Marketplace Lending Vintage Performance
Over the past several weeks, much attention has been paid to the performance of marketplace loans, including certain pockets of increased delinquency, which have affected returns for some investors. Along these lines, people and firms from across the industry have commented on the trends they have observed and their forecast for the year.
Below are some representative articles from Orchard’s Blog and Industry News Feed:
- Fintech Startups Face Difficult Market Ahead
- P2P Loans: A Future Disaster?
- Has Fintech Boom Peaked?
- When Credit Market Concerns Arrive at the Marketplace Lenders
- Online Lenders See Cash Crunch
- Marketplace Lending & the 2016 Economy
- Prosper-Linked Bonds Sold Last Year Face Moody’s Cut
The final link on that list references Moody’s revision of loss estimates on Prosper loans underlying certain securitization deals from 8% cumulative loss to nearly 12%. While we don’t know all of the thinking behind this move, it seems like a good idea to analyze the recent performance of vintages on the major marketplace lending originators. Only with careful analysis can institutional investors consider any potential change in performance and whether it makes sense to change their assumptions about losses and yields. Below, we’ll take a look at vintage performance curves from the two largest consumer marketplace lenders – LendingClub and Prosper. To do so, we were able to quickly generate these graphs using Orchard’s Market Data product.
Prosper Vintage Performance Analysis
Performance by Quarter of Origination
Above we see the vintage performance of the Prosper platform by quarter, beginning with Q1 2014. In general, we’ve seen a bit of an increase in charge off rates among recent vintages, with Q1 2014 showing the lowest charge off rates and the later 2014 and 2015 quarters all showing slightly higher net charge off rates.
One thing to consider is that while charge off rates may have increased platform-wide over the quarters shown, there may be differences in the mix of loans issued in each quarter, and it’s therefore important to attempt to isolate some of these effects. To do so, we display 2 additional charts below, focusing in on the 680-699 and 700-719 FICO buckets, Prosper’s 2 largest cohorts by origination volume.
Performance by Quarter of Origination, FICO Range 680-699
Performance by Quarter of Origination, FICO Range 700-719
Both of these charts show similar results to that on the overall platform above — Q1 2014 shows the lowest charge off rates, with the remaining quarters showing slightly higher charge off rates, clustered closely together. This tells us that even after controlling for the FICO scores of borrowers, we still see a slight increase in charge offs over this time period.
Lending Club Vintage Performance Analysis
Performance by Quarter of Origination
Now let’s take a look at the vintage performance of Lending Club loans by quarter, beginning with Q1 2014. As before, we’ve seen a slight increase in charge off rates among recent vintages, with Q1 2014 showing the lowest charge off rates among the vintages shown.
Similar to what we’ve done for Prosper, we also present two additional charts below, focusing in on the 660-679 and 680-699 FICO buckets, Lending Club’s 2 largest cohorts by origination volume.
Performance by Quarter of Origination, FICO 660-679
Performance by Quarter of Origination, FICO 680-699
Here we again see that the results stratified by FICO present similar stories to that of the overall platform — slight increases in net charge-off rates quarter-over-quarter — indicating that after controlling for FICO, we still see the same increase in charge offs over this period.
On February 15, Prosper announced changes to interest rates on new loans, raising rates by 140bps on average, with specific adjustments depending on credit grade. Lending Club also announced rate increases in late December. One of the main advantages of marketplace lending is the data-driven approach, which allows for monitoring of developing trends, as displayed above, and also for quick responses to any changes. Although the increases in charge off rates in recent vintages is worth monitoring, the quick responses by marketplace lenders with increased rates is indicative of a desire to ensure investors are fairly compensated for the risks they assume, a positive sign for the industry in the coming years, whatever they may bring.