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Prosper Loans Historical Listings: Default Rate, Originations, Rating and Days Past Due

Prosper Loans Historical Listings: Prosper Ratings, Charge Offs and Performance

Lending Club Secondary Market: Loan Vintage and Loan Status at Listing

Posted by Anil Gupta | Monday January 26, 2015, 2:11 pm | Categories: Lending Club

The secondary market on both peer to peer lending platforms, Lending Club and Prosper, is an enigma for most lenders. I routinely get questions from PeerCube users about pricing and markup on FOLIOfn secondary market. Even though PeerCube FOLIOfn Platform Pricing tries to help by providing pricing and markup information based on loan status, FICO trend, vintage, grade, and days since last payment in secondary market, pricing notes for buying and selling on secondary market still depends on a lot of intuition and gut feeling.

One of the advantage of operating a data analytics based web service like PeerCube is that we capture a lot of data including data on secondary platform. Recently I decided to review and analyze the data captured from Lending Club FOLIOfn secondary market.

Dataset

The data on secondary platform was downloaded from PeerCube on January 18th, 2015. The dataset includes data on all the notes, detected by PeerCube, as listed on secondary platform and then merged with historical loan performance data from Lending Club.

The dataset includes 1,055,984 notes, belonging to 206,118 distinct loans, listed in 2014 on secondary platform. As a comparison, Lending Club issued 161,231 loans in little over first three quarters of 2014 on its primary platform. The total outstanding principal and asking price was $39,189,389 and $39,104,572 respectively.

The lenders who believe there is not enough loan inventory on Lending Club primary platform may want to consider secondary platform as source of additional loan inventory.

Loan Origination Vintage

The table below shows the loan and notes count, outstanding principal and ask price with Origination Year. The origination year (vintage) indicates when the loan/note was originally issued. As a reminder, all these notes were listed on secondary platform in 2014.


Lending Club Secondary Market - Vintage, Volume, Outstanding Principal, and Ask Price
Origination Year Loan Count Notes Count Notes per Loan Outstanding Principal Ask Price Ask Price to Principal Outstanding Ratio
2009 5 30 6.0 $316 $305 96.5%
2010 1,431 6,743 4.7 $119,375 $115,601 96.8%
2011 9,129 49,357 5.4 $1,204,232 $1,186,820 98.6%
2012 35,900 197,935 5.5 $5,103,776 $4,951,168 97.0%
2013 84,877 463,100 5.6 $17,619,593 $17,460,381 99.1%
2014 74,776 338,819 4.5 $15,142,096 $15,390,298 101.6%
Total 206,118 1,055,984 5.1 $39,189,389 $39,104,572 99.8%

Over 75% of notes and loans listed on secondary platform were originated in 2013 and 2014 which is not surprising considering very high origination volume on the primary platform in recent years. Overall, about five notes for each loan were listed on the secondary platform at about same asking price as the outstanding principal with little variation from one vintage to another.

The chart below shows the loan and notes count, outstanding principal, and ask price with loan origination quarter. There is consistent rise in volume and amount listed with origination quarter for loans issued by the end of 2013. There is also precipitous drop in volume and amount originated in fourth quarter of 2014, primarily due to unavailability of issued loan data in fourth quarter. Lending Club doesn’t publish loan originations in a quarter until 30 to 60 days after the end of the quarter.


Chart 1: Lending Club Secondary Platform Listings: Loan and Notes Volume with Origination Quarter
Chart 1: Lending Club Secondary Platform Listings: Loan and Notes Volume with Origination Quarter

Loan Status at Listing

Lending Club only allows notes with Issued, Current, In Grace Period, Late (16–30 days), and Late (31–120 days) loan status to be listed on secondary platform. The table below shows the loan and notes count, outstanding principal and ask price with loan status at listing.


Lending Club Secondary Market - Loan Status, Volume, Outstanding Principal, and Ask Price
Loan Status at Listing Loan Count Notes Count Notes per Loan Outstanding Principal Ask Price Ask Price to Principal Outstanding Ratio
Issued 26,266 46,720 1.78 $1,993,296 $2,056,716 103.2%
Current 195,880 876,800 4.48 $32,825,861 $33,833,314 103.1%
In Grace Period 14,316 30,036 2.10 $853,950 $768,998 90.1%
Late (16–30 days) 7,681 15,574 2.03 $461,216 $376,373 81.6%
Late (31–120 days) 12,950 86,854 6.71 $3,055,065 $2,069,161 67.7%
Total 206,118 1,055,984 5.12 $39,189,389 $39,104,572 99.8%

Some sharp-eye readers may notice that the total loan count for different loan status at listing adds up to 257,093 instead of total distinct loan count of 206,118. This discrepancy is due to the notes from same loans being listed when the loans were with different loan status. For example, notes from a loan might have been listed early in the year when the loan was current and then some notes from same loan might have been listed later in the year when the loan was late. The difference in loan count of 50,975 may indicate that up to 50,975 loans were in two or more status during the year.

One interesting observation is the low number of notes listed for loans that are either in grace period (2.1 notes per loan) or late for less than 30 days (2.03 notes per loan ) and unusually high number of notes being listed when loans are current (4.48 notes per loan) or late by at least 31 days (6.71 notes per loan). This may indicate that some lenders are watching their notes like a hawk and listing notes at first sign of loans being in trouble. Most lenders seem to wait to list their notes until loans are already late by more than 31 days.

Most lenders seem to list their Issued and Current notes at premium of about 3% while late loans get listed at discount of 10 to 33%. If we assume the recovery rates published by Lending Club as the probability of borrowers start paying on late loans: 77%, 42%, and 25% for In Grace Period, Late (16–30 days), and Late (31–120 days) respectively, it appears sellers of these notes might be hoping to sell the notes at much lower loss than what they might incur if they kept the notes.

We don’t have access to final settlement price for the notes sold on secondary market to know what was final settlement price. This lack of settlement information in the secondary market creates inefficiencies for both buyers and sellers on secondary platform. Most sellers will need to keep reducing the asking price until the notes are sold or seller no longer want to sell. Similarly, most buyers will need to wait for the asking price to drop to the level they want to pay and still may feel buyers’ remorse.

Loan Status Since Being Listed

The sellers on Lending Club FOLIOfn secondary platform are always curious to know about the status of the notes after they sold these notes. It helps them determine the effectiveness of their selling strategy. It is a very big topic in its own right and deserves to be discussed separately. Here is a quick overview of what happened to the loan status of the notes after being listed on secondary platform. The chart below shows the loan status of notes after being listed on secondary platform.


Chart 2: Lending Club Secondary Platform Listings: Status of Notes since being listed
Chart 2: Lending Club Secondary Platform Listings: Status of Notes since being listed

The chart displays the distribution of notes count. As mentioned previously multiple notes from same loans have been listed on secondary platform. This may result in increased weightage for loans for which large number of notes were present in the dataset. The loan status of some listed notes may not have changed since being listed or changed during the year but reverted back to original status at the time when dataset was captured. Such notes have been excluded from the chart.

One way to determine the effectiveness of your trading strategy is to compare the worsening and improving of the loan status from that at the time of listing. If loan status improves after purchasing the note, the note can be resold at higher premium/lower discount on secondary market and/or a few payments would have been received from borrower since the purchase of the note.

The table below shows the worsening and improvement of loan status of the notes from the loan status at listing time. For example, if a note was listed on secondary market when it was In Grace Period, and later note is either Fully Paid or becomes Current, it is considered that loan status of note improved after listing. Similarly, if the loan status of this note migrates to Late (16–30 days), Late (31–120 days), or Charged Off & Default, it is considered that loan status worsened.

The odds ratio indicates your odds of picking a note whose loan status improves versus worsens. Lower the odds, more discount you should expect to receive as a buyer or to offer as a seller. For example, as a buyer of Late (31–120 days notes, you can expect to have only 8 notes show improvement in loan status while 100 notes may show worsening of loan status. In its simplest form, you need to make sure profits from 8 notes at least match the losses from 100 notes to break-even.


Lending Club Secondary Market - Loan Status Change Since Being Listed
Loan Status at Listing Loan Status Worsened Loan Status Improved Odd Ratio (Improve/Worse)
In Grace Period 25.19% 65.92% 2.62
Late (16–30 days) 55.04% 39.50% 0.72
Late (31–120 days) 76.27% 6.3% 0.08
Current & Issued 4.68% 11.71% 2.50

Key Takeaways

  • The lenders who believe there is not enough loan inventory on Lending Club primary platform may want to consider secondary platform as source of additional loan inventory.
  • The lack of settlement information in the secondary market creates inefficiencies for both buyers and sellers.
  • Your odds of picking a note from secondary market whose loan status will eventually improve decline with the worsening of the loan status at listing.

Comments: (9)

Steve | Friday January 30, 2015, 12:54 pm

In your last table above, the last line is "Current & Issued  4.68%  11.71%  2.50". How does a Issued & Current note improve? What is better than issued and current?

Anil Gupta | Friday January 30, 2015, 9:20 pm

@Steve, The Issued & Current note improves by becoming Completed and Paid Off. The best status for any loan is Completed and Paid Off.

Jon | Saturday January 31, 2015, 11:38 am

Paid off is not necessarily a good outcome, expecially if the note is young and the holder may have paid a premium on the seconday market.

Anil Gupta | Saturday January 31, 2015, 1:20 pm

@Jon, the issue of premium is irrelevant at the point of discussion in the article as discussion is on quantity of notes. The influence of premium is relevant when discussing dollar amount. BTW, the premium/discount doesn't impact Paid off notes only, premium paid/received can turn any loan status into good or bad outcome.

Charles Hang | Saturday January 31, 2015, 10:31 pm

For the Loan Status of Notes Since Being Listed, how much time has elapsed between listing and the final loan status that you record in your pie charts? Is the final loan status just the loan status today, while the listing loan status just the status at time of listing, irrelevant of when the loan was listed? 

Anil Gupta | Saturday January 31, 2015, 11:17 pm

@Charles, The final loan status is the loan status on December 31st, 2014. Lending Club only updates data on issued loans once a month on the last day of the month. The listing loan status is the loan status at the time note was listed. All notes in dataset were listed on FOLIOfn market in 2014.

Charles Hang | Sunday February 1, 2015, 11:00 am

@Anil: Thank you for the clarification. Do you have the same information for 2013 and before as well? I was just wondering since it seems like this data would be even more meaningful if you have a longer timespan to consider it over.  

Anil Gupta | Sunday February 1, 2015, 10:50 pm

@Charles, why do you think longer timespan will make data more meaningful? Stay tuned for future posts on secondary market, you will be surprised with some findings.

Charles Hang | Monday February 2, 2015, 8:55 am

My thought is that a longer time span would give a better idea of the final outcome for loans bought on FolioFN. As is, most loans are still current, just as they were current when sold, but that may change with more time.

Of course, I could be wrong, which is why I look forward to your future posts!

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