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Since joining Lending Club in February 2011, I've had five loans get charged off. You can see them below.
As you can see, they all started as $25 investments, cover 5 out of the 7 investment grades, 2/5 are 36 month, and 3/5 are 60 month. Four out of five of the notes still had more than 80% of the principle remaining to be paid off.
What Makes a Lending Club Note Default or Charge Off?
Let's start with the A grade note. Specifically, this was an A4 grade note for $12,000 issued at 7.29%, for 36 months. The intended purpose of the loan was debt consolidation. 179 people funded the note, for an average investment of $67. The borrower also had confirmed income of $10,417 / month. Here's the borrower's stats:
Credit Score Range: 720-724 Earliest Credit Line 01/1998 Open Credit Lines 16 Total Credit Lines 36 Revolving Credit Balance $9,185.00 Revolving Line Utilization 19.40% Inquiries in the Last 6 Months 0 Accounts Now Delinquent 0 Delinquent Amount $0.00 Delinquencies (Last 2 yrs) 0 Months Since Last Delinquency 44 Public Records On File 0 Months Since Last Record n/a Months Since Last Major Derogatory n/a
Really no red flags here. The first loan payment was collected on 4/7/11. I received $0.77. Payments continued as agreed until October 2011. Here's the log (from most recent to oldest) of what happened next:
2/17/12 (Friday) Charged off. PAYMENT 120+ past due. Collections efforts exhausted. Recovery unlikely 2/2/12 (Thursday) Collections Agency attempted to contact borrower 12/19/11 (Monday) Collections Agency attempted to contact borrower 11/22/11 (Tuesday) Collections Agency attempted to contact borrower 11/10/11 (Thursday) PAYMENT Failed 11/10/11 (Thursday) Collections Agency attempted to contact borrower 11/1/11 (Tuesday) Collections Agency attempted to contact borrower 10/26/11 (Wednesday) Collections Agency attempted to contact borrower 10/24/11 (Monday) PAYMENT Failed 10/24/11 (Monday) Collections Agency attempted to contact borrower 10/20/11 (Thursday) Engaged external collections agency 10/19/11 (Wednesday) Attempted to collect payment 10/17/11 (Monday) Attempted to contact borrower (left voicemail) 10/17/11 (Monday) Attempted to contact borrower (left voicemail) 10/13/11 (Thursday) PAYMENT Failed 10/13/11 (Thursday) Notified borrower of failed payment (e-mail)
Again, no real red flags. I guess he just stopped making payments. Not cool man. I lost $21.20 in principle on the loan. In total, he cleared over $10,000 by not making his payments. Here's what happened to his credit score after defaulting on his Lending Club loan:
His credit score dropped 140 points from 720 to 580 by defaulting on his Lending Club loan. I hope that was worth it, buddy.
Looking at the other 4 charged off loans in my portfolio, there are no really obvious common traits. Some people utilize 98% of the credit, some use 0%. Some rent, some have do business with Northpoint mortgage whereas most use the main banks . However, my sample size is really small, so lets look at a much larger sample size…
Common Traits of Charged Off Lending Club Loans Versus Fully Paid Loans
Lending Club has released a massive 50 mb data dump of their loan data. So let's dig into that a bit. Here's my analysis of charged off and defaulted Lending Club loans versus loans that were fully paid off. These are all arithmetic averages.
,Charged Off/Default,Fully Paid
Debt-to-Income Ratio >10%,70%,44%
Revolving Line Utilization,54%,44%
Inquiries in the Last 6 Months,>1,<1 Monthly Income,$5179,$5958 [/table] While this is interesting, it doesn't help us too much when it comes to selecting loans to invest in. Check back soon as I'm going to look into using a genetic algorithm on the Lending Club stats. Hopefully I'll be able to find the best filters for 2013 Lending Club notes to maximize return and minimize default risk.