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Author Topic: "Need"ing loans  (Read 35090 times)

2potatoes

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"Need"ing loans
« on: July 02, 2011, 10:06:28 am »

So as a lender I have found myself avoiding loans where the borrower indicates that they "need" the loan, but up until now I haven't had any rational basis for doing so, other than the general belief that if someone needs me to lend to them that they are less likely to be able to pay me back in the future.

I've just performed an analysis of some old loans and found that I'm not nuts. I haven't seen a similar analysis anywhere else yet, and thought others might be interested in these findings:

DescriptionTotal LoansNever RecoveredRecoveredPaid
Pre 2007 loans where title contains "need"65246.9%52.8%51.2%
Pre 2007 loans where title does not contain "need"532137.0%62.9%61.4%
2007 loans where title contains "need"109247.7%52.3%50.6%
2007 loans where title does not contain "need"1038737.3%62.7%61.5%
2008 loans where title contains "need"86134.8%48.9%48.6%
2008 loans where title does not contain "need"1070430.3%55.0%54.3%

So at first glance it looks like in loans that have completed (up to and including all of 2007) there's nearly a 10% difference in the percentage of loans that are not fully recovered and those that aren't when the title contains the word "need". Not all 2008 loans have completed yet--it would be interesting to look at the correlation between the word "need" and the status of late loans.

For the purpose of this analysis I considered these statuses to be Recovered:
Repurchased, Defaulted (SettledInFull), Defaulted (PaidInFull) and Paid.

I considered these statuses to be Never Recovered:
Charge-Off, Defaulted (Bankruptcy) and Defaulted (Delinquency)

Edit to add that I've started a blog covering the topic and to show the charts a bit more clearly: http://lendingtuber.blogspot.com/
« Last Edit: July 03, 2011, 01:34:01 pm by 2potatoes »
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xraider

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Re: "Need"ing loans
« Reply #1 on: July 02, 2011, 10:43:54 am »

Very interesting... and even harder to tell how Prosper comes up with a 20% default rate...
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312lender

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Re: "Need"ing loans
« Reply #2 on: July 02, 2011, 10:49:48 am »

Great stuff.  I think you could be on to something.  But there needs to be more analysis done.  Your numbers would be more telling if you broke it up by Prosper Score (AA, A, B...).
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frinxor

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Re: "Need"ing loans
« Reply #3 on: July 02, 2011, 11:19:08 pm »

Great stuff.  I think you could be on to something.  But there needs to be more analysis done.  Your numbers would be more telling if you broke it up by Prosper Score (AA, A, B...).

this. the word "need" might correlate with a lower Prosper score - which would explain the lower %s
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2potatoes

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Re: "Need"ing loans
« Reply #4 on: July 03, 2011, 01:32:10 pm »

Yeah, it does seem like there's a difference across most of the credit scores (with the exception of A's for some reason.)  Here is the data on loans originating from 2005-2007:

Credit ScorePaid With "Need"Paid Without "Need"Difference
AA79.6%87.0%7.4%
A76.3%76.2%-0.1%
B60.5%69.3%8.8%
C57.1%62.3%5.2%
D53.0%60.0%7.0%
E45.4%49.3%3.9%
HR32.3%37.0%4.7%

I discuss this a bit more on my blog: http://lendingtuber.blogspot.com/2011/07/need-series-initial-findings.html but I'm starting to think that it's worth deeper exploration to see if something else is going on or if there is some actual correlation there.

Edit: A's are -.1 instead of .1 as no-whammies points out below
« Last Edit: July 27, 2011, 08:23:01 am by 2potatoes »
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frinxor

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Re: "Need"ing loans
« Reply #5 on: July 04, 2011, 07:45:18 pm »

Cool stuff. It makes sense by intuition - nice to see the numbers on it. You should also include the sample sizes for each category.
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pioneer11

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Re: "Need"ing loans
« Reply #6 on: July 04, 2011, 08:01:08 pm »

Cool stuff. It makes sense by intuition - nice to see the numbers on it. You should also include the sample sizes for each category.
We used to beat up folks on RML for appearing desperate.
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2potatoes

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Re: "Need"ing loans
« Reply #7 on: July 04, 2011, 08:09:02 pm »

Cool stuff. It makes sense by intuition - nice to see the numbers on it. You should also include the sample sizes for each category.

Yes, indeed. I made a correlation matrix for the loans today and it seems that the word "need" is correlated with failure to repay more when it's in the Description than it is when it's in the title. Still have to run the numbers to see if the results are statistically significant...
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cowdog

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Re: "Need"ing loans
« Reply #8 on: July 06, 2011, 03:00:26 pm »

If anyone thinks there is any sort of correlation or the numbers mean anything, I have a way you can get rich:

In 630 draws for the MegaMillions lottery, number 48 came up 71 times, but the number 49 only came up 39 times.

http://www.calottery.com/Games/MegaMillions/WinningNumbers/numberfrequency.htm

 ;D
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2potatoes

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Re: "Need"ing loans
« Reply #9 on: July 06, 2011, 08:23:25 pm »

I certainly agree that the numbers might not mean anything at all and that it will take more than a simple correlation to draw a conclusion as to whether or not there is any significance in the findings.

However, unlike the lottery, picking loans is not a purely random affair. It seems feasible that the way a borrower thinks about a loan, as expressed in their loan description, can be correlated to the loan outcome.

Besides, if I'm already avoiding requests where the borrower is expressing a need for the loan, I might as well look for numbers to rationalize my behavior.  :)
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Ray Kremer

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Re: "Need"ing loans
« Reply #10 on: July 07, 2011, 05:56:21 pm »

Well it's like the old adage says, the best people to give loans to are the ones that don't need a loan. The idea being the people most desperate for a loan are the ones least likely to be able to handle paying it all back. Add to that another factor: people who are desperate for a loan but not smart enough to avoid sounding desperate in their Prosper write-up. If you're looking for purely qualitative factors in picking loans, it's as good as any I suppose.
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no-whammies

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Re: "Need"ing loans
« Reply #11 on: July 07, 2011, 08:35:36 pm »

Credit ScorePaid With "Need"Paid Without "Need"Difference
AA79.6%87.0%7.4%
A76.3%76.2%0.1%
B60.5%69.3%8.8%
C57.1%62.3%5.2%
D53.0%60.0%7.0%
E45.4%49.3%3.9%
HR32.3%37.0%4.7%

Fixed.  A's swing the other way.
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no-whammies

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Re: "Need"ing loans
« Reply #12 on: July 07, 2011, 08:37:49 pm »

Also, you need the sample size for each.
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JGuide

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Re: "Need"ing loans
« Reply #13 on: July 19, 2011, 07:58:38 pm »


I've performed an analysis of ...
            percentage of loans that are not fully recovered ...when the title contains the word "need".

Try the word "Help"

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2potatoes

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Re: "Need"ing loans
« Reply #14 on: July 19, 2011, 08:20:40 pm »

At first glance "help" has a 9% difference between paid and unpaid loans -- with 1930 loans having "help" in the title. The word "please" fairs worse with a 16% difference between paid and unpaid loans -- but only 476 loans are titled with "please."  (These are all the Pre-2008 loans.)
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