Author Topic: LC raises rates 10/2016 and updates loss forecast #s  (Read 16853 times)

Fred93

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Re: LC raises rates 10/2016 and updates loss forecast #s
« Reply #15 on: October 15, 2016, 06:05:17 PM »
You are right to compare LC to the industry, but unfortunately those industry data sets are not vintages.  I'm sure you understand the difference, so not so sure why you are alarmed they are diverging.  The vintages will show weakness way before an aggregate level will show weakness.

I've posted a lot of charts, showing different things. 

I started a few years ago keeping a chart of the aggregate delinquency of my portfolio vs LC's broad-based fund (essentially an index fund of LC loans).   When both started moving up a few months ago, I started looking around for  any other way of viewing the data I could find.

Look at this comparison of aggregate delinquency of LC's broad-based fund (essentially an index fund of LC loans) vs aggregate delinquency reported by the Fed.  (For presentation, I took my portfolio out of the chart.) 
http://www.lendacademy.com/forum/index.php?topic=4113.msg37951#msg37951
The suddenness of the upswing in the broad-based fund's aggregate delinquency is shocking, and seems impossible.  It is possible that there is something I don't know about this fund which is driving this. 

Rob L just now added a companion chart showing aggregate delinquency in his account.  It matches the shape of the LCBB fund delinquency curve quite well.  This would argue that the abrupt bend upward in May2016 is not something unique about the BB fund, but something going on across LC's loans. 
http://www.lendacademy.com/forum/index.php?topic=4113.msg38006#msg38006

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Also, not so sure if lower grade LC notes are comparable to the industry metrics you are choosing.  The subprime ABS market is experiencing increases in delinquencies.  Surely LC falls in between the two, with the high grades being closer to subprime than bank credit IMO.


I'm open to this being part of the answer.

I've looked around for (free) loan statistics, and have found many sources of credit card & consumer loan statistics (amounts, delinquency, defaults, etc) at the Federal Reserve banks.  However, I have not found any that would help me see what is happening in the lower FICO ranges.  Any ideas?  Free data would be my first choice.

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And like I've posted about ad nasuem, consumer credit can't get much better.  These things go in cycles and everything isn't always the underwriters fault.  I follow these markets pretty closely given my job and there is a lot of concern about near-term trends in consumer credit, especially low FICO.  Which seems consistent with LC

Sure.  Every cycle begins somewhere.  I'm open to the possibility that the coming upswing in defaults is beginning now at LC and Prosper.  In other words, we're viewing a fundamental change in consumer behavior, and adapting to it.  However, if this is right, we won't have confirming data until other folks sink with us, and that just isn't in any of the data.
« Last Edit: October 15, 2016, 06:09:35 PM by Fred93 »

rawraw

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Re: LC raises rates 10/2016 and updates loss forecast #s
« Reply #16 on: October 15, 2016, 06:08:15 PM »
You are right to compare LC to the industry, but unfortunately those industry data sets are not vintages.  I'm sure you understand the difference, so not so sure why you are alarmed they are diverging.  The vintages will show weakness way before an aggregate level will show weakness.

I've posted a lot of charts, showing different things. 

I started a few years ago keeping a chart of the aggregate delinquency of my portfolio vs LC's broad-based fund (essentially an index fund of LC loans).   When both started moving up a few months ago, I started looking around for  any other way of viewing the data I could find.

Look at this comparison of aggregate delinquency of LC's broad-based fund (essentially an index fund of LC loans) vs aggregate delinquency reported by the Fed.  (For presentation, I took my portfolio out of the chart.) 
http://www.lendacademy.com/forum/index.php?topic=4113.msg37951#msg37951
The suddenness of the upswing in the broad-based fund's aggregate delinquency is shocking, and seems impossible.  It is possible that there is something I don't know about this fund which is driving this. 


Quote
Also, not so sure if lower grade LC notes are comparable to the industry metrics you are choosing.  The subprime ABS market is experiencing increases in delinquencies.  Surely LC falls in between the two, with the high grades being closer to subprime than bank credit IMO.


I'm open to this being part of the answer.

I've looked around for (free) loan statistics, and have found many sources of credit card & consumer loan statistics (amounts, delinquency, defaults, etc) at the Federal Reserve banks.  However, I have not found any that would help me see what is happening in the lower FICO ranges.  Any ideas?  Free data would be my first choice.

Quote
And like I've posted about ad nasuem, consumer credit can't get much better.  These things go in cycles and everything isn't always the underwriters fault.  I follow these markets pretty closely given my job and there is a lot of concern about near-term trends in consumer credit, especially low FICO.  Which seems consistent with LC

Sure.  Every cycle begins somewhere.  I'm open to the possibility that the coming upswing in defaults is beginning now at LC and Prosper.  In other words, we're viewing a fundamental change in consumer behavior, and adapting to it.  However, if this is right, we won't have confirming data until other folks sink with us, and that just isn't in any of the data.
I think sink is a bit of a hype there.  There are securitization data that should be able to construct vintage

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Fred93

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Re: LC raises rates 10/2016 and updates loss forecast #s
« Reply #17 on: October 15, 2016, 08:47:47 PM »
I think sink is a bit of a hype there.

My apologies.  It was shorthand.

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There are securitization data that should be able to construct vintage

Having vintage data is not essential.  Could start with SOME data from somewhere outside marketplace lenders that shows some aggregate delinquency rates are going up.  So far all data I have says they're going down elsewhere.  Once we can see some data that is moving up, like the LC and Prosper data, then we can begin to build a story that something broader than marketplace lending is happening.

Agreed that there must be some performance data from some securitizations somewhere that might help, but I know zero about securitizations, so have no idea where to look.

In the name of full disclosure, I did find one Fed delinquency data series that started moving up mid-2015.  That's the "commercial and industrial loans" series. 
https://fred.stlouisfed.org/series/DRBLACBS

I've been ignoring data that isn't consumer installment or credit card, but this series has been moving up for several quarters, so its trend is real.  There must be a reason the C&I loan delinquencies are moving up, and its possible this is part of the picture.  On the other hand, in the 2002 recession, C&I loan delinquencies went up significantly, but consumer installment & credit card never did, so it is quite possible for C&I to go up on its own.  Every cycle is different.



jz451

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Re: LC raises rates 10/2016 and updates loss forecast #s
« Reply #18 on: October 15, 2016, 09:01:37 PM »
I wouldn't be too worried about looking at that chart because you can see that currently the curve is on the bottom end where the slope is not as steep as the big spikes where it shows a recession has occured.

Having vintage data is not essential.  Could start with SOME data from somewhere outside marketplace lenders that shows some aggregate delinquency rates are going up.  So far all data I have says they're going down elsewhere.  Once we can see some data that is moving up, like the LC and Prosper data, then we can begin to build a story that something broader than marketplace lending is happening.

Agreed that there must be some performance data from some securitizations somewhere that might help, but I know zero about securitizations, so have no idea where to look.

In the name of full disclosure, I did find one Fed delinquency data series that started moving up mid-2015.  That's the "commercial and industrial loans" series. 
https://fred.stlouisfed.org/series/DRBLACBS

I've been ignoring data that isn't consumer installment or credit card, but this series has been moving up for several quarters, so its trend is real.  There must be a reason the C&I loan delinquencies are moving up, and its possible this is part of the picture.  On the other hand, in the 2002 recession, C&I loan delinquencies went up significantly, but consumer installment & credit card never did, so it is quite possible for C&I to go up on its own.  Every cycle is different.

rawraw

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LC raises rates 10/2016 and updates loss forecast #s
« Reply #19 on: October 15, 2016, 09:02:32 PM »
C&I is up because of weakness in energy lending, such as oil, gas, coal.

Example of weakness in abs market.

http://www.autoremarketing.com/subprime/sp-global-ratings-spots-more-abs-deterioration

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« Last Edit: October 15, 2016, 09:04:28 PM by rawraw »

Fred93

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Re: LC raises rates 10/2016 and updates loss forecast #s
« Reply #20 on: October 15, 2016, 10:06:03 PM »
C&I is up because of weakness in energy lending, such as oil, gas, coal.

That makes sense.  I've been expecting all the layoffs in energy to impact LC loans, which is why I've excluded the big fracking states over the past year. 

Fred93

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Re: LC raises rates 10/2016 and updates loss forecast #s
« Reply #21 on: October 15, 2016, 10:29:43 PM »
I am finding more articles on growing subprime auto delinquency, such as
http://www.bloomberg.com/news/articles/2016-10-11/more-americans-falling-behind-on-car-loan-payments-s-p-says
...
Quote
Subprime borrowers are falling behind on their car loan payments at the highest rate in more than six years, and some bonds backed by these loans are vulnerable to getting downgraded, according to S&P Global Ratings.

Competition has spurred lenders to loosen standards and resulted in more delinquencies and default by people with weak credit, the ratings firm said. Subprime borrowers were behind by more than 60 days on about 4.85 percent of auto loans in August, the highest level since January 2010. The rate was 4.14 percent in August of last year, S&P said. For prime loans, delinquencies in August rose to 0.5 percent from 0.41 percent in the same month in 2015.
...
Losses on risky subprime loans rose to 8.35 percent in August, the highest since 2010. That takes into account the amount lenders are recovering by repossessing and reselling...  Losses may "pierce" 10 percent by year-end, [Fitch] said last month.

The rising delinquencies and losses come even as the U.S. economy is relatively strong. ...
« Last Edit: October 15, 2016, 10:31:29 PM by Fred93 »

rawraw

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Re: LC raises rates 10/2016 and updates loss forecast #s
« Reply #22 on: October 16, 2016, 05:11:05 AM »
C&I is up because of weakness in energy lending, such as oil, gas, coal.

That makes sense.  I've been expecting all the layoffs in energy to impact LC loans, which is why I've excluded the big fracking states over the past year.
In bank credit, most are saying they aren't seeing weakness in consumer. Zion Bancorp has a slide comparing consumers in their oil areas to non oil. But there is a difference in abs market. There were some journalists covering it in the first half of the year

http://www.businessinsider.com/auto-delinquencies-in-the-oil-patch-2016-5

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nonattender

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Re: LC raises rates 10/2016 and updates loss forecast #s
« Reply #23 on: October 16, 2016, 06:23:03 AM »
think you're looking for a macro trend that doesn't exist / think this is still localized to p2p/mpl...  peeriq.com keeps lists of securitizations.
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rawraw

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Re: LC raises rates 10/2016 and updates loss forecast #s
« Reply #24 on: October 16, 2016, 12:13:16 PM »
think you're looking for a macro trend that doesn't exist / think this is still localized to p2p/mpl...  peeriq.com keeps lists of securitizations.
I disagree that P2P / MPL is only experiencing this.  As I've stated, bank credit (the FRED graphs) is more conservative than low grade LC notes, which the effect is most pronounced.  This is consistent with the weakness in subprime more broadly.  Now I cannot tell whether LC is outperforming / underperforming this trend, since I haven't done the work.   


Fred93

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Re: LC raises rates 10/2016 and updates loss forecast #s
« Reply #25 on: October 16, 2016, 06:51:01 PM »
In my search for the answers to life's persistent questions (ie whether the rise in delinquency at LC is localized to P2P or is broader), I've been searching for statistics for non-P2P loans which show recent degradation vs time.  Hard to find, as most credit statistics show pretty steady improvement over past several years.  Well, I found some today.  S&P has a set of consumer credit default indeces.  (These are default rather than delinquency, but I'll take what I can get.)



These do show an uptick in the last few months.  Not big, but it is consistent direction over last 3 months.  Note that these indeces are monthly, and have been updated thru August, whereas the Fed stats I showed earlier are quarterly, and have only been updated thru June.  So maybe these upticks are simply not visible yet in the Fed data, but will be soon.

These upticks are small in size, much smaller than the move up in LC delinquencies.  I don't have an explanation for that.  In fact, one could argue that they are about the same size as ordinary ripples that have occurred in the past without signalling a trend.

This doesn't settle anything of course.  Its just more data.  All the theories are still possible.
« Last Edit: October 16, 2016, 06:56:12 PM by Fred93 »

nonattender

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Re: LC raises rates 10/2016 and updates loss forecast #s
« Reply #26 on: October 16, 2016, 06:59:57 PM »
I'm not saying you won't see trickle-up effect of fico inflation into other areas (any company, whether credit card, installment loan poachers (otherp2p/disc/gs/etc), or mortgage providers will become to some degree infected by the fico inflation, as this population moves around the financial ecosystem with their overly inflated ficos - but i do think it originates (pardon the pun) w/p2p originators pushing CC debt into installment lines...  if you find a big macro trend, you can then argue for backwards correlation, but i don't think that's what you're gonna find...  think we're at critical saturation point where there are enough "fico zombies" w/inflated scores (due consolidation into installment lines/multiple installment lines - where else can you get 5 digits of cash into your chking account?) that macro trends will be micro-driven, and not the other way around...  for now...

Sub-prime auto I kinda toss out, btw - Jamie Dimon called that bubble, in public, like six months ago now - expect major deterioration.

eta:  anyway, i'm busy getting myself on some kind of watchlist for reading wikileaks... so my mind's not really in the p2p discussion...
« Last Edit: October 16, 2016, 07:03:24 PM by nonattender »
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Fred93

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Re: LC raises rates 10/2016 and updates loss forecast #s
« Reply #27 on: October 16, 2016, 11:04:02 PM »
Sean Murray of Debanked.com had a reaction to LC's announcement which was similar in its skepticism to my reaction.  I think I may start checking his blog more often.  (I believe he's a member here, under a different name.)

http://debanked.com/2016/10/for-lending-club-aint-nothing-but-a-ef-and-g-thang/
Quote
Investing in a G-grade Lending Club note is projected to earn 313 basis points less than what was projected six months ago. The company published new projected investor returns in their 8-K filed on Friday that showed an expected return of 9.06% on G-grade notes. Thatís down from the 12.19% figure they published in an April filing. F-grade note projections decreased by 155 basis points. For Es, itís down 28 basis points.

ďRate increases are concentrated in Grades F and G with marginal changes in other grades,Ē the company announced on Friday while reporting a weighted average 26 basis point interest rate increase. But will rate increases save the Fs and Gs from plummeting returns?

As G is the most risky grade, that means the most risky borrowers on Lending Club are projected to earn investors only 9.06%. Is all that risk worth it? Or perhaps more importantly, is that projection even realistic? Six months ago, the riskiest class was projected to earn 12.19%. Nothing has really changed from a macroeconomic standpoint since then, so itís difficult to even pinpoint why investors should expect a 25% lower return on the riskiest borrowers all of the sudden or why they should be confident that it wonít get worse.

In response to the "all of a sudden" question... Delinquencies have been rising since since May. 

In response to "nothing has really changed from a macroeconomic standpoint"... That is precisely my present quandary.

He talks about the G grade, and I don't particularly care about the G grade, as I don't invest in it, but I know for sure that the C and D loans in my portfolio feel this change, and I don't know why it is happening.
« Last Edit: October 16, 2016, 11:14:46 PM by Fred93 »

rawraw

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LC raises rates 10/2016 and updates loss forecast #s
« Reply #28 on: October 17, 2016, 10:52:57 AM »
How can there be a bubble in auto? Are you suggesting car prices are too high and will fall in the future?

You want to toss out Subprime, but a large percentage of these defaults on LC are Subprime. They start marginally above the line in the sand, but are still impacted by similar things. Indirect auto will not be a risk because of a bubble (maybe you can make this claim on used, but bubble is a bit much) . The collateral is not speculated on, but the borrowers seem to be experiencing heightened levels of stress. Who knows why, maybe it's energy, ag or something else.  Both are impacted by the borrowers willingness or ability to repay. Collateral has little to do with it.

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Lovinglifestyle

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Re: LC raises rates 10/2016 and updates loss forecast #s
« Reply #29 on: October 17, 2016, 11:28:27 AM »
I'm thinking the rise in health insurance premiums is one of the stressors for borrowers.  That is enough to throw off the ability to pay loans for some people.  But it doesn't explain the May 2016 effect.