Author Topic: Default rate seems to be busted  (Read 4216 times)

cfb

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Default rate seems to be busted
« on: September 14, 2013, 05:10:13 PM »
I put two loans in my cart, an E and an F and the suggested default rate was 4.9%...hmmmm...

I also may have figured out why more than half of my notes don't fill.  It seems that the amount the borrower requests is a maximum amount and when the note fills, they ask the borrower how much (up to that amount) they REALLY want, and frequently the actual loan is lower than the 'shopped' amount.  My bet is the last orders that come in get canceled if the loan amount is less than the original requested amount.

Rob L

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Re: Default rate seems to be busted
« Reply #1 on: September 14, 2013, 05:50:48 PM »
I also may have figured out why more than half of my notes don't fill.  It seems that the amount the borrower requests is a maximum amount and when the note fills, they ask the borrower how much (up to that amount) they REALLY want, and frequently the actual loan is lower than the 'shopped' amount.  My bet is the last orders that come in get canceled if the loan amount is less than the original requested amount.
I'd be surprised if that were correct. That means LC would have to keep up with who bought what when, then unravel it at the whim of the borrower. No doubt they time stamp everything and I guess it's possible, but sounds like a really big can of worms to me. There's gotta be a simpler reason for your low fill rate.

yojoakak

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Re: Default rate seems to be busted
« Reply #2 on: September 14, 2013, 07:38:03 PM »
My bet is the last orders that come in get canceled if the loan amount is less than the original requested amount.

I've never heard of that. I know if your loan doesn't get fully funded but reaches a certain threshold they'll ask you if you still want the reduced amount.

But how many loans are there these days that don't get fully funded?

core

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Re: Default rate seems to be busted
« Reply #3 on: September 15, 2013, 02:27:56 AM »
It seems like it should be rather easy to check this hypothesis.  Just go back and check on the loan IDs for which you got funds returned.  If any of them are now active then you'll have your answer, along with the updated total loan amount.  I would certainly be interested in seeing one of these.

cfb

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Re: Default rate seems to be busted
« Reply #4 on: September 15, 2013, 08:24:14 AM »
I'd have to dig to find that, but I'm fairly sure it said somewhere that the borrower may choose to take a reduced amount.  Its the only reason I can see as to why there are so many 35,000 loans.

If that isn't the reason, then we have a larger specter...why among the carefully curated 10% 'cream of the crop' are half the loans I select either being refused by LC or not being accepted by the borrower?

LC accepted them when they were bogus/fraudulent/etc
They applied for a loan and then decided they didn't want it.  I've never applied for a loan with LC, is it really that easy that its a throw-away action?
LC oversold the loan
The loan amount was subsequently reduced

Any other options?

The only one I don't dislike intensely is the last one, and I'm not thrilled with that one either.  It would mean that people hand picking loans like me will end up last in the queue most of the time.

The first two indicate flaws in the loan selection process that completely rules out the line of thinking that 'LC curates these well and we're seeing the cream of the crop so its safe to just buy with some basic filtering'.

If they're just overselling loans like airline seats, then half my hard work is going to waste.

Still very interested in the primary issue, that it gave me a default rate about half of what it should be.

core

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Re: Default rate seems to be busted
« Reply #5 on: September 15, 2013, 08:50:48 AM »
I'd have to dig to find that, but I'm fairly sure it said somewhere that the borrower may choose to take a reduced amount.

Aside from the borrower being able to choose that they will accept less if not 100% funded, I'm not aware where they can just choose a lesser amount later.  However if a borrower called up and threatened to cancel the whole deal I'm sure(?) they'd accommodate him.  Especially if the initial amount was a mistake.

Its the only reason I can see as to why there are so many 35,000 loans.

I don't have the tiers in front of me but I believe the origination fee is the same even if they only wanted $34k.  They want to get their "money's worth" I guess.

why among the carefully curated 10% 'cream of the crop' are half the loans I select either being refused by LC or not being accepted by the borrower?

Because the loans are offered on the platform before all the verification and interviews happen.  See this thread where rajuabju's loan was 100% funded within a day and only after that did the whole ordeal start, where he/she could have been rejected.  Or decided to back out on his own because of the extended process.

If they're just overselling loans like airline seats, then half my hard work is going to waste.

I cannot think of any reason they would oversell and then "bump" the extra investors.  Because unlike airline passengers who may not show up, the investors cannot back out so what would be gained by overselling?  LC knows it's good to go once 100% funded and there's no reason to keep it open.

Now if you want to talk about overselling the loans and keeping the oversold notes around, that scheme I've already carried on about, so I won't do so here.  (Too late?)

cfb

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Re: Default rate seems to be busted
« Reply #6 on: September 15, 2013, 09:00:16 AM »
Well then that leaves only that half the loans I'm picking (the cream of the alleged cream) are made by borrowers who aren't serious or have decision making issues, or they're incorrect/fraudulent.

Neither one particularly comforting.

Lovinglifestyle

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Re: Default rate seems to be busted
« Reply #7 on: September 15, 2013, 04:56:14 PM »
So true.  It's a bummer.

Well then that leaves only that half the loans I'm picking (the cream of the alleged cream) are made by borrowers who aren't serious or have decision making issues, or they're incorrect/fraudulent.

Neither one particularly comforting.

Lloigor

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Re: Default rate seems to be busted
« Reply #8 on: September 18, 2013, 12:50:03 PM »
Also, rate can change substantially based solely on loan amount, so if the loan amount changes the rate should change, and that can't happen once a note has been purchased.