Author Topic: Shoud LC be allowed to modify loan conditions under extenuating circumstances?  (Read 6323 times)

anabio

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Last Thursday I had 7 of my 684 current loans go into grace. Two of those had made 27 payments, three had made 26 payments and two had made 21 payments. The two that had been in grace before Thursday had made 26 and 27 payments.

I have 8 loans 16-30 late all having made at least 24 payments.

I have 18 loans 31-120 late the majority of which have made at least 20 payments.

I have to believe that someone who has made so many payments and then falls behind has to have extenuating circumstances; loss of a job, unexpected medical payments, etc.

I'm not an expert at LC's rules but I don't believe I saw anything in their collection procedures that would allow them to modify loan conditions.

I would like to know what the consensus out there would be to allowing Lending Club’s collection department to modify the conditions of a loan for those people who have such extenuating circumstances and extend the loan payoff by let’s say another year or two. That would cut the loan payment down and hopefully provide a little relief to those borrowers.

I know that would mean locking up the investor’s funds for another year or two when they (you and I) did not intent to fund a 4-5 year loan but think about it…the majority of loans going 31-120 days late end up being charged off. What is the harm in seeing if some of those loans can be made whole just by the simple change of adding a year to the payback schedule? LC would not need to do that much more work…in fact their collection department might do less work because they might not have to call the borrower every few days for 4 months.

I don’t know where the cutoff should be as far as how many on time payments have been made but there should be some consideration given to those borrowers who have really tried but due to circumstances beyond their control have problems paying their monthly payment. Sure, nothing says the extended payback schedule would ensure all loans are paid back but you would still be ahead because you would get more payments than if the loan went charged off at the start.
As Will Rogers stated: : I'm not as concerned about the return on my money as I am the return of my money

yojoakak

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Isn't that what Payment Plans are?

It's not perfect, see for example: http://www.lendacademy.com/forum/index.php?topic=1797.0
« Last Edit: August 21, 2016, 11:55:34 AM by yojoakak »

Houstoncory

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Isn't that what Payment Plans are?

True.


anabio

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Isn't that what Payment Plans are?

True.

I don't think so. All the payment plans I have seen are for same amount as their monthly payment...or more depending on how long they pay in the future. I don't believe I have ever seen a payment plan that is less than their normal monthly amount. Lets face it...a payment plan that requires the borrower to pay 2 times their normal payment will mainly lead to the loan going later and later and eventually defaulting.

I'm talking about cutting their monthly payments for good and adding another year or so to the loan duration.
As Will Rogers stated: : I'm not as concerned about the return on my money as I am the return of my money

rawraw

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I don't know if they do that, but I know they used to disclose something that suggested 36 month notes could extend out.  I always assumed this was due to payment plans.  But this was six years ago-ish, so I may be misremembering the disclosure and my impression of it.

AnilG

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The borrowers are put on payment plan when they are having trouble making payments and allowed to catch up with late payments. AFAIK, there is no permanent reduction in monthly payment and extension of loan term after loan has been issued. Lenders have certain expectations about periodic cash flow and term length of the loans in their portfolio.  Any adjustment to an in-progress loan will be unfair to lenders.  Taking out a new longer term loan with lower monthly payments might be an option for such borrowers.
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bobeubanks

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I had a Prosper loan have its term extended by three months. This was after several missed payments followed by regular monthly payments again for several months. But alas, right after the term was extended, they have not paid again.

TheReaper

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Last Thursday I had 7 of my 684 current loans go into grace. Two of those had made 27 payments, three had made 26 payments and two had made 21 payments. The two that had been in grace before Thursday had made 26 and 27 payments.

I have 8 loans 16-30 late all having made at least 24 payments.

I have 18 loans 31-120 late the majority of which have made at least 20 payments.

I have to believe that someone who has made so many payments and then falls behind has to have extenuating circumstances; loss of a job, unexpected medical payments, etc.

I'm not an expert at LC's rules but I don't believe I saw anything in their collection procedures that would allow them to modify loan conditions.

I would like to know what the consensus out there would be to allowing Lending Club’s collection department to modify the conditions of a loan for those people who have such extenuating circumstances and extend the loan payoff by let’s say another year or two. That would cut the loan payment down and hopefully provide a little relief to those borrowers.

I know that would mean locking up the investor’s funds for another year or two when they (you and I) did not intent to fund a 4-5 year loan but think about it…the majority of loans going 31-120 days late end up being charged off. What is the harm in seeing if some of those loans can be made whole just by the simple change of adding a year to the payback schedule? LC would not need to do that much more work…in fact their collection department might do less work because they might not have to call the borrower every few days for 4 months.

I don’t know where the cutoff should be as far as how many on time payments have been made but there should be some consideration given to those borrowers who have really tried but due to circumstances beyond their control have problems paying their monthly payment. Sure, nothing says the extended payback schedule would ensure all loans are paid back but you would still be ahead because you would get more payments than if the loan went charged off at the start.

They should generate a new loan(pay off remainder of existing loan with new loan) with a higher rate over an 18 month payment.  Anyone who purchases these 18 month notes, will know, that they are purchasing a loan that people had problems paying off (this new 18 month loan category, is only for this situation).  Obviously, not everyone who has trouble paying, will qualify for this new category...still have to have job would be mandatory, unless on fixed retirment.  That would be onel work around....but I think would be highly cumbersome for LC to manage, and not worth their effort.

If I had to guess, in the long run...I think LC will eventually shut the door on small investor accounts.  It just won't make financial sense to deal with smaller investor accounts.  I can see them going to 50k minimum or something like that.  They will eventually be forced to increase their bottom line...once out of their growth phase, and this will be one way to do it...their fixed costs(number of investor relation employees) will lower, by dealing with a smaller number of investors.  But who knows, as massive advances are made in computing (quantum computing and the likes) majority of all our jobs will be gone in 20 years.

The fact is LC has largely become a I2P lender..institution to peer....sad but true.

Fred

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I would like to know what the consensus out there would be to allowing Lending Club’s collection department to modify the conditions of a loan for those people who have such extenuating circumstances and extend the loan payoff by let’s say another year or two. That would cut the loan payment down and hopefully provide a little relief to those borrowers.

This is not a market practice.

Lenders and investors are business entities; not charity.  On personal basis, they may perform charity activities such as you mentioned above.  However, as business entities, their goals are to maximize profits.

anabio

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Lenders and investors are business entities; not charity.  ---
  However, as business entities, their goals are to maximize profits.

I understand completely what you are saying but I was not thinking of being charitable. Since the majority (almost all of mine) of 31-120 lates go charged off I thought this would be a way of "maximizing profits". If loan is extended and borrower still did not pay that is no skin off my neck...I would have lost the entire balance anyway. BUT...if the relief given to the borrower in the form of a lower monthly payment allows him/her to continue paying...even if it is only one or so more months then I am ahead...am I not?

And just maybe that extension/lower payment allows the borrower to finish off the loan...keeping his credit score from crashing and giving me my money...looks to be a win/win to me.
As Will Rogers stated: : I'm not as concerned about the return on my money as I am the return of my money

anabio

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If I had to guess, in the long run...I think LC will eventually shut the door on small investor accounts.  It just won't make financial sense to deal with smaller investor accounts.  I can see them going to 50k minimum or something like that.  They will eventually be forced to increase their bottom line...once out of their growth phase, and this will be one way to do it...their fixed costs(number of investor relation employees) will lower, by dealing with a smaller number of investors.  But who knows, as massive advances are made in computing (quantum computing and the likes) majority of all our jobs will be gone in 20 years.

The fact is LC has largely become a I2P lender..institution to peer....sad but true.

If I was intending to continue investing in P2P I would probably not be able to do so in the future for the reason you stated or because of low loan demand. However, that might just open the door for a "new and improved" P2P company that would only allow investors and not institutions. LC and Prosper (along with other companies) have gone huge into the institutional realm. I can't see any new company starting up and competing with them.

However, I CAN see a new company starting up and not allowing institutions. It would need people who can see the opportunity in the niche market.  But there would not be the pressure associated with having to bend knees to the institutions (or stock investors hint: DON'T GO PUBLIC) and in the process "relaxing rules" or "cutting corners" in order to satisfy their loan demands.
As Will Rogers stated: : I'm not as concerned about the return on my money as I am the return of my money

jennrod12

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Since the majority (almost all of mine) of 31-120 lates go charged off I thought this would be a way of "maximizing profits". If loan is extended and borrower still did not pay that is no skin off my neck...I would have lost the entire balance anyway. BUT...if the relief given to the borrower in the form of a lower monthly payment allows him/her to continue paying...even if it is only one or so more months then I am ahead...am I not?


How many people do you think will pay on time once they find out how generous you are when they don't?

Jenn

Emmanuel

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Since the majority (almost all of mine) of 31-120 lates go charged off I thought this would be a way of "maximizing profits". If loan is extended and borrower still did not pay that is no skin off my neck...I would have lost the entire balance anyway. BUT...if the relief given to the borrower in the form of a lower monthly payment allows him/her to continue paying...even if it is only one or so more months then I am ahead...am I not?


How many people do you think will pay on time once they find out how generous you are when they don't?

Jenn

You don't have to be generous. Simply extend the term, even increase the rate.

In case of recession, revolving loans have lower defaults than installment loans. People stop paying back, but the debt it not forfeited. Far from it: it still accrues interest.

anabio

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How many people do you think will pay on time once they find out how generous you are when they don't?

Jenn

I guess my answer to that is what I have previously stated...you only give this option to people who have already made a lot of payments. Maybe I have more faith in people but I can't believe that people who have already made 20-24 payments are that kind of advantage takers. I have to believe that there is a justifiable, extenuating reason they couldn't make the payment. I guess someone could take advantage like that but think objectively, who would take out a loan and religiously make 2 years worth of payments in the hopes that they would be able to to get the loan modified so they could continue making payments for an extra year to pay off the loan. Its not as if you were forgiving the loan, or reducing the principal. You are just allowing them to make a smaller monthly payment.

I guess my other answer is that someone who would take advantage of that situation would not take advantage in that way. They would just stop paying and ignore any offer to extend the loan term. Then where are you? Well you are back in the same boat you were in already:  The loan was not going to be paid back anyway so you have lost nothing.

Like I said previously, what is the harm in giving them the option? I assume you are invested in loans. I assume you have loans that have gone 31-120 days late. What is your experience with a loan that old getting back on track? As I have said I only had 3 loans do this...and they all were in the 30-45 day mark and only one of them is still current. I doubt any loan more than 60 days late has ever been recovered. This capability at least gives you the chance of seeing some, if not all, of your money come back to you.
As Will Rogers stated: : I'm not as concerned about the return on my money as I am the return of my money

TheReaper

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How many people do you think will pay on time once they find out how generous you are when they don't?

Jenn

I guess my answer to that is what I have previously stated...you only give this option to people who have already made a lot of payments. Maybe I have more faith in people but I can't believe that people who have already made 20-24 payments are that kind of advantage takers. I have to believe that there is a justifiable, extenuating reason they couldn't make the payment. I guess someone could take advantage like that but think objectively, who would take out a loan and religiously make 2 years worth of payments in the hopes that they would be able to to get the loan modified so they could continue making payments for an extra year to pay off the loan. Its not as if you were forgiving the loan, or reducing the principal. You are just allowing them to make a smaller monthly payment.

I guess my other answer is that someone who would take advantage of that situation would not take advantage in that way. They would just stop paying and ignore any offer to extend the loan term. Then where are you? Well you are back in the same boat you were in already:  The loan was not going to be paid back anyway so you have lost nothing.

Like I said previously, what is the harm in giving them the option? I assume you are invested in loans. I assume you have loans that have gone 31-120 days late. What is your experience with a loan that old getting back on track? As I have said I only had 3 loans do this...and they all were in the 30-45 day mark and only one of them is still current. I doubt any loan more than 60 days late has ever been recovered. This capability at least gives you the chance of seeing some, if not all, of your money come back to you.

I've bought and sold thousands on Folio.  Given that, I have 157 that have been charged off.  With 12 in default, and 147 late 31 to 120.  You're right..most that go past that 60 day mark aren't recovered.  But I've had several that have...just by sheer probability.  I've also purchased several that were around 70 to 90 days past due, that resumed paying (not worth the time it takes to sort through all and make a gut decision on whether they'll resume).  I sold all those once current and lost track...so couldn't say whether they resumed normal payments repeatedly.  In addition, I have $146 in recoveries (outside compaines) that purchased the bad loans and recovered some of my losses.  So to say they'll never get back on track past 60, isn't completely true.