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Cumulative ROI by Vintage Beginning 14Q1

Started by Peter, January 07, 2018, 11:00:00 PM

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Rob L

When I posted these tables last quarter I trampled on another thread so I figured it would be best to start a new thread on the topic.
The tables are another way to look at the Cumulative ROI numbers provided in graph form by Insikt's excellent web site.
I think the data speaks for itself.
It may be that 16Q2 was the worst vintage, but I've not seen anything to indicate a major turnaround for lenders is underway.

https://i.imgur.com/0vsXFT4.png" alt="" class="bbc_img" />

https://i.imgur.com/wLmXYQx.png" alt="" class="bbc_img" />

https://i.imgur.com/aXE3S7K.png" alt="" class="bbc_img" />

https://i.imgur.com/QmbubhU.png" alt="" class="bbc_img" />





TravelingPennies

Thought it would be interesting to compare the cumulative ROI of C, D and E grade loans to B grade loans. In the tables below the ROI of B grade loans is subtracted from C, D and E grade loans respectively. Since C, D and E are riskier by definition their ROI should include a risk premium to compensate the lender for owning them. As shown below this has been far from the case. Even C grade loans have little or no risk premium. Best case there has been very little or no risk premium but for the majority of vintages there are very substantial risk discounts! Of course this isn't new news, but it's interesting to see the magnitude. To me it's a persuasive argument to only invest in B loans if one invests at all (or maybe A grade as I haven't looked at them).

https://i.imgur.com/lFnoo74.png" alt="" class="bbc_img" />

SLCPaladin

This is excellent insight Rob. If I read these tables correctly, would I be correct in assuming that loans that were originated in Q3 of 2017 would be "expected" to perform similar loans originated in Q4 of 2014? I know major economic shocks and external events would change the trajectory and of course nothing is guaranteed, but it seems like if early indications of the trajectory look like the loan quality has improved relative to what was originated during 2015 and 2016. Is that a fair conclusion?

I am specifically thinking about reinvesting in B grade notes of 36 month duration. I have run down about $120k to about $40k now.






Lovinglifestyle

My confidence in LC's underwriting hit a new bottom when all the loans started to come out as "approved", but didn't look any better to me.  Seems like all they had to do to get approved was fill out an application and have sufficient FICO.

TravelingPennies

I was playing around with the charts on Insikt to see the different vintage curves. I agree with your point Fred, it does seem way too early to draw any meaningful conclusions about the shape of the charge offs for these early vintages. I'm comparing cumulative ROI curves of various vintages and net charge offs. The two correlate, but not exactly. As best I can tell, the reason these most recent ROI curves look better is because the rates are better, not because there are fewer charge offs. What I suppose we don't know is whether the rate increases that happened post scandal will offset the higher delinquencies.



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