Recent Posts

Pages: 1 [2] 3 4 ... 10
11
Pardon me if this has been asked before, but I could not find any mention.

I'm looking at a borrower with a Revolving Credit Balance of about $8K. They request a loan of $15K for Credit Card Payoff.
How does this make sense? It would seem they are obviously requesting a loan for $7K worth of something else. Or am I misunderstanding what these terms mean?

You understand, and you've hit on a valuable concept, tho things are not always cut & dried, ie these aren't precise concepts.

LC pulls credit info from one credit reporting agency.  Every credit card company does not report to every credit reporting agency.  Therefore you can never be sure that the info from the credit reporting agency includes every card.  Etc.

Also, when someone clicks the "credit card payoff" box, they may not be interpreting that to mean "credit card payoff and NOTHING ELSE".  Maybe he's also thinkin' about the $5k he owes his bookie.  In other words, these concepts are a bit fuzzy, so a bit of mismatch doesn't mean the guy is being intentionally dishonest.  Maybe it's an indication of sloppy thinking, or just imprecise planning.

However, many lenders use the comparison that you are making, and it has been shown to have value. 

If you work with the historical data, you can see that folks who borrow an amount close to their revolving balance have a lower default rate than folks where those numbers mismatch.  You can download the data yourself and write software to examine statistics such as this, or you can use www.nsrplatform.com to do the work.  It takes a bit of work to make nsrplatform do this test, as you have to define a "formula".  I defined a formula which was balance divided by loan amount.  After you do that you can plot variables such as return or default rate vs this ratio.

In the end, if it has value in a statistical sense, then it is something reasonable for lenders to use, even if the concepts are fuzzy.

Even tho I've studied this criteria, and know it has value, I don't use it.  My problem is that my other criteria are such that I have trouble finding enough loans, so adding this criteria would restrict my selection too much.
12
Pardon me if this has been asked before, but I could not find any mention.

I'm looking at a borrower with a Revolving Credit Balance of about $8K. They request a loan of $15K for Credit Card Payoff.
How does this make sense? It would seem they are obviously requesting a loan for $7K worth of something else. Or am I misunderstanding what these terms mean?
Thanks
13
Investors - LC / Re: What Returns Do You Expect Going Forward?
« Last post by rawraw on January 15, 2020, 07:33:42 PM »
You are now a bank expert :)

Now a bank does have overhead associated with those deposits (branches, servers, websites, etc), but you get the idea.  And Lending Club allows geographic diversification and consumer lending, which tends to be hard for small banks to do at scale.  Most banks do mostly commercial
14
General P2P Lending Discussion / Re: What tool do you use to track returns?
« Last post by Fred93 on January 15, 2020, 03:22:18 PM »
Suggestion: Don't try to track loan by loan.  Just track your account balance.  Of course you'll have to track when you make deposits.
15
Investors - LC / Re: What Returns Do You Expect Going Forward?
« Last post by Rob L on January 15, 2020, 11:03:02 AM »
That's right. Once you understand this, you'll see why banks are so conservative. Small swings in assets can completely wipe out their equity

Going back to why LC loans are attractive to banks. Very simplified example with crude approximations. If I invest my money, say $40M, in LC loans at 4% APR my return on that investment is 4% (I have no leverage). If a bank's equity is $40M but its assets are $133M that cost the bank 1% APR, and the bank invests 90% of those assets ($100M) in LC loans at 4% APR then the bank's return on its $133M assets is 2.7% APR (NIM) but its return on $40M equity is more like 8.1% APR (Leverage is 3X). Banks can play very conservatively and still do quite well. Thus the preference for A Grade loans and an explanation of why banks find them attractive and individuals not so much.
16
General P2P Lending Discussion / What tool do you use to track returns?
« Last post by titlewealth on January 15, 2020, 09:52:01 AM »
I am currently using a combination of Excel and Personal Capital to track my investment portfolio returns but am looking for something that can maybe combine the two. Any suggestions?
17
Off Topic / Re: Master Thesis Topic
« Last post by mcfarland on January 15, 2020, 03:57:42 AM »
Hello guys,

I need your help with the survey for my master thesis. I chose to analyze the sub-prime crisis aspects. Is it allowed to post my survey here?
Perhaps the OP can share his experience too. I would be grateful.
18
Foliofn - LC / Re: Stale Credit Scores.
« Last post by jrl on January 14, 2020, 07:34:31 PM »
Okay, the regular update of credit scores posted. This morning actually. Still around 1-2% with older credit scores, like the one note I have that hasn't updated since it was issued over a year ago. I don't think that'll ever get fixed. Now the chart for a majority of the loans goes from an 11/19 datapoint to a 1/20 datapoint.
19
Investors - LC / Re: What Returns Do You Expect Going Forward?
« Last post by rawraw on January 14, 2020, 07:06:10 PM »
That's right. Once you understand this, you'll see why banks are so conservative. Small swings in assets can completely wipe out their equity
20
Investors - LC / Re: What Returns Do You Expect Going Forward?
« Last post by Rob L on January 14, 2020, 11:00:15 AM »
Okay I think I've got it but I'm still left with a couple of questions.
What is this bank "leverage" thing and how is it obtained.
Do banks presently have so much cash on deposit that basically any method a bank can find to loan that money is attractive? In a world of mid 3% fixed mortgage rates I guess that makes sense.

A bank has leverage because it has much more liabilities than equity. It's allowed to do this due to a mixture of capital regulations and deposit insurance, which means the depositors don't consider it risky to lend to the bank.

When you make a deposit in a bank, that is a loan. They then use your loan to fund assets at higher rates than they pay you. Even if the spread is 2 percent between the two, the fact that they are only 10 percent equity amplifies the returns

The reserve requirements being talked about here is more a liquidity issue. It just means you can't invest a certain percentage of the deposits. But this is really a rounding error, with many banks having very little reserves.  It's fairly easy to make the number very close to zero in practice

Okay, thanks. Now I think I really understand. Equity is "my money" in the game. I take on a lot of debt (customer deposits, "other peoples money") and make loans with it that are my assets ("other peoples money owed to me and secured for them by FDIC"). A relatively small amount of "my money" controls a much larger amount of "other peoples money", hence the term leverage. Profits or losses relative to my assets are dominated by the returns I'm able to get using "other peoples money". In a way my equity has little to do with my profits. My misunderstanding was that there was some leveraging of the amount of "other peoples money" involved. It is not.
Pages: 1 [2] 3 4 ... 10