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Post by ablrateandy on Feb 7, 2016 14:30:17 GMT
And that's in a "durable economy" with sub 5% (visible) unemployment and near zero rates.
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j
Member of DD Central
Penguins are very misunderstood!
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Post by j on Feb 7, 2016 15:26:44 GMT
Do we need to start getting concerned over this side of the pond?
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j
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Penguins are very misunderstood!
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Post by j on Feb 7, 2016 19:16:22 GMT
Alarming to see LC's share price on NYSE has lost nearly 3/4 of its value from just over $25 Dec/Jan 2015 to just $7 now!!
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Post by westonkevRS on Feb 7, 2016 19:28:38 GMT
For my tuppence, it's the business model that is the problem. In the U.S. and the very the original P2P model before the innovation of the Provision Fund (and its mini-me SafeGuard copy  ), the incentive of the platform to minimise defaults was purely reputation. The more loans that could be matched meant more revenue, with the risk that concerns regarding quality kicked down the road to be worried about another time. In my opinion this is a risk that any lenders on non-PF style accounts should worry about, i.e. that the platform desperately puts any old loan on offer to drive revenue and stay afloat or meet the aggressive targets of the shareholders. Higher than average returns advertised fail to materialise as defaults take their toll on interest received and even capital, don't believe me - look at the thread on a certain European platform.... I know you could argue the same risk is true of RateSetter, but we are fully aware that we love and die by the strength of the Provision Fund. Therefore quality of loans and the robustness of the fund will always take priority over growth. Kevin. P.S. The vast majority of monies funded to loans on the U.S. platforms is institutional, so normal punters won't have lost. The issue is, will the institutions continue to lend on the platform the the returns are less than their target due to defaults? Institutions can be fickle |
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pikestaff
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Post by pikestaff on Feb 7, 2016 22:33:19 GMT
... we love and die by the strength of the Provision Fund... Love and die? I know War and Peace was on tonight, but still... 
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Post by ablrateandy on Feb 7, 2016 23:02:34 GMT
All lending decisions are based on assumptions. What you need to question is whether the basis for assumptions is correct. In a lot of cases they are based upon the very models that they claim to replace... .
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james
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Post by james on Feb 7, 2016 23:59:09 GMT
And that's in a "durable economy" with sub 5% (visible) unemployment and near zero rates. The problem was/is the pricing calculation, not really the economy, though it's interesting that they have also been tweaking based on economic expectations, suggesting that a worse economy is not normally a fully priced in part of the model. Do we need to start getting concerned over this side of the pond? We should not be concerned, we should stay concerned because we always have to trust the platform ratings, while with notable exceptions like Wellesley and aspects of MoneyThing the platform itself doesn't directly suffer due to defaults as much as we do. At least a couple of platforms have been taking on increased risk levels to satisfy borrower demand, for example one (not Wellesley) that has increased the acceptable LTV required on its BTL-only lending business. We always have to be aware that it is not just the borrowers but the platforms that we are evaluating in any lending decisions that we make. In spite of my comment below, Zopa isn't the other one that was mentioned in a recent press story about this. For my tuppence, it's the business model that is the problem. In the U.S. and the very the original P2P model before the innovation of the Provision Fund (and its mini-me SafeGuard copy ), the incentive of the platform to minimise defaults was purely reputation. The more loans that could be matched meant more revenue, with the risk that concerns regarding quality kicked down the road to be worried about another time. In my opinion this is a risk that any lenders on non-PF style accounts should worry about, i.e. that the platform desperately puts any old loan on offer to drive revenue and stay afloat or meet the aggressive targets of the shareholders. Higher than average returns advertised fail to materialise as defaults take their toll on interest received and even capital, don't believe me - look at the thread on a certain European platform.... I know you could argue the same risk is true of RateSetter, but we are fully aware that we love and die by the strength of the Provision Fund. Therefore quality of loans and the robustness of the fund will always take priority over growth. As Zopa's numbers appear to illustrate, the protection fund lending model is a potential problem as well because it can lead to investors paying less attention to risk while the level of risk increases. Just look at what has happened to their expected defaults level since they introduced their Safeguard Trust in April 2013:
| arrears over 45 days
| Expected defaults
| Actual defaults
| | 2015 | 0.01 | 3.38 | 0.04 | | 2014 | 0.03 | 2.30 | 0.61 | 2013
| 0.02 | 1.41 | 0.55 | | 2012 | 0.08 | 1.50 | 0.78 | | 2011 | 0.31 | 2.01 | 0.96 | | 2010 | 0.47 | 2.59 | 2.18 | | 2009 | no data
| 2.66 | 2.04 | | 2008 | no data
| 3.68
| 5.54 | | 2007 | no data
| 2.68 | 0.52 | 2006
| no data
| 1.77 | 0.18 | 2005
| no data
| 1.61 | 0.15 |
That's Zopa's trend in expected and actual defaults from their site as of my post back in November. Caution: there's a chance that it might include the higher risk non-consumer lender part of their business and those are not covered by the Safeguard Trust. If true that would mean that the consumer lenders have a lower level of expected and actual defaults than the table and their web site show. I think that both RateSetter and Zopa have decent underwriting models, in general. Not so sure that the interest rate margin to lenders is as good as I'd like to deal with adverse conditions, though I think that economic trends will make that OK by not causing a markedly worse economic climate for loans being made today. All lending decisions are based on assumptions. What you need to question is whether the basis for assumptions is correct. In a lot of cases they are based upon the very models that they claim to replace... . I find particularly amusing Bondora's use of an EU-wide average price benchmark for their pricing floor that includes secured loans while they are doing only unsecured lending to Estonia, Finland, Spain and Slovakia (well, few of those now).
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mikeh
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Post by mikeh on Feb 8, 2016 14:57:08 GMT
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james
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Post by james on Feb 8, 2016 18:09:54 GMT
Seems this thread is another Mountain out of a Molehill story. That would depend on whether you were investing in the borrowers with the properties of those two segments or not, and how heavily vs a perfectly even distribution of all 36 month loans. The two bad places to be were: 1. Debt to Income Ratio>20% and G3Statistical Model score>0.149. 2. borrowers who obtained more than 1 installment loan from a bank or other lender in the last 12 months and have a G3Statistical Model score >0.08. Lending Club isn't a place where you get the whole mixture of segments for a given term. If you try it, you have to try to beat automated tools run by professionals who are trying to pick the best loans, with far more time to spend on it than you and faster and closer computers to do the work. Rather than burying in overall averages it would be interesting to know how many consumer vs professional lenders were overweight in those areas or underweight and the effect on their performance for the relevant time period of loan originations. That is, the impact it had on the negatively affected lender customers. I assume that the year end figures will bury the bad news for some in overall averages. It's normal for there to be variations in model pricing performance but knowing that it's a variation doesn't really help those anyone who received lower than anticipated returns because of it.
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Post by wiseclerk on Feb 11, 2016 13:56:08 GMT
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Post by propman on Feb 12, 2016 9:00:40 GMT
Is it just me, or do there default projections look optimistic when current trajectory compared with earlier periods?
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Post by chris on Feb 12, 2016 18:17:19 GMT
For my tuppence, it's the business model that is the problem. In the U.S. and the very the original P2P model before the innovation of the Provision Fund (and its mini-me SafeGuard copy ), the incentive of the platform to minimise defaults was purely reputation. The more loans that could be matched meant more revenue, with the risk that concerns regarding quality kicked down the road to be worried about another time. In my opinion this is a risk that any lenders on non-PF style accounts should worry about, i.e. that the platform desperately puts any old loan on offer to drive revenue and stay afloat or meet the aggressive targets of the shareholders. Higher than average returns advertised fail to materialise as defaults take their toll on interest received and even capital, don't believe me - look at the thread on a certain European platform.... I know you could argue the same risk is true of RateSetter, but we are fully aware that we love and die by the strength of the Provision Fund. Therefore quality of loans and the robustness of the fund will always take priority over growth. Kevin. P.S. The vast majority of monies funded to loans on the U.S. platforms is institutional, so normal punters won't have lost. The issue is, will the institutions continue to lend on the platform the the returns are less than their target due to defaults? Institutions can be fickle It's an interesting argument although I can't see the distinction being as great as you make out. With RS you have structured the provision fund as being lender money, it doesn't belong to you it belongs to the lenders. Is wanting to maintain the provision fund at a healthy level really any different to other platforms that want to protect lender money? As I understand it at the same time your model of buying back whole loans that default creates an additional platform level risk that you do not need losses to exceed provision funding but instead live or die based on the current total defaulted loans plus crystallised losses, which will be a greater number by definition. No platform wants to lose lender money but there has to be a balance of risks in order to generate a return. Some platforms will get that formula wrong, some will introduce their own structural risks on top possibly without realising, some platforms will be forced into making loans they wouldn't normally because they need the income, some may suffer because they are over exposed to one sector that happens to be hit harder than others, but most importantly some will get it right be it through taking security, better credit models, provision funds, all of the above , an insurance model, or something else entirely. The indicators point towards the market entering a less benign environment and all platforms are going to have their models and theories tested if that comes to pass. It will be interesting to see which platforms come through unscathed, which are able to adapt rapidly enough, and which get their comeuppance. But I suspect more than one model will survive and even thrive.
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), the incentive of the platform to minimise defaults was purely reputation. The more loans that could be matched meant more revenue, with the risk that concerns regarding quality kicked down the road to be worried about another time. In my opinion this is a risk that any lenders on non-PF style accounts should worry about, i.e. that the platform desperately puts any old loan on offer to drive revenue and stay afloat or meet the aggressive targets of the shareholders. Higher than average returns advertised fail to materialise as defaults take their toll on interest received and even capital, don't believe me - look at the thread on a certain European platform....
