO score isn't independent from month to month, although there is an independent (noise) component.  So I've got an armwaving argument that the factor should be between 2 and 36.   Hmm.  My measured factor of 4.9 is right in the middle.

I could reprocess the history file looking only at one random month in each loan, rather than every month.  That should be equivalent to sampling the current month in my portfolio.

But its worse than that.  When I took a snapshot of my account, it was the first time I'd ever done that.  Its not like I had been running this test and selling notes every month.  So I have accumulated dropped FICO notes, which will boost the number.  The true one month numbers for my account will be lower.  Yipes.  All these different ways of sampling should produce different numbers. 

I don't have any easy way to run a test on my current portfolio that just considers loans that have freshly triggered this month, because I don't have easy access to month-to-month FICO for those loans.  This info is in the payment history file, but I'd have to look up all my loans there one by one.  Seems like too much work.

This brings me back to a subject you've discussed a bit... the time element.  Need to get time into your calculations.  You've calculated how many loans trigger the test and/or how many $, but we need to know (I think) how many per year.  If you save me $1 but that's $1 per 3-year loan term, that's different than saving me $/year.   To get into the units of return that lenders think about, we need an annual number.  Should I just divide by 3, or do we need to do something more to figure this out.  Average length of a performing 3-year loan is something like 2 years because of prepayments.  So maybe a factor of 2?  Or...

While scanning the history file and running the test, we could compute the # triggers per month divided by the # loans seen that month, to compute a triggers per loan-month ratio.  x12 gets fraction of loans that trigger per year.  Perhaps this should replace the fraction of loans that trigger in their entire lifetime in your calculation. 

This is just stream of consciousness.  Anyone looking for a conclusion here will be confused.

Title: Re: LC FICO vs Loan Grade
Post by: rawraw on November 10, 2016, 06:00:56 PM
This is just stream of consciousness.  Anyone looking for a conclusion here will be confused.
LOL!  While I think that should have been at the beginning, it being the last thing I read made me literally laugh out loud
Title: Re: LC FICO vs Loan Grade
Post by: Rob L on November 10, 2016, 06:24:25 PM
I don't have any easy way to run a test on my current portfolio that just considers loans that have freshly triggered this month, because I don't have easy access to month-to-month FICO for those loans.  This info is in the payment history file, but I'd have to look up all my loans there one by one.  Seems like too much work.

The pmthistall file is only updated every three months. Not much value here. List all your notes on Folio for a ridiculous guaranteed profitable markup. Not that you want to sell, but that you want the latest FICO update ASAP.  You "should get the updated FICO within your sample time interval of downloading the smallnotes file. As a seller there's additional data in your mynotes file that can provide an additional bit of informational edge. The most recent FICO may actually be found there first; I dunno. There may be issues with staleness (where does LC publish the most recent FICO update first). I point out that possibility but don't really know the answer. If I were seriously into this I would know. I'm sure there are folks that do.

Simplifying things by ignoring time value of money is troublesome, but leaving it out is a worst case for selling the FICO drops. Returns should be better than those that ignore it.

Sometimes I think that if I'm not confused I'm not paying enough attention. Stream of consciousness wins hands down over the stream of unconsciousness I'm given to on occasion.
Those earlier charts I posted were embarrassing  :o LOL
Title: Re: LC FICO vs Loan Grade
Post by: Fred93 on November 10, 2016, 07:31:03 PM
Another bit of (imperfect) validation...

Instead of running the test on current notes in my notes.csv file, with the sampling problem we discussed above, I realized that this file has all my Charged Off & Fully Paid notes as well, so I ran the test on them instead.  Now this isn't exactly the same as running the test on the history file, where I have updated FICO every month.  In this case I only have FICO at time of that final event.  Better than nothing, and I think final FICO and lowest FICO along the way probably aren't that far apart most of the time. 

The number  I got for FICO drop>60 detection was 22.4% (all fully paid & charged off in my portfolio, ie mix of grades), which very closely matches what I got on the history file.  So maybe my selection of notes doesn't change things so much after all.
Title: Re: LC FICO vs Loan Grade
Post by: nonattender on November 11, 2016, 11:01:25 AM
Yes, if you're really choosy up-front, you won't have so many that drop and need to be sold.  (I heard you say, in nine paragraphs.)

Dude!  I may be wordy ... but YOU count paragraphs!

ha!

Usually, I'm the one with dyslogorrhea while working something out, out loud - I'm glad to let you have a turn!  BTW - I was doing more of a "one shall speak in tongues, one shall interpret" kinda thing.  On "nine" paragraphs, though, I really didn't (consciously?) count 'em - swear - funny it turned out to actually be nine (now that I counted)!  Nine's just a "funny" number (much like Tuesday is a "funny"day!).

Don't ask me why.  Maybe it's Wimpy borrowing money and ferris bueller being absent... NINE times..... but I bet it goes back further.

(I know you won't let that go without researching it; I expect a whitepaper with at least 9 charts and a lexical analysis - by Tuesday)
Title: Re: LC FICO vs Loan Grade
Post by: Zach on November 12, 2016, 05:13:00 PM
I don't have any easy way to run a test on my current portfolio that just considers loans that have freshly triggered this month, because I don't have easy access to month-to-month FICO for those loans.  This info is in the payment history file, but I'd have to look up all my loans there one by one.  Seems like too much work.

The pmthistall file is only updated every three months. Not much value here. List all your notes on Folio for a ridiculous guaranteed profitable markup. Not that you want to sell, but that you want the latest FICO update ASAP.  You "should get the updated FICO within your sample time interval of downloading the smallnotes file. As a seller there's additional data in your mynotes file that can provide an additional bit of informational edge. The most recent FICO may actually be found there first; I dunno. There may be issues with staleness (where does LC publish the most recent FICO update first). I point out that possibility but don't really know the answer. If I were seriously into this I would know. I'm sure there are folks that do.

Simplifying things by ignoring time value of money is troublesome, but leaving it out is a worst case for selling the FICO drops. Returns should be better than those that ignore it.

Sometimes I think that if I'm not confused I'm not paying enough attention. Stream of consciousness wins hands down over the stream of unconsciousness I'm given to on occasion.
Those earlier charts I posted were embarrassing  :o LOL

At least in recent months, the payment history file has been updated monthly - obviously, it doesn't include recently originated loans.