Projects / Where the growth and the credit losses of a marketplace lender come from

Where the growth and the credit losses of a marketplace lender come from

Course project, Michigan Ross MBA. Tableau views of 230,716 public Lending Club loan records. Not client or employer work.

Tableau
SituationA marketplace lender matched borrowers and investors for 230,716 loans from 2007 to 2013.
ComplicationVolume grew very quickly. From the totals, an investor cannot see if the growth came with more risk, or where the losses are.
QuestionHow did the platform grow, and which loans went bad?
AnswerLoans grew 224 times from 2007 to 2013. The charge-off rate rises from 6% for grade A loans to 37% for grade G.

Losses are volume times the charge-off rate; the grade is the split that separates risk best

  • Credit losses of the platform
    • Loan volume
      • Number of loans603 in 2007, 134,814 in 2013

        How fast did the platform grow?

        224 times. With a stop of some months in 2008.

      • Average loan$8,255 to $14,707
    • Charge-off rate15.5% of completed loans
      • By gradeThe lever for an investor: which grades to buy

        Does the grade separate risk?

        Yes. 6% for grade A, 37% for grade G.

      • By year of issue

        Did risk rise with growth?

        In part. 12.6% for 2009 loans, 16.2% for 2012 loans.

      • By state

        Do states differ?

        Yes. 8.9% to 19.3% among states with 500 loans or more.

Lever what the decision changes Limit what the answer must respect Fixed outside the decision

Loans, 2007 to 2013

230,716

$3.17B requested; 224 times more loans in 2013 than in 2007

Average loan

$8.3k to $14.7k

the loan size grew with the platform

Charge-off rate of completed loans

15.5%

6% for grade A, 37% for grade G

The number of loans grew 224 times in six years, and the average loan grew from $8,255 to $14,707

Line chart from Tableau: number of loans and average loan amount by year of issue, 2007 to 2013.
Number of loans (blue) and average requested amount (orange), by year of issue. Tableau.

The grade separates risk: the charge-off rate rises at each step from A to G

Bar chart from Tableau: charge-off rate by sub-grade, from A1 to G5.
The same rate by sub-grade, A1 to G5. Tableau.

For each resident, the District of Columbia, Nevada and New Jersey borrow the most

Map from Tableau: loan amount per resident by state.
Requested loan amount per resident, by state. Tableau, with 2012 population.

The analysis

Question

How did the platform grow, and where are the credit losses?

Data

230,716 public loan records with issue date, amount, grade, state and final status, joined to state population.

Method

Eight Tableau views: trends by issue date, maps by state, and charge-off rates for loans with a final status.

  • Growth stopped for some months in 2008: 57 loans in September against 402 in March.
  • The charge-off rate of completed loans fell from 17.9% (2007 loans) to 12.6% (2009), then rose to 16.2% (2012) as the platform grew.
  • By total amount, the largest states are California ($519M), New York ($275M) and Texas ($253M). Population explains most of this ranking.
  • Among states with 500 loans or more, Tennessee (19.3%) and Nevada (18.9%) have the highest charge-off rates, and the District of Columbia (8.9%) the lowest.