Author Topic: Revolving balances don't match description  (Read 9062 times)

priuspilot

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Revolving balances don't match description
« on: November 04, 2012, 05:00:38 PM »
It seems very common for a $10k loan description to cite "Paying off credit cards," while the revolving balance amount in the credit report is only $2k.

Is there a legitimate reason for this discrepancy or should this be met with suspicion? (I have this problem on Prosper, not sure if it also happens on LC)

Peter

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Re: Revolving balances don't match description
« Reply #1 on: November 04, 2012, 10:24:15 PM »
I have seen this before as well on both LC and Prosper. My take on this is that they are indeed paying off their credit card balance but there is also a secondary purpose for the loan. It might be buying a motorcycle or doing some home improvement but with debt consolidation being the most popular category I think borrowers feel the need to use it. As long as everything else looks in order it doesn't bother me.
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Lovinglifestyle

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Re: Revolving balances don't match description
« Reply #2 on: November 10, 2012, 03:32:19 PM »
When you say you looked at loans requesting double or more the debt owed, do you mean the stated RCB, or the salary times DTI, or according to volunteered information? 

LC does not include mortgage in DTI, but Prosper does, according to prior discussions someplace.  I asked LC about this once and received a good reply which I can't find, so I must have cleaned my mailboxes too diligently!

I spend more time than I should comparing DTI to salary and loan payment amount.  The 2% info about defaults for double or more requested is helpful--thanks!

nonattender

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Re: Revolving balances don't match description
« Reply #3 on: November 10, 2012, 08:49:57 PM »
Possibilities:

- Borrower using proceeds for other than revolving debt consolidation.
- Borrower has revolving line that does not report to the credit bureau from which Prosper or LC are pulling.
A little nonsense now and then is relished by the wisest men.

viking

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Re: Revolving balances don't match description
« Reply #4 on: November 10, 2012, 10:26:34 PM »
I believe that if the borrower has closed credit cards (which still has a balance on it), it will not show up as revolving debt in the credit report?

 This could explain why a borrower may be honest when he says that he wants to use the loan to pay of credit cards; open (included in the revolving balance) and closed (not included in the revolving balance)

DanB

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Re: Revolving balances don't match description
« Reply #5 on: November 12, 2012, 01:01:15 PM »
I agree with Peter. I find it highly suspect that the percentage of people claiming "debt consolidation" has consistently gone up year after year to the point where it is now over two thirds of all loans. Besides, 3 & 5 years are a long time for the average memory of the most undisciplined consumers in the world, aka the American consumer. As much as I detest anecdotal evidence, I've known of multiple examples where people have paid down their credit only to re-charge them back up. Hell,in the past,  I've done it myself................a couple of times.

As an investor, I look for ability to repay. The rest is just a lot of noise to me.

brycemason

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Re: Revolving balances don't match description
« Reply #6 on: November 12, 2012, 10:36:28 PM »
I'll give you this one for free: there's no relationship.

Defined "double_or_more" to be just as you say: double or more the amount requested vs. the revolving balance, but only defined among credit card refinance or debt consolidation. By the way, it's not that common to request twice as much or more--around 14%.


. summarize requested_to_revolving if double_or_more~=. & loss~=., det

                   requested_to_revolving
-------------------------------------------------------------
      Percentiles      Smallest
 1%     .0618095       .0286648
 5%     .1461917       .0298174
10%     .2376426       .0305769       Obs                3467
25%     .4672504       .0310281       Sum of Wgt.        3467

50%     .8508224                      Mean           139.4503
                        Largest       Std. Dev.      1157.935
75%     1.316779          10000
90%      2.70636          10000       Variance        1340813
95%     5.772595          10000       Skewness       8.343586
99%        10000          10000       Kurtosis       70.75363



Analysis restricted to 36-month credit-refi or debt consolidation loans completed prior to November 2012 (N = 3467). Defined loss to be being repaid less than the amount loaned. Chi-2 revealed no difference in proportion of loans repaid.


+----------------+
| Key            |
|----------------|
|   frequency    |
| row percentage |
+----------------+

double_or_ |         loss
      more |         0          1 |     Total
-----------+----------------------+----------
         0 |     2,551        425 |     2,976
           |     85.72      14.28 |    100.00
-----------+----------------------+----------
         1 |       419         72 |       491
           |     85.34      14.66 |    100.00
-----------+----------------------+----------
     Total |     2,970        497 |     3,467
           |     85.66      14.34 |    100.00

          Pearson chi2(1) =   0.0504   Pr = 0.822


HighROI

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Re: Revolving balances don't match description
« Reply #7 on: November 13, 2012, 07:08:14 AM »
According to the data provided by LC, there is a clear relationship between amount requested and outstanding debt with the default rate.


Here are the results of defaults to loans out of the two categories credit card refinance and debt consolidation. Included are only loans till end of June 2012. Calculations are based on amount requested and not amount issued.


1 = Outstanding debt equal to amount requested
.5 = Requested double outstanding debt

Defaults/loans

1 or more
938 of 19750 4.7%

.6 and under
448 of 8249 = 5.4%

.5 and under
369 of 6226 5.9%

.4 and under
278 of 4458 = 6.2%
« Last Edit: November 13, 2012, 11:30:56 AM by HighROI »
                   

brycemason

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Re: Revolving balances don't match description
« Reply #8 on: November 13, 2012, 10:31:58 AM »
It's pointless to look at all loans through June 2012, especially when nobody knows what LCs definition of default is.

HighROI

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Re: Revolving balances don't match description
« Reply #9 on: November 13, 2012, 11:29:08 AM »
If you take a look at the latest defaults and charge offs you will see that the recent months don't have any defaults yet. In months Jan-Mar there are 30+ defaults in each but in April there are only 17 and in May only 7 and 0 from June and on. So it's pointless to count in these months since the defaults didn't start yet. Actually when calculating defaults now we should probably consider only loans till end of March.
« Last Edit: November 13, 2012, 12:05:25 PM by HighROI »
                   

brycemason

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Re: Revolving balances don't match description
« Reply #10 on: November 13, 2012, 01:04:56 PM »
Then why did you do an analysis with them? This is why I only analyze matured loans.

Peter

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Re: Revolving balances don't match description
« Reply #11 on: November 13, 2012, 02:00:32 PM »
Thanks for the analysis Bryce. For everyone else here I have discussed the Lending Club loan history with Bryce many times and he has probably done more analysis on this loan history than most of us. Keep in mind he only looks at completed loans so his data is always three years old. Having said that, the analysis is not open to much interpretation because these loans have all completed and were either paid in full or defaulted.

So Bryce is saying that people who requested double the amount of their outstanding debt are no more likely to default than people who only request an amount equal to their outstanding debt. Now we may find that this changes over time and HighROI's analysis tends to suggest that. But it will not be conclusive for several more years.
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HighROI

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Re: Revolving balances don't match description
« Reply #12 on: November 13, 2012, 03:01:21 PM »
You were right, if you look at the older notes it's even more obvious.

Take notes of 2008, 2009, 2010 and you will see the following results:


1
478 of 5493 8.7%

.5
187 of 1728 =10.8%


Now unlike others I explained exactly what I did so that others can check it and I was hoping others would help me with this, but just to post numbers without any explanation doesn't really help.

If you look only at loans 3 years old there's not enough data to get a clear picture, also since the average default time is about after 1 year so it would be safe to use data up to 18 months ago.
« Last Edit: November 13, 2012, 03:07:04 PM by HighROI »
                   

brycemason

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Re: Revolving balances don't match description
« Reply #13 on: November 13, 2012, 04:36:55 PM »
I posted very precise definitions and methods. First of all, there aren't even (5493+1728) loans available to study from 2008, 2009, and 2010 that have completed---at least not even in the categories you told me to study (i.e., DEbt Consolidation and Credit Card Refinance).

Moreover, 3000+ loans is plenty enough data to do a Chi-2 test with reasonable power.

HighROI

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Re: Revolving balances don't match description
« Reply #14 on: November 13, 2012, 05:40:53 PM »
If we look at only completed loans the data is very limited and unreliable, but even analyzing just the completed loans shows even a bigger difference. I don't know what software you use but the data you posted is flawed.


Here's the results: Loans issued thru October 2009

Defaults/Loans

1
230 of 1794 12.8%

.5
61 of 410 14.9%