Author Topic: DTI ratio's  (Read 3156 times)

Bilgefisher

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DTI ratio's
« on: October 26, 2011, 02:51:13 PM »
Ive been playing with the lendstats calculators again.

I found that the lower DTI ratio's may not always be best.  The best returns are for loans within 30-40% DTI.  Lower DTI's actually have a higher default rate. Not entirely sure the reason.

When I started looking at only D, E and HR loans on prosper, a lower DTI proved to be be better.
I found repeat borrowers (30 payment minimum) in D-HR with lower DTi gave some of the best ROI provided.  Loans are limited though and that certainly has an effect.  But with 190+ loans with a ROI of 24% its certainly a bit of an eye opener.  The avg loan age was 10 months.

Any other observations out there on this?

kylew

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Re: DTI ratio's
« Reply #1 on: October 27, 2011, 08:44:14 PM »
With the DTI ratio, I wonder if those borrowers who have a slightly higher ratio have more skill in managing debt.  They haven't racked up a huge amount given their income, but they still know how to pay their bills and keep their head above water. 

It is just a guess, but I wonder if they have earlier first credit lines on avg, a longer history of credit.  Lower DTI's could be younger lenders, not as experienced with handling their debt.  This is all just conjecture on my part. 

I did the complete breakdown for all loans in 2010 and 2011 on lendstats though and I question whether the results are statistically significant.  Yes lendstats shows them as having variation, but are these samples large enough given the 1 or 2 percent difference in most cases to be considered a statistically significant difference.   If they aren't, is it something you would still follow when selecting loans?

Bilgefisher

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Re: DTI ratio's
« Reply #2 on: October 28, 2011, 09:52:00 AM »
kylew, you make a good point.  They may not be statistically significant.  1 more or less default could easily change the return. Unfortunately with a limited number of loans, its all I have to go by.

Peter

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Re: DTI ratio's
« Reply #3 on: October 28, 2011, 12:45:17 PM »
This is the problem with these calculations. I have run queries against Prosper 2.0 loans and recorded the ROI and then back three months later and the ROI for the same query has changed significantly (by more than 2%). Unless you have a base of several thousand loans with an average age of more than 18 months it is difficult to gauge whether a query is statistically significant.

Even when it is not, though, I still use it as a guide but I will just go back and check to make sure the ROI is still holding up.
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