Lend Academy Network Forum

Lending Club Discussion => Investors - LC => Topic started by: Rob L on January 08, 2017, 06:17:29 PM

Title: WAIR (Weighted Average Interest Rate) Isn't what You Think
Post by: Rob L on January 08, 2017, 06:17:29 PM
Okay, maybe it is; but it sure isn't what I thought it is.

For weighting LC uses the amount invested (i.e $25, %50, etc.) of each note you ever bought (except those sold on Folio). My portfolio has 9379 notes (not including 1347 sold on Folio). So, the weighted average interest rate of any note is (1/total purchase price of all 9379 notes) * note interest rate. The problem is that only 3755 of these are not either fully paid or charged off. For purely historic reasons I may have a passing interest in WAIR as LC computes it, but I'm far more interested in the average interest rate of my active notes. I'm particularly interested in the effect LC's interest rate increases over the past year have had on my active portfolio. So, what I really need is weighting based on the remaining principal value of active notes (see PBWAIR) in the example below. It's what I thought WAIR was all along, but my bad for not looking it up.

My LC computed WAIR is 17.51% but my PBWAIR is 18.49% (computed from notes_ext.csv using Excel).

(https://forum.lendacademy.com/proxy.php?request=http%3A%2F%2Fi.imgur.com%2FkotPe2h.png&hash=6435d7aaace7ca853ebc46806ab57010)
Title: Re: WAIR (Weighted Average Interest Rate) Isn't what You Think
Post by: Fred93 on January 08, 2017, 06:35:41 PM
Yep.  I had never looked into the details of WAIR calculation, so I'm a little surprised also.

I agree with you.  When we think about our current portfolio, we should be thinking about parameters of our current portfolio, not all of history.

ANAR has this same issue.  It is a calculation over all history, including all your paid off, charged off, etc loans. 

In LC's defense, I would say that WAIR and ANAR are both calculated over all history, so if you were to compare ANAR with something and want a reasonable comparison, then a weighted average interest rate that is averaged over the same history is the right one.  In other words LC's ANAR and WAIR are somewhat compatible with one another.

I prefer a return estimate that is more current than ANAR.  I used to have an ANAR of 10%+, and now I have 8%+, so people tend to think "He's earning 8%+ now" but actually I'm only earning 6%+ right now, which averaged with the old 10%+ gives me 8%+.

When they thought up these measures, I don't think they were thinking about how portfolios would look 10 years later!

For myself, I compute IRR over various time periods.
Title: Re: WAIR (Weighted Average Interest Rate) Isn't what You Think
Post by: AnilG on January 08, 2017, 08:31:25 PM
The purpose of portfolio WAIR (interest rate weighted by outstanding balance) along with portfolio duration (remaining term weighted by outstanding principal) is to quickly able to estimate future cash flow from a portfolio of loans and compare different portfolios.

I don't remember specifically reviewing WAIR estimated by LC in detail. My impression from their account details page where they show term distribution etc is that everything displayed on that page is average or sum of all notes in portfolio not just active ones.
Title: Re: WAIR (Weighted Average Interest Rate) Isn't what You Think
Post by: fliphusker on January 09, 2017, 02:56:44 PM
I have not sat down and figured out my returns with IRR as Open Office has a different way of figuring it out.  Do others use Open Office, and is there a tutorial that you have to use it for IRR?  I just have not taken the time to learn it.  I do not have a very large account and know that defaults have a large impact on my returns/projected returns.  A straight roller then 3 (2 of same note) quick defaults on FOLIO notes hurt.  As late as I believe October my ANAR on my FOLIO, was negative. 
I said from the beginning I was not going to concern myself too much about my returns until the 1-year mark (3 months to go).  I would be curious to see a monthly breakdown at that time on my progress.
Does everyone figure this with IRR or just look at the monthly ANAR?  Just noticed that ANAR is not listed on statements. 
Rob, how much do you concern yourself with how your returns were over those months when you whittled down your account? 
Yep.  I had never looked into the details of WAIR calculation, so I'm a little surprised also.

I agree with you.  When we think about our current portfolio, we should be thinking about parameters of our current portfolio, not all of history.

ANAR has this same issue.  It is a calculation over all history, including all your paid off, charged off, etc loans. 

In LC's defense, I would say that WAIR and ANAR are both calculated over all history, so if you were to compare ANAR with something and want a reasonable comparison, then a weighted average interest rate that is averaged over the same history is the right one.  In other words LC's ANAR and WAIR are somewhat compatible with one another.

I prefer a return estimate that is more current than ANAR.  I used to have an ANAR of 10%+, and now I have 8%+, so people tend to think "He's earning 8%+ now" but actually I'm only earning 6%+ right now, which averaged with the old 10%+ gives me 8%+.

When they thought up these measures, I don't think they were thinking about how portfolios would look 10 years later!

For myself, I compute IRR over various time periods.
Title: Re: WAIR (Weighted Average Interest Rate) Isn't what You Think
Post by: Rob L on January 09, 2017, 06:45:08 PM
 
Rob, how much do you concern yourself with how your returns were over those months when you whittled down your account? 

Actually not much. My first priority was to reduce my LC exposure and I felt that worked out pretty well. Now it's hard to separate the losses due to what I did, the deterioration of returns due to borrowers actions, and the positive impact of LC's changes over the past year. So, I'm just looking forward to a return to "steady state"  to be able to figure out what's what. I figure just a few more months and I'll have a much better handle on things. Meanwhile I'll be patient and prefer to be optimistic.
Title: Re: WAIR (Weighted Average Interest Rate) Isn't what You Think
Post by: fliphusker on January 10, 2017, 04:35:22 AM
Back to a question I had with my post.  How to calc a monthly return?  Should anyone care about a monthly return?
 
Rob, how much do you concern yourself with how your returns were over those months when you whittled down your account? 

Actually not much. My first priority was to reduce my LC exposure and I felt that worked out pretty well. Now it's hard to separate the losses due to what I did, the deterioration of returns due to borrowers actions, and the positive impact of LC's changes over the past year. So, I'm just looking forward to a return to "steady state"  to be able to figure out what's what. I figure just a few more months and I'll have a much better handle on things. Meanwhile I'll be patient and prefer to be optimistic.
Title: Re: WAIR (Weighted Average Interest Rate) Isn't what You Think
Post by: BruiserB on January 10, 2017, 12:22:09 PM
Monthly return can be calculated by using month start and month end dates and balances as well as any intra-month deposits/withdrawal dates and amounts and use the XIRR function in Excel/Google Sheets.