If loans are auto-payed how do some loans pay in the Grace Period every month?

[yojoakak]

I've got a few loans where every month the payment is made during the Grace Period.

At first I thought it was a savvy borrower who sent in the payment at the last possible minute trying to maximize their time value of money.

But then it occurred to me that all the payments in LendingClub are auto-ACH payments and it's not really up to the borrower when to send in their payment.

So short of a Payment Plan or a Failed Payment (which I see no evidence of in the loans I'm talking about) how do some loans end up getting their payments transferred every month at the last possible minute?

[SBryantMS]

My guess is that the borrower contacted LC and asked that ACH date be moved from 12th to 16th (day after payday).  LC made the change but never bothered to update the dates on the base loan.  Therefore, loan pays in grace period every month. 

I have several loans with 18+ months of payments where every payment has been made in the "Grace Period." 

[core]

That  explanation seems reasonable.  They do not change the due date, at least I've never seen it.

[Randawl]

It is also possible that some borrowers choose to send in payment via a check at those times, but they have to pay a check processing fee each time they do that. 

The most likely scenario is described above by SBryantMS, and I think this is the case the vast majority (95%+) of the time.

[rawraw]

LC states that they don't modify loan terms, if I remember correctly.  This may or may not be a results relating to concessions under the "Troubled Debt Restructuring" accounting guidance.  I'd guess it's a request and LC didn't udpate the date.  But I find it funny I've had  lots notes like this, but never even considered this question.

[New Jersey Guy]

"I'd guess it's a request and LC didn't udpate the date."

Yea, but I also wonder if it's a posting glitch.  I've seen notes pay on the correct date and still go into "Grace" for a day or two.  Nothing is perfect, and every head-scratcher I've seen always seemed to correct itself in good time.

[Show Me The $]

Good question! When I get someone in grace period, as soon as it comes current I like to sell it. Sounds like that may not be a wise choice !!! Thoughts?

for instance look here: https://www.lendingclub.com/foliofn/loanPerf.action?loan_id=4300979&order_id=6671558&note_id=22432665

[core]

every head-scratcher I've seen always seemed to correct itself in good time.

"Correct itself" meaning there is no record of a payment being made in the grace period?  I've seen that, but it's considerably more rare than the alternatives.  Consider the 5/13 (?) payment delay deal.  They never went back and fixed all those instances.

When I get someone in grace period, as soon as it comes current I like to sell it. Sounds like that may not be a wise choice !!! Thoughts?

I certainly sell those as soon as I can.  Regardless of whose fault it was, you've still got a note which is worth less than it was before.  (Assuming they do not go back and erase the in-grace payment notation.)   You've only got a few days that the note is going to show up in the 'Never Late' search on Folio and after that it will sell for considerably less. 

That one you linked to, I would have gotten rid of that already, even at a 5-10% loss if I had to.

[mitgib]

When I get someone in grace period, as soon as it comes current I like to sell it. Sounds like that may not be a wise choice !!! Thoughts?

I certainly sell those as soon as I can.  Regardless of whose fault it was, you've still got a note which is worth less than it was before.  (Assuming they do not go back and erase the in-grace payment notation.)   You've only got a few days that the note is going to show up in the 'Never Late' search on Folio and after that it will sell for considerably less. 

That one you linked to, I would have gotten rid of that already, even at a 5-10% loss if I had to.

I'm learning towards siding with Show Me The $'s on this one.  I too am quick to unload a note at the first signs of trouble, but am I leaving money on the table over these Grace Period notes?  I guess it will take more evaluation in the future before pulling the sell trigger by looking at the FICO trend as well, not a perfect solution, but seems all we have to work with.

With the way things are today, unless a note is seriously in trouble I think I would rather hold as getting funds invested is not an easy task.

[New Jersey Guy]

"That one you linked to, I would have gotten rid of that already, even at a 5-10% loss if I had to."

Agreed!  No contact from the borrower.  No collection efforts from LC.  No automatic payment plan scheduled.

A situation like that brings in thoughts of a None-and-Out situation, especially considering it's a $35K note on an "E"Grade.  A Grace Period Window is very short.  Normally, LC will attempt another withdrawal within 2 weeks of the original due date.  If that fails, the note goes 16-30 days late and the value drops even more.

What really spooks me about loans like this is that they get $35,000 and a month later, it's totally gone.  They don't even leave enough in their account to cover the first payment.

[Show Me The $]

When I get someone in grace period, as soon as it comes current I like to sell it. Sounds like that may not be a wise choice !!! Thoughts?

I certainly sell those as soon as I can.  Regardless of whose fault it was, you've still got a note which is worth less than it was before.  (Assuming they do not go back and erase the in-grace payment notation.)   You've only got a few days that the note is going to show up in the 'Never Late' search on Folio and after that it will sell for considerably less. 

That one you linked to, I would have gotten rid of that already, even at a 5-10% loss if I had to.

I'm learning towards siding with Show Me The $'s on this one.  I too am quick to unload a note at the first signs of trouble, but am I leaving money on the table over these Grace Period notes?  I guess it will take more evaluation in the future before pulling the sell trigger by looking at the FICO trend as well, not a perfect solution, but seems all we have to work with.

With the way things are today, unless a note is seriously in trouble I think I would rather hold as getting funds invested is not an easy task.

When you say you would have gotten rid of it already...It just went into grace this morning (I am out of the us at the moment so it was real earyl us time). I listed it in foliofn at a discount, what else am I to do?

[Show Me The $]

"That one you linked to, I would have gotten rid of that already, even at a 5-10% loss if I had to."

Agreed!  No contact from the borrower.  No collection efforts from LC.  No automatic payment plan scheduled.

A situation like that brings in thoughts of a None-and-Out situation, especially considering it's a $35K note on an "E"Grade.  A Grace Period Window is very short.  Normally, LC will attempt another withdrawal within 2 weeks of the original due date.  If that fails, the note goes 16-30 days late and the value drops even more.

What really spooks me about loans like this is that they get $35,000 and a month later, it's totally gone.  They don't even leave enough in their account to cover the first payment.

Oh, and FICO is up almost 100 points on this note!

[New Jersey Guy]

"Oh, and FICO is up almost 100 points on this note!"

A rise in FICO shortly after taking out an LC loan isn't unusual.  It's a good indication he actually used the money to pay off credit cards.  But a 100 point spike?  Wow!  Now that's unusual.

[LonghornSF]

I just got my first grace period note.  The guy's FICO score is up to 755-759 now and it was an IR01 401 loan and it seemed to check all the right boxes. The only negative I could think of was the guy was located in Detroit. Income verified, <20% DTI, long employment and credit history, etc. Frustrating but hopefully he gets his act together shortly.

https://www.lendingclub.com/account/loanPerf.action?loan_id=4215518&order_id=6416759&note_id=21985461

[rawraw]

I just got my first grace period note.  The guy's FICO score is up to 755-759 now and it was an IR01 401 loan and it seemed to check all the right boxes. The only negative I could think of was the guy was located in Detroit. Income verified, <20% DTI, long employment and credit history, etc. Frustrating but hopefully he gets his act together shortly.

https://www.lendingclub.com/account/loanPerf.action?loan_id=4215518&order_id=6416759&note_id=21985461

You do realize lack of defaults can indicate poor performance, right? It's all about balance. Don't stress about the notes. Just set rules on how to respond and follow them.

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