Author Topic: Crisis management - stop charge-offs ?  (Read 1586 times)

LC_investor

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Crisis management - stop charge-offs ?
« on: March 22, 2020, 12:29:34 PM »
My concern in this virus/economic crisis is - if it is indeed prolonged for months - that a normal 30/60/90/default/charge-off bureaucratic/mechanistic response will wipe-out investor portfolios.   

I think charge-offs should immediately stop, and borrowers given plenty of time to recover, those that will.

I emailed LC to this regard.  If you agree as a P2P investor, perhaps you should be emailing your platforms.  And your legislators?  This shut down of our economy is unique, and it requires unique and creative and proactive solutions/responses.

Would like to hear other voices on this.  I know there are at least a few smarter then meself...

Fred93

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Re: Crisis management - stop charge-offs ?
« Reply #1 on: March 22, 2020, 12:50:36 PM »
I think you are confused.

"Charge off" is an accounting convention.  Nothing more.

They still try to recover funds, although they try less hard as time goes on, because the chance of recovering money goes down as the calendar pages flip by.

LC_investor

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Re: Crisis management - stop charge-offs ?
« Reply #2 on: March 22, 2020, 02:00:45 PM »
Perhaps I am confused.  But "charge-off" to me means something like "time to sell the debt."  Wondering if there is any guidance from LC as to what that means...?  And be nice to know exactly when in the default process the loans disappear off our books forever.

In any case, a whole lot of folks that are now or in the near future losing jobs/paychecks/businesses are gonna need quite some time to recover. Would love to hear directly from LC as to their plan for dealing with this.
« Last Edit: March 22, 2020, 03:15:07 PM by LC_investor »

jrl

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Re: Crisis management - stop charge-offs ?
« Reply #3 on: March 22, 2020, 07:04:15 PM »
Perhaps I am confused.  But "charge-off" to me means something like "time to sell the debt."  Wondering if there is any guidance from LC as to what that means...?  And be nice to know exactly when in the default process the loans disappear off our books forever.

In any case, a whole lot of folks that are now or in the near future losing jobs/paychecks/businesses are gonna need quite some time to recover. Would love to hear directly from LC as to their plan for dealing with this.

"Charge-off" to LC in practice means that the borrower is behind by 4 principal payments by mid-month or the end of the month. If a borrower makes a payment when it's in default, but it only covers the interest portion, it will still charge-off.

I have yet to see any loans come out of  "charge-off" status, even though I've had a few that have fully recovered. They get counted as a loss for the full principal amount at the time of charge-off, but stay on the books for years at a zero-value. Theoretically it's possible to get a recovery years after a charge-off, I have a few charge-offs that pay a few dollars every now and then. The only negative is the amount of fee LC charges on those recoveries.

LC_investor

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Re: Crisis management - stop charge-offs ?
« Reply #4 on: March 24, 2020, 02:04:44 PM »
Here is what LC says about charge-offs:

"A loan becomes “charged off” when there is no longer a reasonable expectation of further payments. Charge off typically occurs when a loan is 120 days or more past due. Learn more about the difference between “charge off” and “default”.
 
LendingClub may sell charged-off loans to a third party. In the event that a charged-off loan is sold to a third party or funds are recovered on a previously charged off loan, investors will receive a pro rata share of the sales proceeds or recovery amount, respectively, less any fees. In general, recoveries on previously charged-off loans are infrequent."

It is still my humble opinion that charge-offs should immediately stop and LC should adjust their recovery methodologies to help their investors preserve capital. 

If LC heard this from many investors, maybe they would actually do something.  Lets all hold our breath....

Edward Reid

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Re: Crisis management - stop charge-offs ?
« Reply #5 on: March 25, 2020, 11:30:23 AM »
Basically you are saying, LC should help borrowers more due to the crisis. This is a good thought.

But LC already does a lot for those late on payments. Look at the collection log for notes which have been charged off. Many phone calls, messages left, emails sent, paper letters sent, over usually a four-month period. Almost invariably I see one or more of the following:
  • Borrower stops answering the phone.
  • Borrower does not respond to emails.
  • Borrower does not respond to paper letters.
  • Borrower tells LC to stop calling (a legal right).
  • LC is informed that the borrower is in bankruptcy.
For example, I just looked at a recent charge-off: 130 phone calls (none answered), 3 messages left, 7 emails sent, 3 paper letters sent. (Obviously LC finds phone calls more effective at getting responses.)

I do see loans where LC contacts the borrower and they set up a new payment schedule. Often this doesn't work -- clearly a borrower who is behind in payments is already in trouble -- but the possibility is offered.

As Fred points out, the borrower can still pay off the loan even after it's been charged off. Perhaps someone here with a larger number of notes has seen this happen. I haven't.

If I were a borrower and unable to make a payment, I'd be answering every phone call, explaining my situation, asking what I can do. I don't know how long I'd be able to string it out, but I'd try. The difference of course is that I've never gotten into that situation. Very likely most P2P investors have always been astute enough to avoid that situation.

So really the only thing that might change is at what point LC sends a black mark to the credit reporting agencies. I don't know when that happens -- likely when payments are 30+ days overdue. It might indeed be reasonable to delay that reporting during a crisis.

But what do you do when the borrower won't answer the phone?

Edward

jrl

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Re: Crisis management - stop charge-offs ?
« Reply #6 on: April 01, 2020, 09:05:16 PM »
Two of my notes just popped into IGP with next payments scheduled in May. Both missed their late March payment.

It appears they're just doing a few months of deferred payments.

Apparently all 3 payments are on the date of their normal May payment. No additional interest.

Nothing out of the ordinary in the call log, it states: "4/1/20 (Wednesday)    Inbound Call (BR) - No Pay - Claims Hardship"

So basically the same thing as if they did nothing, except maybe no hit to their credit report for being prudent enough to call ahead? I'm assuming if they don't call they'll take a hit on their credit report at some point?

This action should seem reasonable to the average borrower, although it appears they need to call to put this in motion. They'll probably wind up having to extend this. Hopefully the borrowers get back to a financial situation where they're able to pay.

There were attempts to call the borrowers back after those calls, with no answer, so I'm assuming the decision was made in the last few hours.

Update/Edit: The two notes are now Current, with it saying "Deferred" in the payment status column for their March and April payments. The Next Payment Date is now listed as the day before their normal May/June payment, and the payment amount is now their normal monthly payment. Nothing more in the collection log. No indication of any of this in the notes_ext file yet. I was able to find 20 total out of my 1560 current+late notes with deferred payments and due dates over 30 days away. Half kept their IGP/Late status. My IGP/Late rate still looks normal.
« Last Edit: April 02, 2020, 07:18:40 PM by jrl »

Joe6Luck

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Re: Crisis management - stop charge-offs ?
« Reply #7 on: April 04, 2020, 02:05:16 AM »
Update/Edit: The two notes are now Current, with it saying "Deferred" in the payment status column for their March and April payments. The Next Payment Date is now listed as the day before their normal May/June payment, and the payment amount is now their normal monthly payment. Nothing more in the collection log. No indication of any of this in the notes_ext file yet. I was able to find 20 total out of my 1560 current+late notes with deferred payments and due dates over 30 days away. Half kept their IGP/Late status. My IGP/Late rate still looks normal.

It looks like I also have notes in the "Deferred" status. I tried lising them for sale and they showed up in "My Account" - "Open Sell Orders". However, they are actually not listed on on the page of "Browse Notes" when I tried searching for these notes. Am I the only one who notice this?

Lending Club should have provided an up-front notice on this (which is OK given the current situation), but they didn't and it is very disappointing.

Debt Free

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Re: Crisis management - stop charge-offs ?
« Reply #8 on: April 04, 2020, 06:16:16 AM »
I ran into this same problem several months ago.  I don't recall anything about a "deferred status."  Called LC and they were aware of the issue.  After 2-3 months the problem cleared up.  Never found out what the underlying problem was.