tag:blogger.com,1999:blog-72096062024-03-24T23:09:23.040-07:00Random ThoughtsCloud, Fintech and everything else ...Anil Guptahttp://www.blogger.com/profile/04626638497955200142noreply@blogger.comBlogger265125tag:blogger.com,1999:blog-7209606.post-43944217482802677092023-03-06T00:28:00.003-08:002023-03-06T00:28:49.499-08:00Blog Reboot (maybe) and What’s Next<p style="text-align: left;">It has been almost a decade since I updated this blog. Perusing the previous blog posts, it is interesting to see evolution of my professional interests from Data storage and Clouds to FinTech and Startups. This blog appeared to had become an exploration of random ideas and interests while I was in between larger projects.</p>
<h4 style="text-align: left;">Start and End of PeerCube</h4>
<p style="text-align: left;">My previous interest in crowdfunding and analyzing peer to peer lending data evolved into PeerCube, a startup helping retail lenders, and a few institutional lenders, make better lending decisions. While writing was on the wall for a while, once Lending Club decided to discontinue retail lending platform, there was no path forward for PeerCube to continue. As a bootstrapped startup focused on retail lenders and being very efficient with our limited resources, we also couldn't figure out a pivot to continue operations. Considering over the years, we were pitched several competitors for potential acquisition, we feel PeerCube did quite well. But, it was time for us to start next chapter in our lives.</p>
<p style="text-align: left;"><a href="https://www.lendacademy.com/lap19-anil-gupta-of-peercube-on-p2p-lending-analysis/">Podcast 19: Anil Gupta of PeerCube on P2P Lending Analysis</a></p>
<p style="text-align: left;"><iframe frameborder="0" gt="" height="30" iframe="" lt="" scrolling="no" src="https://www.lendacademy.com/?powerpress_embed=8453-podcast&amp;powerpress_player=mediaelement-audio" width="320"></iframe></p>
<p style="text-align: left;"><iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/zb3d-YEHeSI" title="YouTube video player" width="560"></iframe></p>
<p style="text-align: left;">During the existence of PeerCube, we captured and collected lot of lending data, specifically from Lending Club's primary and secondary platforms that we felt was relevant for broader consumer lending industry. There were also some good posts shared on PeerCube blog based on analysis of lending data, for example changes in FICO score during the life of loans and how it impacted the final outcome of the loans. Unfortunately, they all have lost any relevance now and are no longer available online.</p><h4 style="text-align: left;">What's Next</h4><p style="text-align: left;">During the past few years, I have explored and learnt about several random areas, such as Autonomous driving, Satellite imaging, Text mining, Options trading, Web development, in addition to moving to Japan due to family reasons and learning Japanese. I continue to be interested in AI/ML/DS applications and data-intensive projects.</p><p style="text-align: left;">While I am not planning to restart this blog again, going forward I will use it as personal repository of my notes, most likely in unfinished, incomplete, and unpolished state.</p><div class="blogger-post-footer">(c) 2014 Anil Gupta. Published at http://andirog.blogspot.com. I do not receive compensation from discussed vendors and advertisers unless a reader sign up or purchase by clicking through the banners and links provided.</div>Anil Guptahttp://www.blogger.com/profile/04626638497955200142noreply@blogger.com0tag:blogger.com,1999:blog-7209606.post-14251488040532642362014-02-25T08:00:00.000-08:002014-02-25T08:00:05.864-08:00Building a Python/Django Development Virtual Machine<p>Recently for a project, I needed to build a Python, Django, PostgreSQL, NGINX Development Virtual Machine(VM). Below are the steps that I followed to build this VM in VMware Fusion on MacbookPro (MBP). This post is as much about sharing my build experience as documenting the steps for my future use and potential automation.</p>
<p>The guidance for this procedure came from <a href="https://www.digitalocean.com/community/articles/how-to-install-and-configure-django-with-postgres-nginx-and-gunicorn">How To Install and Configure Django with Postgres, Nginx, and Gunicorn</a>.</p>
<h2>
Installation</h2>
<h3>
Ubuntu Server OS</h3>
<p>The steps were very similar to the ones I covered in my prior post <a href="http://andirog.blogspot.com/2014/02/openstack-quick-install-using-devstack.html">OpenStack: Quick Install using DevStack</a>.</p>
<p>Download <a href="https://help.ubuntu.com/community/Installation/MinimalCD">Ubuntu 12.04 "Precise Pangolin" x86_64 Minimal CD</a> ISO Image <code>mini.iso</code>.</p>
<p>Start VMware Fusion and select <code>Virtual Machine Library</code> in <code>Windows</code> option on VMware Fusion toolbar. This will bring up Virtual Machine Library window showing all the Virtual Machine already available.</p>
<br />
<img alt="Virtual Machine Library" height="420" src="https://www.peercube.com/img/storageblog/virtual_machine_library.png" width="640" /><br />
Click <code>Add</code> button and select <code>New</code>. This will bring up New Virtual Assistance Window showing Create New Virtual Machine.<br />
<p>Click <code>Continue without disc</code> as we will be using the downloaded ISO image. This will bring up Installation Media section.<br />
Select <code>Use operating system installation disc or image</code> and click on arrows next to <code>Choose a disc or disc image...</code>. Select the Ubuntu ISO image and then click <code>Continue</code>.</p>
<p>Choose Operating System section should show <code>Linux</code> as Operating System and <code>Ubuntu 64-bit</code> as Version. Click <code>Continue</code>.</p>
<p>The Finish section will show Virtual Machine Summary, Click <code>Finish</code>. Select the location where we want to save the VM file and name the file.</p>
<p>A console window will be launched and OS install will start. Answered the prompts during the install process. Once update and reboot completes, a login prompt will appear. Log in to VM.</p>
<br />
<img alt="VM Login Screen" height="404" src="https://www.peercube.com/img/storageblog/django_login.png" width="640" /><br />
<h3>
OpenSSH Server</h3>
<p>After login, install OpenSSH Server to enable access to Ubuntu VM over SSH.</p>
<blockquote>
<pre><code>$sudo apt-get install openssh-server
</code></pre></blockquote>
<p>Check whether SSH process is running.</p>
<blockquote><pre><code>$service ssh status
</code></pre></blockquote>
<p>Either note down the IP address of VM from login screen (shown above) or using <code>ifconfig</code> command to be able to SSH into the VM remotely.</p>
<blockquote><pre><code>$ssh anil@172.16.191.158
</code></pre></blockquote>
<p>You may need to remove SSH key if there is a fingerprint mismatch between the VM and remote client.</p>
<blockquote><pre><code>$ssh-keygen -R 172.16.191.158
</code></pre></blockquote>
<h3>
Update Packages</h3>
<p>You need to make sure all installed packages are current. Download any package updates and install.</p>
<blockquote><pre><code>anil@django:~$ sudo apt-get update
[sudo] password for anil:
Hit http://us.archive.ubuntu.com precise Release.gpg
Get:1 http://us.archive.ubuntu.com precise-updates Release.gpg [198 B]
...
</code></pre></blockquote>
<p>At this point VM is ready for installation of Python Virtualenv, Django, PostgreSQL, NGINX, and Gunicorn.</p>
<h3>
Python Virtualenv</h3>
<p><a href="http://www.virtualenv.org/en/latest/">Virtualenv</a> is Virtual Python Environment builder to create separate Python environments. This enables to keep installations, dependencies, versions and permissions separate for different applications across different virtual environments.</p>
<p>Install python-virtualenv.</p>
<blockquote><pre><code>anil@django:~$ sudo apt-get install python-virtualenv
Reading package lists... Done
Building dependency tree
Reading state information... Done
The following extra packages will be installed:
python-pip python-setuptools
The following NEW packages will be installed:
python-pip python-setuptools python-virtualenv
...
</code></pre></blockquote>
<p>Now, we need to create a virtual environment for our project (in this case, lendcafe) where we can install Python and Django packages.</p>
<blockquote><pre><code>anil@django:~$ sudo virtualenv /opt/lendcafe
New python executable in /opt/lendcafe/bin/python
Installing distribute...........................................................done.
Installing pip...............done.
</code></pre></blockquote>
<p>You can name anything you like for your virtualenv.</p>
<h3>
Django</h3>
<p><a href="https://www.djangoproject.com/">Django</a> is a Python web framework. It enables rapid development of common web application tasks and adheres to DRY principle (Don't Repeat Yourself).</p>
<p>To install Django, first we need to activate virtualenv.</p>
<blockquote><pre><code>anil@django:~$ source /opt/lendcafe/bin/activate
(lendcafe)anil@django:~$
</code></pre></blockquote>
<p>The <code>activate</code> script modifies shell prompt to show the currently active environment.</p>
<p>Install Django</p>
<blockquote><pre><code>(lendcafe)anil@django:~$ sudo pip install django
[sudo] password for anil:
Downloading/unpacking django
Downloading Django-1.6.2.tar.gz (6.6Mb): 6.6Mb downloaded
Running setup.py egg_info for package django
warning: no previously-included files matching '__pycache__' found under directory '*'
warning: no previously-included files matching '*.py[co]' found under directory '*'
Installing collected packages: django
Running setup.py install for django
changing mode of build/scripts-2.7/django-admin.py from 644 to 755
warning: no previously-included files matching '__pycache__' found under directory '*'
warning: no previously-included files matching '*.py[co]' found under directory '*'
changing mode of /usr/local/bin/django-admin.py to 755
Successfully installed django
Cleaning up...
</code></pre></blockquote>
<h3>
PostgreSQL</h3>
<p><a href="http://www.postgresql.org/">PostgreSQL</a> is an open source object-relational database.</p>
<p>Deactivate the virtual environment.</p>
<blockquote><pre><code>(lendcafe)anil@django:~$ deactivate
anil@django:~$
</code></pre></blockquote>
<p>Install Python dependencies for PostgreSQL</p>
<blockquote><pre><code>anil@django:~$ sudo apt-get install libpq-dev python-dev
Reading package lists... Done
Building dependency tree
Reading state information... Done
The following extra packages will be installed:
...
</code></pre></blockquote>
<p>Install PostgreSQL</p>
<blockquote><pre><code>anil@django:~$ sudo apt-get install postgresql postgresql-contrib
Reading package lists... Done
Building dependency tree
Reading state information... Done
The following extra packages will be installed:
...
</code></pre></blockquote>
<h3>
NGINX</h3>
<p><a href="http://wiki.nginx.org/Main">NGINX</a> is an open source HTTP server and reverse proxy. It is known for high performance and low resource utilization. Instead of relying on threads to handle requests, it uses event-driven asynchronous architecture.</p>
<p>Install NGINX</p>
<blockquote><pre><code>anil@django:~$ sudo apt-get install nginx
Reading package lists... Done
Building dependency tree
Reading state information... Done
The following extra packages will be installed:
...
</code></pre></blockquote>
<h3>
Gunicorn</h3>
<p><a href="http://gunicorn.org/">Gunicorn</a> is a Python WSGI HTTP Server.</p>
<p>Activate virtualenv</p>
<blockquote><pre><code>anil@django:~$ source /opt/lendcafe/bin/activate
(lendcafe)anil@django:~$
</code></pre></blockquote>
<p>Install Gunicorn within virtualenv</p>
<blockquote><pre><code>(lendcafe)anil@django:~$pip install gunicorn
Downloading/unpacking gunicorn
Downloading gunicorn-18.0.tar.gz (366Kb): 366Kb downloaded
Running setup.py egg_info for package gunicorn
...
</code></pre></blockquote>
<h2>
Configuration</h2>
<h3>
PostgreSQL</h3>
<p>The default superuser for PostgreSQL is called <code>postgres</code>. We need to login as this user first.</p>
<blockquote><pre><code>anil@django:~$ sudo su - postgres
[sudo] password for anil:
postgres@django:~$
</code></pre></blockquote>
<p>The shell prompt should now show starting with <code>postgres@...</code>.</p>
<p>Create a user. Answer the prompts. I decided to not make this user superuser, allow this new user to create databases or new roles.</p>
<blockquote><pre><code>postgres@django:~$ createuser -P
Enter name of role to add: anil
Enter password for new role:
Enter it again:
Shall the new role be a superuser? (y/n) n
Shall the new role be allowed to create databases? (y/n) n
Shall the new role be allowed to create more new roles? (y/n) n
</code></pre></blockquote>
<p>Create a new database. I named this database to be <code>lendcafe</code>.</p>
<blockquote><pre><code>postgres@django:~$ createdb lendcafe
</code></pre></blockquote>
<p>To grant new user access to this database, first access the PostgreSQL interactive terminal and then grant all privileges. Type <code>\q</code> to quit.</p>
<blockquote><pre><code>postgres@django:~$ psql
psql (9.1.11)
Type "help" for help.
postgres=# GRANT ALL PRIVILEGES ON DATABASE lendcafe TO anil;
GRANT
postgres=# \q
postgres@django:~$
</code></pre></blockquote>
<p>Test the new user log in to database. If you are not already logged in the system as new user, you will get error as shown below. Login as new user or use <code>su</code> command.</p>
<blockquote><pre><code>postgres@django:~$ psql -d lendcafe -U anil
psql: FATAL: Peer authentication failed for user "anil"
postgres@django:~$ su - anil
Password:
anil@django:~$ psql -d lendcafe -U anil
psql (9.1.11)
Type "help" for help.
lendcafe=>
lendcafe=> \q
anil@django:~$
</code></pre></blockquote>
<h3>
Django</h3>
<p>To create a Django project, first switch to the virtualenv directory created during installation and activate the virtualenv.</p>
<blockquote><pre><code>anil@django:~$ cd /opt/lendcafe
anil@django:/opt/lendcafe$ source /opt/lendcafe/bin/activate
(lendcafe)anil@django:/opt/lendcafe$
</code></pre></blockquote>
<p>Start a new Django project. If you receive <code>permission denied</code> error as shown below, change the ownership of your environment directory. Then start a new Django project again. Check to make sure the project directory was created in virtualenv directory.</p>
<blockquote><pre><code>(lendcafe)anil@django:/opt/lendcafe$ django-admin.py startproject lcproject
CommandError: [Errno 13] Permission denied: '/opt/lendcafe/lcproject'
(lendcafe)anil@django:/opt/lendcafe$ sudo chown -R anil:anil /opt/lendcafe
[sudo] password for anil:
(lendcafe)anil@django:/opt/lendcafe$ django-admin.py startproject lcproject
(lendcafe)anil@django:/opt/lendcafe$ ls -la
total 28
drwxr-xr-x 7 anil anil 4096 Feb 21 11:52 .
drwxr-xr-x 3 root root 4096 Feb 20 10:37 ..
drwxr-xr-x 2 anil anil 4096 Feb 20 10:37 bin
drwxr-xr-x 2 anil anil 4096 Feb 20 10:37 include
drwxrwxr-x 3 anil anil 4096 Feb 21 11:52 lcproject
drwxr-xr-x 3 anil anil 4096 Feb 20 10:37 lib
drwxr-xr-x 2 anil anil 4096 Feb 20 10:37 local
(lendcafe)anil@django:/opt/lendcafe$
</code></pre></blockquote>
<p>For Django to be able to communicate with PosgreSQL database, we need to install PostgresSQL adapter for the Python <a href="http://initd.org/psycopg/">Psycopg</a>.</p>
<blockquote><pre><code>(lendcafe)anil@django:/opt/lendcafe$ pip install psycopg2
Downloading/unpacking psycopg2
Downloading psycopg2-2.5.2.tar.gz (685Kb): 685Kb downloaded
Running setup.py egg_info for package psycopg2
Installing collected packages: psycopg2
...
Successfully installed psycopg2
Cleaning up...
(lendcafe)anil@django:/opt/lendcafe$
</code></pre></blockquote>
<p>Edit the <code>setting.py</code> file in directory and subdirectory named same as your project name.</p>
<blockquote><pre><code>(lendcafe)anil@django:/opt/lendcafe$ nano lcproject/lcproject/settings.py
DATABASES = {
'default': {
'ENGINE': 'django.db.backends.postgresql_psycopg2',
'NAME': 'lendcafe',
'USER': 'anil',
'PASSWORD': 'myPassword',
'HOST': 'localhost',
'PORT': '',
}
}
</code></pre></blockquote>
<p>Run the following command to add Django specific database tables and configuration to database. I received the following error message when I tried to run the command.</p>
<blockquote><pre><code>(lendcafe)anil@django:/opt/lendcafe$ python lcproject/manage.py syncdb
Traceback (most recent call last):
File "lcproject/manage.py", line 8, in <module>
from django.core.management import execute_from_command_line
ImportError: No module named django.core.management
</code></pre></blockquote>
<p>The StackOverflow discussion <a href="http://stackoverflow.com/questions/6049933/django-import-error-no-module-named-core-management/6059969#6059969">django import error - No module named core.management</a> provides potential solutions to this error.</p>
<p>My issue turned out that I originally installed Django as root user while I was trying to run the above command as different user. When I ran the above command with <code>sudo</code>, I encountered a different error.</p>
<blockquote><pre><code>(lendcafe)anil@django:/opt/lendcafe/lcproject$ sudo python manage.py syncdb
Traceback (most recent call last):
File "manage.py", line 11, in <module>
...
File "/usr/local/lib/python2.7/dist-packages/django/db/backends/postgresql_psycopg2/base.py", line 25, in <module>
raise ImproperlyConfigured("Error loading psycopg2 module: %s" % e)
django.core.exceptions.ImproperlyConfigured: Error loading psycopg2 module: No module named psycopg2
</code></pre></blockquote>
<p>At this point, I decided to reinstall Django, this time without <code>sudo</code>.</p>
<blockquote><pre><code>(lendcafe)anil@django:/$ pip install django
Downloading/unpacking django
Downloading Django-1.6.2.tar.gz (6.6Mb): 6.6Mb downloaded
Running setup.py egg_info for package django
warning: no previously-included files matching '__pycache__' found under directory '*'
warning: no previously-included files matching '*.py[co]' found under directory '*'
Installing collected packages: django
Running setup.py install for django
changing mode of build/scripts-2.7/django-admin.py from 664 to 775
warning: no previously-included files matching '__pycache__' found under directory '*'
warning: no previously-included files matching '*.py[co]' found under directory '*'
changing mode of /opt/lendcafe/bin/django-admin.py to 775
Successfully installed django
Cleaning up...
</code></pre></blockquote>
<p>Once I reinstalled Django, I was able to successfully add Django specific database tables.</p>
<blockquote><pre><code>(lendcafe)anil@django:/opt/lendcafe/lcproject$ python manage.py syncdb
Creating tables ...
Creating table django_admin_log
Creating table auth_permission
Creating table auth_group_permissions
Creating table auth_group
Creating table auth_user_groups
Creating table auth_user_user_permissions
Creating table auth_user
Creating table django_content_type
Creating table django_session
You just installed Django's auth system, which means you don't have any superusers defined.
Would you like to create one now? (yes/no): yes
Username (leave blank to use 'anil'):
Email address: xyz@example.com
Password:
Password (again):
Superuser created successfully.
Installing custom SQL ...
Installing indexes ...
Installed 0 object(s) from 0 fixture(s)
(lendcafe)anil@django:/opt/lendcafe/lcproject$
</code></pre></blockquote>
<h3>
Gunicorn</h3>
<p>Create a <code>gunicorn_config.py</code> file in <code>/opt/lendcafe</code> directory and add following entries in the file.</p>
<blockquote><pre><code>(lendcafe)anil@django:/opt/lendcafe$ nano gunicorn_config.py
command = '/opt/lendcafe/bin/gunicorn'
pythonpath = '/opt/lendcafe/lcproject'
bind = '127.0.0.1:8001'
workers = 5
user = 'anil'
</code></pre></blockquote>
<p>Use the following command to run the server.</p>
<blockquote><pre><code>(lendcafe)anil@django:/opt/lendcafe$ /opt/lendcafe/bin/gunicorn -c /opt/lendcafe/gunicorn_config.py lcproject.wsgi
2014-02-21 15:41:13 [2892] [INFO] Starting gunicorn 18.0
2014-02-21 15:41:13 [2892] [INFO] Listening at: http://127.0.0.1:8001 (2892)
2014-02-21 15:41:13 [2892] [INFO] Using worker: sync
2014-02-21 15:41:13 [2897] [INFO] Booting worker with pid: 2897
2014-02-21 15:41:13 [2898] [INFO] Booting worker with pid: 2898
2014-02-21 15:41:13 [2899] [INFO] Booting worker with pid: 2899
2014-02-21 15:41:13 [2900] [INFO] Booting worker with pid: 2900
2014-02-21 15:41:13 [2901] [INFO] Booting worker with pid: 2901
</code></pre></blockquote>
<p>Background the process by using <code>ctrl + z</code> and then typing <code>bg</code> followed by Enter. <code>supervisord</code> and <code>screen</code> can be used to manage Gunicorn start/restart. Refer to <a href="https://www.digitalocean.com/community/articles/how-to-install-and-manage-supervisor-on-ubuntu-and-debian-vps">How to Install and Manage Supervisor on Ubuntu and Debian VPS</a> for more information.</p>
<p>Enter the IP address and port specified in <code>gunicorn_config.py</code> file in a browser's address bar. If you see the message <code>It worked! Congratulations on your first Django-powered page.</code>, you are good to go.</p>
<br />
<img alt="Welcome to Django GUI" height="212" src="https://www.peercube.com/img/storageblog/gunicorn_browser_success_page.png" width="640" /><br />
<h3>
NGINX</h3>
<p>Django settings for the project are stored in <code>settings.py</code> file. As NGINX will be used for static files, modify the location of <code>STATIC_URL</code> in <code>/opt/lendcafe/lcproject/lcproject/settings.py</code> file.</p>
<blockquote><pre><code>(lendcafe)anil@django:/opt/lendcafe/lcproject/lcproject$ nano settings.py
# Static files (CSS, JavaScript, Images)
# https://docs.djangoproject.com/en/1.6/howto/static-files/
STATIC_URL = '/opt/lendcafe/static/'
</code></pre></blockquote>
<p>Create a subdirectory <code>static</code> in <code>/opt/lendcafe/</code> directory.</p>
<blockquote><pre><code>(lendcafe)anil@django:/opt/lendcafe$ mkdir static
(lendcafe)anil@django:/opt/lendcafe$ ls -la
total 36
drwxr-xr-x 8 anil anil 4096 Feb 22 15:26 .
drwxr-xr-x 3 root root 4096 Feb 20 10:37 ..
drwxr-xr-x 2 anil anil 4096 Feb 21 15:28 bin
-rw-rw-r-- 1 anil anil 133 Feb 21 15:41 gunicorn_config.py
drwxr-xr-x 2 anil anil 4096 Feb 20 10:37 include
drwxrwxr-x 3 anil anil 4096 Feb 21 11:52 lcproject
drwxr-xr-x 3 anil anil 4096 Feb 20 10:37 lib
drwxr-xr-x 2 anil anil 4096 Feb 20 10:37 local
drwxrwxr-x 2 anil anil 4096 Feb 22 15:26 static
(lendcafe)anil@django:/opt/lendcafe$
</code></pre></blockquote>
<p>NGINX is a reverse proxy and HTTP server. There are two blocks, Server-block and Location-blocks in configuration file that we will be primarily working with. The server-block is very similar to virtual host and location-block to URI. There is much more information available in <a href="http://nginx.org/en/docs/beginners_guide.html">NGINX Beginner's Guide</a>.</p>
<p>Create a new NGINX config file <code>lendcafe</code> in <code>/etc/nginx/sites-available/</code> directory and enter the following configuration information.</p>
<blockquote><pre><code>(lendcafe)anil@django:/opt/lendcafe$ sudo nano /etc/nginx/sites-available/lendcafe
server {
server_name localhost;
location /static/ {
alias /opt/lendcafe/static/;
}
location / {
proxy_pass http://127.0.0.1:8001;
proxy_set_header X-Forwarded-Host $server_name;
proxy_set_header X-Real-IP $remote_addr;
add_header P3P 'CP="ALL DSP COR PSAa PSDa OUR NOR ONL UNI COM NAV"';
}
}
</code></pre></blockquote>
<p>Create a symbolic link in <code>/etc/nginx/sites-enabled</code> directory to the NGINX configuration file <code>lendcafe</code>.</p>
<blockquote><pre><code>(lendcafe)anil@django:/etc/nginx/sites-enabled$ sudo ln -s /etc/nginx/sites-available/lendcafe
</code></pre></blockquote>
<p>Delete the symbolic link <code>default</code>.</p>
<blockquote><pre><code>(lendcafe)anil@django:/etc/nginx/sites-enabled$ sudo rm default
</code></pre></blockquote>
<p>Restart NGINX service to changes to take effect.</p>
<blockquote><pre><code>(lendcafe)anil@django:/etc/nginx/sites-enabled$ sudo service nginx restart
Restarting nginx: nginx.
(lendcafe)anil@django:/etc/nginx/sites-enabled$
</code></pre></blockquote>
<p>VM is setup for Python/Django web development.</p>
<div class="blogger-post-footer">(c) 2014 Anil Gupta. Published at http://andirog.blogspot.com. I do not receive compensation from discussed vendors and advertisers unless a reader sign up or purchase by clicking through the banners and links provided.</div>Anil Guptahttp://www.blogger.com/profile/04626638497955200142noreply@blogger.com0tag:blogger.com,1999:blog-7209606.post-77635640289787956192014-02-11T08:00:00.000-08:002014-02-11T08:00:04.630-08:00OpenStack: Virtual Image Instances using Horizon Dashboard<h2>
Install Addendum</h2>
<div>
<br /></div>
<h3>
Enable VT in BIOS</h3>
An addendum to install steps defined in my previous post <a href="http://andirog.blogspot.com/2014/02/openstack-quick-install-using-devstack.html">OpenStack: Quick Install using DevStack</a> is required to avoid a surprise that I encountered after the install. Please check to make sure BIOS is at latest version available from the system manufacturer and Intel's Virtualization Technology (VT) is enabled in BIOS.<br />
<br />
<pre><code>anil@OSCloud:~$ sudo apt-get install cpu-checker
anil@OSCloud:~$ sudo kvm-ok
INFO: /dev/kvm exists
KVM acceleration can be used
</code></pre>
<br />
If CPU doesn't support VT, the output will show CPU does not support KVM extensions.<br />
The OpenStack Horizon Dashboard is implemented as a Python/Django web application that provides admin and user interface to OpenStack services.<br />
<br />
<h2>
Horizon Dashboard</h2>
<div>
<br /></div>
<h3>
Log in</h3>
In web browser, type the <code>IP address</code> for the dashboard. On Log In page enter <code>User Name</code> and <code>Password</code> and click <strong>Sign In</strong>. When signing in as <strong>Admin</strong>, the home page shows the Admin panel - System Panel - Overview.<br />
<br />
<img alt="Horizon Dashboard Admin Home Page" height="508" src="https://www.peercube.com/img/storageblog/horizon_home_admin.png" width="640" /><br />
<h3>
</h3>
<div>
<br /></div>
<h3>
Existing Virtual Machine Images</h3>
By clicking <code>Images</code> category in Admin - System panel on the left, a list of available images are viewed. In default installation, <strong>CirrOS</strong> x86_64 image is made available in <strong>AMI/ARI/AKI</strong> format.<br />
<br />
CirrOS images are tiny cloud guest images with minimal Linux distribution that can also be downloaded from <a href="https://launchpad.net/cirros/+download">LaunchPad</a>. The <strong>AMI/ARI/AKI</strong> is the image format supported by <a href="http://aws.amazon.com/ec2/">Amazon EC2</a>. <strong>AMI</strong> (Amazon Machine Image) is a virtual machine <code>raw</code> image. <strong>ARI</strong> (Amazon Kernel Image) is a kernel file (<code>vmlinuz</code>) that will load initially to boot image. <strong>ARI</strong> (Amazon Ramdisk Image) is ramdisk file (<code>initrd</code>) mounted at boot time.<br />
<br />
<img alt="Horizon Dashboard Admin Images Page" height="477" src="https://www.peercube.com/img/storageblog/horizon_images_admin.png" width="640" /><br />
<h3>
</h3>
<div>
<br /></div>
<h3>
Launch Instances</h3>
Clicking on the <code>Project</code> tab in left panel shows the overview of current project.<br />
<br />
<img alt="Horizon Dashboard Project Home Page" height="477" src="https://www.peercube.com/img/storageblog/horizon_home_project.png" width="640" /><br />
<br />
To launch an instance from an image, click <code>Images and Snapshot</code> category in Project - Manage Compute panel on the left.<br />
<br />
<img alt="Horizon Dashboard Project Images & Snapshot Page" height="418" src="https://www.peercube.com/img/storageblog/horizon_images_project.png" width="640" /><br />
<br />
Select an image and click <strong>Launch</strong>. A Launch Instance modal pop-up appear. Enter a name in <code>Instance Name</code> field in <code>Details</code> tab.<br />
<br />
<img alt="Horizon Launch Instance Details Popup" height="488" src="https://www.peercube.com/img/storageblog/horizon_launch_instance_details.png" width="640" /><br />
<br />
In <code>Access & Security</code> tab, enter a passphrase in <code>Admin Pass</code> and <code>Confirm Admin Pass</code> fields.<br />
<br />
<img alt="Horizon Launch Instance Access & Security Popup" height="376" src="https://www.peercube.com/img/storageblog/horizon_launch_instance_access.png" width="640" /><br />
<br />
Upon clicking <strong>Launch</strong>, Horizon dashboard switches to Project - Manage Compute - Instances page and shows the Instances running.<br />
<br />
<img alt="Horizon Project Instances" height="273" src="https://www.peercube.com/img/storageblog/horizon_project_instances.png" width="640" /><br />
<br />
Clicking on Instance Name hyperlink shows the Instance Details for that specific instance with three tabs for Overview, Log and Console.<br />
<br />
<img alt="Horizon Project Instance Console" height="640" src="https://www.peercube.com/img/storageblog/horizon_project_instance_console.png" width="615" /><br />
<br />
Though the Project - Manage Compute - Instances page shows instance to be Active and Running, the console for the instance is displaying an error message.<br />
<br />
<pre><code>This kernel requires an x86-64 CPU, but only detected an i686 CPU.
Unable to boot - please use a kernel appropriate for your CPU.
</code></pre>
<h4>
<br /></h4>
<h4>
Error Troubleshooting</h4>
A little bit of googling suggested to check whether the 64-bit PC (amd64, x86_64) or 32-bit PC (x86) version of host operating system is installed. Sure enough, the Ubuntu version installed on <code>OSCloud</code> host is x86 and not x86-64 version. I can't use x86-64 instance images on <code>OSCloud</code> host.<br />
<br />
<pre><code>anil@OSCloud:~$ uname -a
Linux OSCloud 3.2.0-58-generic-pae #88-Ubuntu SMP Tue Dec 3 18:00:02 UTC 2013 i686 i686 i386 GNU/Linux
</code></pre>
<br />
After terminating the newly created instance <code>test1</code> and deleting all x86_64 Images, the next step was to either find or build x86 images and start a new x86 instance.<br />
<br />
<h3>
Prebuilt Virtual Machine Images</h3>
As <code>OSCloud</code> host is using <strong>QEMU</strong> Hypervisor, it made sense to look for <code>qcow2</code> (QEMU copy-on-write) format x86 images. At <a href="https://launchpad.net/cirros/+download">CirrOS download page</a>, I found a <a href="https://launchpad.net/cirros/trunk/0.3.0/+download/cirros-0.3.0-i386-disk.img">bootable qcow disk image for i386</a> and decided to try it out.<br />
<br />
<h3>
Create Images</h3>
To create images, on Admin tab, select <code>Images</code> and then click <code>Create Image</code> button in right pane. On Create An Image page, enter Name for the image, select Image Source, Image Location, and Format. Select the Public checkbox to make available this image to everyone. Then click <code>Create Image</code>. The image will be queued for creation.<br />
<br />
<img alt="Horizon Admin Create An Image" height="604" src="https://www.peercube.com/img/storageblog/horizon_admin_create_image.png" width="640" /><br />
<br />
Once images are created, they will be available to launch instances in projects following the steps listed above in <strong>Launch Instances</strong> section.<br />
<br />
<img alt="Horizon Admin Images" height="461" src="https://www.peercube.com/img/storageblog/horizon_admin_images.png" width="640" /><br />
<br />
<img alt="Horizon Project Launch Instance" height="443" src="https://www.peercube.com/img/storageblog/horizon_launch_instance_cirros.png" width="640" /><br />
<br />
In next blog post, I will start to dig deeper into high level solution design using OpenStack. Your feedback and comments are welcome.<div class="blogger-post-footer">(c) 2014 Anil Gupta. Published at http://andirog.blogspot.com. I do not receive compensation from discussed vendors and advertisers unless a reader sign up or purchase by clicking through the banners and links provided.</div>Anil Guptahttp://www.blogger.com/profile/04626638497955200142noreply@blogger.com2tag:blogger.com,1999:blog-7209606.post-13896021827945518572014-02-04T08:00:00.000-08:002014-02-04T08:00:02.955-08:00OpenStack: Quick Install using DevStackThough not a recommended method for installing OpenStack for production, <a href="http://devstack.org/">DevStack</a> offers an easy method to install and run an OpenStack cloud either on hardware or even within virtual machine.<br />
<br />
In this post, I walk through installing OpenStack using DevStack on an old Sony Vaio laptop on local network. The DevStack site provides instructions for installing OpenStack on Virtual Machines and on Hardware. The detailed instructions for installing OpenStack on a single hardware machine, that I followed, are available at <a href="http://devstack.org/guides/single-machine.html">DevStack</a>.<br />
<br />
<h2>
Install Ubuntu Server OS</h2>
I repurposed a SONY VAIO laptop for DevStack install that was originally wiped clean with <a href="http://www.dban.org/">Darik's Boot and Nuke</a> in preparation for disposal.<br />
<br />
As DevStack downloads and installs all dependencies, I downloaded 64-bit PC (amd64, x86_64)Ubuntu 12.04 "Precise Pangolin" using <a href="https://help.ubuntu.com/community/Installation/MinimalCD">Minimal CD</a> <code>mini.iso</code> and <a href="https://help.ubuntu.com/community/BurningIsoHowto">burnt a CD</a> on my MacBook Pro.<br />
<br />
Booted Sony laptop using the Ubuntu minimal CD and selected <code>Install</code> from Installer boot menu, followed the prompts, and accepted default options for most prompts. It takes over an hour for the installation to download and install the base system.<br />
<br />
Installed OpenSSH Server to enable access to Ubuntu server over SSH from my MBP.
<br />
<blockquote>
<pre><code>$sudo apt-get install openssh-server</code></pre>
</blockquote>
Checked whether SSH process is running by using one of the two commands listed below. The output shows process running.
<br />
<blockquote>
<pre><code>anil@OSCloud:~$ ps aux | grep ssh
root 1394 0.0 0.0 6684 2416 ? Ss 21:43 0:00 /usr/sbin/sshd -D
anil 1534 0.0 0.0 4384 836 pts/0 S+ 22:06 0:00 grep --color=auto ssh
anil@OSCloud:~$ service ssh status
ssh start/running, process 1394
</code></pre>
</blockquote>
Checked the IP address of Ubuntu server so that I can remotely access the server.
<br />
<blockquote>
<pre><code>anil@OSCloud:~$ ifconfig
eth0 Link encap:Ethernet HWaddr 00:1d:ba:23:9a:c5
inet addr:10.0.1.25 Bcast:10.0.1.255 Mask:255.255.255.0
inet6 addr: fe80::21d:baff:fe23:9ac5/64 Scope:Link
UP BROADCAST RUNNING MULTICAST MTU:1500 Metric:1
RX packets:875 errors:0 dropped:0 overruns:0 frame:0
TX packets:202 errors:0 dropped:0 overruns:0 carrier:0
collisions:0 txqueuelen:1000
RX bytes:522168 (522.1 KB) TX bytes:19796 (19.7 KB)
Interrupt:16
lo Link encap:Local Loopback
inet addr:127.0.0.1 Mask:255.0.0.0
inet6 addr: ::1/128 Scope:Host
UP LOOPBACK RUNNING MTU:16436 Metric:1
RX packets:0 errors:0 dropped:0 overruns:0 frame:0
TX packets:0 errors:0 dropped:0 overruns:0 carrier:0
collisions:0 txqueuelen:0
RX bytes:0 (0.0 B) TX bytes:0 (0.0 B)
</code></pre>
</blockquote>
While trying to access Ubuntu server from MPB over SSH, I received following error.
<br />
<blockquote>
<pre><code>ANILs-MacBook-Pro:~ anilgupta$ ssh anil@10.0.1.25
@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@
@ WARNING: REMOTE HOST IDENTIFICATION HAS CHANGED! @
@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@
IT IS POSSIBLE THAT SOMEONE IS DOING SOMETHING NASTY!
Someone could be eavesdropping on you right now (man-in-the-middle attack)!
It is also possible that a host key has just been changed.
The fingerprint for the RSA key sent by the remote host is
26:54:a3:4e:cd:a3:6c:80:f3:36:2c:b3:c9:17:f0:db.
Please contact your system administrator.
Add correct host key in /Users/anilgupta/.ssh/known_hosts to get rid of this message.
Offending RSA key in /Users/anilgupta/.ssh/known_hosts:6
RSA host key for 10.0.1.25 has changed and you have requested strict checking.
Host key verification failed.
</code></pre>
</blockquote>
This is well-known error when there is fingerprint mismatch between the host (Ubuntu Server) and client (MBP). In this case, as there is no malicious attempt, I removed the offending key from MBP using <a href="http://linux.die.net/man/1/ssh-keygen"><code>ssh-keygen -R</code></a> command.<br />
<blockquote>
<pre><code>ANILs-MacBook-Pro:~ anilgupta$ ssh-keygen -R 10.0.1.25
# Host 10.0.1.25 found: line 6 type RSA
/Users/anilgupta/.ssh/known_hosts updated.
Original contents retained as /Users/anilgupta/.ssh/known_hosts.old
</code></pre>
</blockquote>
After removing the offending key, I was able to successfully SSH into Ubuntu Server.<br />
<blockquote>
<pre><code>ANILs-MacBook-Pro:~ anilgupta$ ssh anil@10.0.1.25
The authenticity of host '10.0.1.25 (10.0.1.25)' can't be established.
RSA key fingerprint is 26:54:a3:4e:cd:a3:6c:80:f3:36:2c:b3:c9:17:f0:db.
Are you sure you want to continue connecting (yes/no)? yes
Warning: Permanently added '10.0.1.25' (RSA) to the list of known hosts.
anil@10.0.1.25's password:
Welcome to Ubuntu 12.04.4 LTS (GNU/Linux 3.2.0-58-generic-pae i686)
* Documentation: https://help.ubuntu.com/
Last login: Tue Jan 28 21:40:01 2014
</code></pre>
</blockquote>
Gave sudo privileges to <code>anil</code> user account<br />
<blockquote>
<pre><code>anil@OSCloud:~$ sudo visudo
</code></pre>
</blockquote>
A file <code>/etc/sudoers.tmp</code> was opened in <code>nano</code> editor. Added the following line to the opened file and then saved using <code>^X</code>.<br />
<blockquote>
<pre><code>anil ALL=(ALL) NOPASSWD: ALL
</code></pre>
</blockquote>
At this point, the Ubuntu server is ready for DevStack install.<br />
<br />
<h2>
Install DevStack</h2>
Before installing DevStack, it is good idea to review <a href="https://github.com/openstack-dev/devstack">DevStack GitHub ReadMe</a> file. A few points that stood out in this file for me were:<br />
<ul>
<li>Be sure to carefully read <code>stack.sh</code> and any other scripts your execute before you run them, as they install software and will alter your networking configuration.</li>
<li>The DevStack master branch generally points to trunk versions of OpenStack components. For older, stable versions, look for branches names stable/[release] in DevStack repo.</li>
<li>You can also pick specific OpenStack project releases by setting the appropriate <code>*_BRANCH</code> variables in the <code>localrc</code> section of <code>local.conf</code>.</li>
<li>You can override environment variables used in <code>stack.sh</code> by creating file name <code>local.conf</code> with a <code>localrc</code> section.</li>
<li><strong>Swift is disabled by default. When, it is configured with only one replica to avoid being IO/memory intensive.</strong></li>
</ul>
The last point was particularly important for my install as I really would like to understand storage components in OpenStack.<br />
Install <a href="https://help.ubuntu.com/community/Git">Git</a> distributed version control system.<br />
<blockquote>
<pre><code>anil@OSCloud:~$ sudo apt-get install git -y
[sudo] password for anil:
Reading package lists... Done
Building dependency tree
Reading state information... Done
The following extra packages will be installed:
git-man liberror-perl patch
Suggested packages:
git-daemon-run git-daemon-sysvinit git-doc git-el git-arch git-cvs git-svn
git-email git-gui gitk gitweb diffutils-doc
The following NEW packages will be installed:
git git-man liberror-perl patch
0 upgraded, 4 newly installed, 0 to remove and 0 not upgraded.
Need to get 6,703 kB of archives.
After this operation, 15.5 MB of additional disk space will be used.
Get:1 http://us.archive.ubuntu.com/ubuntu/ precise/main liberror-perl all 0.17-1 [23.8 kB]
Get:2 http://us.archive.ubuntu.com/ubuntu/ precise/main git-man all 1:1.7.9.5-1 [630 kB]
Get:3 http://us.archive.ubuntu.com/ubuntu/ precise/main git i386 1:1.7.9.5-1 [5,963 kB]
Get:4 http://us.archive.ubuntu.com/ubuntu/ precise/main patch i386 2.6.1-3 [86.0 kB]
Fetched 6,703 kB in 16s (409 kB/s)
Selecting previously unselected package liberror-perl.
Reading database ... 46735 files and directories currently installed.)
Unpacking liberror-perl (from .../liberror-perl_0.17-1_all.deb) ...
Selecting previously unselected package git-man.
Unpacking git-man (from .../git-man_1%3a1.7.9.5-1_all.deb) ...
Selecting previously unselected package git.
Unpacking git (from .../git_1%3a1.7.9.5-1_i386.deb) ...
Selecting previously unselected package patch.
Unpacking patch (from .../patch_2.6.1-3_i386.deb) ...
Processing triggers for man-db ...
Setting up liberror-perl (0.17-1) ...
Setting up git-man (1:1.7.9.5-1) ...
Setting up git (1:1.7.9.5-1) ...
Setting up patch (2.6.1-3) ...
</code></pre>
</blockquote>
Clone the DevStack repository from GitHub.<br />
<blockquote>
<pre><code>anil@OSCloud:~$ git clone https://github.com/openstack-dev/devstack.git
Cloning into 'devstack'...
remote: Reusing existing pack: 14896, done.
remote: Total 14896 (delta 0), reused 0 (delta 0)
Receiving objects: 100% (14896/14896), 3.55 MiB | 1.59 MiB/s, done.
Resolving deltas: 100% (10138/10138), done.
</code></pre>
</blockquote>
Change to devstack directory.<br />
<blockquote>
<pre><code>anil@OSCloud:~$ cd devstack
anil@OSCloud:~/devstack$ ls -la
total 260
drwxr-xr-x 11 anil anil 4096 Jan 29 12:15 .
drwxr-xr-x 4 anil anil 4096 Jan 29 12:15 ..
-rw-rw-r-- 1 anil anil 1857 Jan 29 12:15 AUTHORS
-rwxrwxr-x 1 anil anil 2871 Jan 29 12:15 clean.sh
drwxrwxr-x 2 anil anil 4096 Jan 29 12:15 driver_certs
-rw-rw-r-- 1 anil anil 1552 Jan 29 12:15 eucarc
-rw-rw-r-- 1 anil anil 1145 Jan 29 12:15 exerciserc
drwxrwxr-x 2 anil anil 4096 Jan 29 12:15 exercises
-rwxrwxr-x 1 anil anil 1962 Jan 29 12:15 exercise.sh
drwxrwxr-x 2 anil anil 4096 Jan 29 12:15 extras.d
drwxrwxr-x 7 anil anil 4096 Jan 29 12:15 files
-rw-rw-r-- 1 anil anil 66652 Jan 29 12:15 functions
drwxrwxr-x 8 anil anil 4096 Jan 29 12:15 .git
-rw-rw-r-- 1 anil anil 226 Jan 29 12:15 .gitignore
-rw-rw-r-- 1 anil anil 81 Jan 29 12:15 .gitreview
-rw-rw-r-- 1 anil anil 11243 Jan 29 12:15 HACKING.rst
drwxrwxr-x 6 anil anil 4096 Jan 29 12:15 lib
-rw-rw-r-- 1 anil anil 10143 Jan 29 12:15 LICENSE
-rw-rw-r-- 1 anil anil 259 Jan 29 12:15 .mailmap
-rw-rw-r-- 1 anil anil 3343 Jan 29 12:15 openrc
-rw-rw-r-- 1 anil anil 14473 Jan 29 12:15 README.md
-rwxrwxr-x 1 anil anil 638 Jan 29 12:15 rejoin-stack.sh
-rwxrwxr-x 1 anil anil 870 Jan 29 12:15 run_tests.sh
drwxrwxr-x 2 anil anil 4096 Jan 29 12:15 samples
-rw-rw-r-- 1 anil anil 12425 Jan 29 12:15 stackrc
-rwxrwxr-x 1 anil anil 43835 Jan 29 12:15 stack.sh
drwxrwxr-x 2 anil anil 4096 Jan 29 12:15 tests
drwxrwxr-x 6 anil anil 4096 Jan 29 12:15 tools
-rwxrwxr-x 1 anil anil 3769 Jan 29 12:15 unstack.sh
</code></pre>
</blockquote>
Make a copy of <code>local.conf</code> file from <code>devstack/samples</code> folder to <code>devstack</code> folder<br />
<blockquote>
<pre><code>anil@OSCloud:~/devstack$ cp samples/local.conf local.conf
</code></pre>
</blockquote>
Open <code>local.conf</code> file in editor and add the listed configuration changes in <code>[[local|localrc]]</code> section. I chose to have same password as ADMIN for other accounts. I also chose to enable Swift. Save the file.<br />
<blockquote>
<pre><code>anil@OSCloud:~/devstack$ nano local.conf
ADMIN_PASSWORD = select_password
MYSQL_PASSWORD = select_password
RABBIT_PASSWORD = select_password
SERVICE_PASSWORD = $ADMIN_PASSWORD
enable_service s-proxy s-object s-container s-account
</code></pre>
</blockquote>
<br />
Run DevStack using <a href="http://devstack.org/stack.sh.html"><code>stack.sh</code></a>.<br />
<br />
<blockquote>
<pre><code>anil@OSCloud:~/devstack$ ./stack.sh
[sudo] password for anil:
Using mysql database backend
################################################################################
ENTER A SERVICE_TOKEN TO USE FOR THE SERVICE ADMIN TOKEN.
################################################################################
This value will be written to your localrc file so you don't have to enter it
again. Use only alphanumeric characters.
If you leave this blank, a random default value will be used.
Enter a password now:
select_password
2014-01-29 12:48:57 + echo_summary 'Installing package prerequisites'
...
</code></pre>
</blockquote>
Once install finishes, access information for the OpenStack cloud is displayed.<br />
<blockquote>
<pre><code>Horizon is now available at http://10.0.1.25/
Keystone is serving at http://10.0.1.25:5000/v2.0/
Examples on using novaclient command line is in exercise.sh
The default users are: admin and demo
The password: select_password
This is your host ip: 10.0.1.25
stack.sh completed in 339 seconds.
</code></pre>
</blockquote>
The OpenStack logs are stored in <code>/opt/stack/logs</code> directory. The latest detailed log can be accessed using symlink <code>/opt/stack/logs/stack.sh.log</code>. Unless there are errors, the latest summary log symlink <code>/opt/stack/logs/stack.sh.log.summary</code> is sufficient to check for installed, configured, and status of services.<br />
<blockquote>
<pre><code>anil@OSCloud:~/devstack$ cat /opt/stack/logs/stack.sh.log.summary
stack.sh log /opt/stack/logs/stack.sh.log.2014-01-29-134716
Installing package prerequisites
Installing OpenStack project source
Installing Tempest
Starting RabbitMQ
Configuring and starting MySQL
Starting Keystone
Configuring and starting Horizon
Configuring Glance
Configuring Swift
Configuring Cinder
Configuring Nova
Starting Swift
Starting Glance
Starting Nova API
Starting Nova
Starting Cinder
Uploading images
Initializing Tempest
stack.sh completed in 346 seconds.
</code></pre>
</blockquote>
At this point, I was able to log in to Horizon Dashboard using <code>http://10.0.1.25/</code> from MBP.<br />
<br />
<img alt="OpenStack Dashboard" height="510" src="https://www.peercube.com/img/storageblog/openstack_dashboard.png" width="640" /><br />
<br />
<h2>
Miscellaneous Operations</h2>
<br />
<h3>
Stop DevStack</h3>
<a href="http://devstack.org/unstack.sh.html"><code>unstack.sh</code></a> stops the processes that were started by <code>stack.sh</code>. All processes can be stopped by setting <code>UNSTACK_ALL</code> or specifying <code>--all</code> on the command line.<br />
<blockquote>
<pre><code>anil@OSCloud:~/devstack$ ./unstack.sh --all
* Stopping web server apache2 apache2: Could not reliably determine the server's fully qualified domain name, using 127.0.0.1 for ServerName
... waiting [ OK ]
tgt stop/waiting
tgtadm: can't send the request to the tgt daemon, Transport endpoint is not connected
tgtd seems to be in a bad state, restarting...
stop: Unknown instance:
tgt start/running, process 13058
tgt stop/waiting
mysql stop/waiting
Stopping rabbitmq-server: rabbitmq-server.
</code></pre>
</blockquote>
<br />
<h3>
Restart DevStack</h3>
Bring volume group online so that cinder-volume will start without errors<br />
<blockquote>
<pre><code>sudo losetup -f /opt/stack/data/stack-volumes-backing-file
</code></pre>
</blockquote>
Use <code>rejoin-stack.sh</code> to restart the DevStack<br />
<blockquote>
<pre><code>./rejoin-stack.sh &
</code></pre>
</blockquote>
<br />
<h3>
Reboot Host</h3>
After rebooting the Host, when I tried to login to dashboard, I received the error <code>An error occurred authenticating. Please try again later.</code> The <code>/var/log/apache2/horizon_error.log</code> only shows <code>Login failed for user "admin"</code> as entry. Checked the SELINUX status.<br />
<blockquote>
<pre><code>anil@OSCloud:~/devstack$ sestatus
SELinux status: disabled
</code></pre>
</blockquote>
The reason turned out that I needed to restart Devstack by using the command listed above in Restart DevStack section.<br />
<br />
In next post, I will take the Dashboard for a spin.<br />
<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
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<div class="blogger-post-footer">(c) 2014 Anil Gupta. Published at http://andirog.blogspot.com. I do not receive compensation from discussed vendors and advertisers unless a reader sign up or purchase by clicking through the banners and links provided.</div>Anil Guptahttp://www.blogger.com/profile/04626638497955200142noreply@blogger.com0tag:blogger.com,1999:blog-7209606.post-22733812920178237922014-01-28T08:00:00.000-08:002014-01-28T08:00:03.705-08:00OpenStack: Overview of Service ComponentsOpenStack is made up of several projects that together build up the OpenStack cloud. Three core components are Compute, Storage, and Network.<br />
<br />
<a href="http://docs.openstack.org/training-guides/content/index.html">OpenStack Training Guides</a> provide a nice conceptual architecture of OpenStack service components, created by <a href="http://www.solinea.com/">Solinea</a>.<br />
<br />
<img alt="OpenStack Conceptual Architecture" src="http://docs.openstack.org/training-guides/content/figures/5/figures/image13.jpg" height="393" width="640" />
<br />
<h2>
Compute (Nova)</h2>
Nova services provide computing resources through virtual machine (VM) instances and works with several virtualization technologies, such as KVM, QEMU, VMWare ESX, Xen, Hyper-V, and LXC. A complete list of supported Hypervisors is listed at <a href="https://wiki.openstack.org/wiki/HypervisorSupportMatrix" target="_blank">OpenStack Wiki</a>.<br />
<br />
Nova is also called <code>Cloud Controller</code> as it provides framework for provisioning and managing VMs. Nova also provides <code>ephemeral</code> storage.<br />
<br />
With Nova services, IT departments can offer private cloud services to internal departments that can scale computing resources on-demand as workload varies. It is analogous to Amazon EC2.<br />
Nova is made up of several service components:<br />
<ul>
<li><code>nova-compute</code>: Runs the VM instances.</li>
<li><code>nova-scheduler</code>: Decides which host will run the requested instance.</li>
<li><code>nova-api</code>: Service interface to Nova, such as a call to start up a Nova instance.</li>
<li><code>nova-network</code>: Network services</li>
<li><code>nova-objectstore</code>: File storage services</li>
<li><code>nova-common</code>: The underlying common libraries</li>
<li><code>nova-cert</code>: Certificate management service used to authenticate to Nova</li>
</ul>
<h2>
Object Storage (Swift)</h2>
By default, all storage disappears when VM instance is terminated. Swift services provide cost-effective scale-out redundant persistent storage to VM instances and responsible for ensuring data replication and integrity. The object storage is suitable for static data and stored as Objects. The objects are stored and replicated on disks spread across storage cluster nodes. The stored data persists until deleted by users.<br />
<br />
Swift is analogous to Amazon S3. Swift provides RESTful API for integration with other application, storage and services.<br />
<br />
Swift is made of several service components:<br />
<ul>
<li><code>swift-proxy</code>: Accepts, authorizes, authenticates incoming requests.</li>
<li><code>swift-account</code>: Manages database of accounts.</li>
<li><code>swift-container</code>: Contains mapping of containers.</li>
<li><code>swift-object</code>: Contains mapping of objects.</li>
</ul>
<h2>
Block Storage (Cinder)</h2>
Cinder provides high performance persistent block storage for use with VM instances. Cinder volumes are appropriate for database, file system and raw block storage. Cinder is supported by several storage platforms including Ceph, Nexenta, SolidFire, Zadara, CloudByte, Coraid and Scality to name a few startups in this area. A complete lists of storage devices supported by Cinder drivers is available at <a href="https://wiki.openstack.org/wiki/CinderSupportMatrix">Cinder Support Matrix</a>.<br />
<br />
Cinder is analogous to Amazon EBS. It also provides snapshot management with capability to either restore snapshot or use snapshot to create a new block storage volume.<br />
Following services are available with Cinder:<br />
<ul>
<li><code>cinder-api</code>: Authenticates and routes requests to block storage.</li>
<li><code>cinder-scheduler</code>: Scheduling and routing requests to volume service.</li>
<li><code>cinder-volume</code>: Managing back-end block storage devices.</li>
<li><code>cinder-backup</code>: Backup Cinder volume to Swift.</li>
</ul>
<h2>
Network (Neutron)</h2>
Neutron (formerly Quantum) provides virtual network service for connectivity and addressing used by other services. OpenStack networking can have multiple private networks with overlapping IP addressing schemes and relies on Keystone for authentication and authorization for API access. A standard implementation includes management network, data network, external network, and API network. Though started with basic Linux VLANs and IP tables, it now includes plugins which are pluggable back-end implementation of OpenStack Networking API: Open vSwitch, Linux Bridge, NEC OpenFlow, etc.<br />
<br />
Following services are available with Networking:<br />
<ul>
<li><code>quantum-server</code>: Passing user requests to the configured Plugin for processing.</li>
<li><code>plugin agent (quantum-*-plugin-agent)</code>: Perform local vSwitch configuration on hypervisor.</li>
<li><code>dhcp agent (quantum-dhcp-agent)</code>: Provides DHCP services to internal networks.</li>
<li><code>l3 agent (quantum-l3-agent)</code>: Provides L3/NAT forwarding for access to external network.</li>
</ul>
<h2>
Image (Glance)</h2>
Glance provides catalog and repository for disk, server and snapshot images. Glance API service is used for discovery, registration and delivery of images. Users can choose from available images, create their own from existing servers and start new compute instances from base templates. Glance supports multi-format image registry including raw, AMI (machine), QCOW2 (QEMU/KVM), VMDK (VMWare), VHD (Hyper-V), VDI (VirtualBox), and OVF.<br />
<br />
Glance is made of several service components:<br />
<ul>
<li><code>glance-api</code>: Accept incoming API requests and communicate with other components.</li>
<li><code>glance-registry</code>: Stores and retrieves metadata about images.</li>
<li><code>image store</code>: Stores actual image blobs, can be local filesystem or Swift.</li>
</ul>
<h2>
Identity (Keystone)</h2>
Keystone provides authentication authorization for managing users, accounts and role information for all OpenStack services. It also provides catalog of available services. Keystone provides an authentication token that is passed between services after validation for users to be able to use OpenStack resources. Keystone can also integrate with existing backend director services like LDAP.<br />
<h2>
Dashboard (Horizon)</h2>
Horizon provides a web-based graphical interface to access, provision and automate resources for administrators and users. It is implemented as Python/WSGI/Django web application running on Apache Web Server. As an alternate, custom command line scripts can be developed using OpenStack API.<br />
<br />
In the next blog post, I plan to perform a quick install of OpenStack.<div class="blogger-post-footer">(c) 2014 Anil Gupta. Published at http://andirog.blogspot.com. I do not receive compensation from discussed vendors and advertisers unless a reader sign up or purchase by clicking through the banners and links provided.</div>Anil Guptahttp://www.blogger.com/profile/04626638497955200142noreply@blogger.com0tag:blogger.com,1999:blog-7209606.post-89210646812614897952014-01-23T08:00:00.000-08:002014-01-23T08:00:05.060-08:00OpenStack: The Building Block for Private CloudI am back after an extended break from blogging about data storage topics. As I am no longer working at <a href="http://www.quantum.com/">Quantum</a>, I am free to blog about the recent developments in data storage without any concerns.<br />
<br />
Last year, I started using cloud servers on <a href="https://www.digitalocean.com/?refcode=6d615d40b288">Digital Ocean</a> for <a href="https://www.peercube.com/">PeerCube</a> and worked with <a href="http://aws.amazon.com/">Amazon Web Services</a> during <a href="https://www.coursera.org/course/datasci">Coursera's Introduction to Data Science</a> course. Since then, I became very interested in private clouds and methods to establish and manage them.<br />
<br />
With the rise of server virtualization, users and applications ability to spin up and spin down pre-built images as needed, and the success of <a href="http://aws.amazon.com/">Amazon Web Services (AWS)</a> public cloud, there are fewer reasons for IT administrators to actively manage pooling and allocation of IT infrastructure resources. While there are several commercial (<a href="http://www.vmware.com/products/vcloud-suite/">VMware vCloud</a>) and open source platforms (<a href="http://cloudstack.apache.org/">Apache CloudStack</a>, <a href="https://www.eucalyptus.com/">Eucalyptus</a>, <a href="http://www.openstack.org/">OpenStack</a>) that let you build Infrastructure as a Service (IaaS) private cloud, I am particularly excited with the developments happening in <a href="http://www.openstack.org/">OpenStack</a> community.<br />
<br />
I was sold on OpenStack as soon as I was able to install a <a href="http://www.devstack.org/">DevStack</a> environment on an old laptop and spin up images within couple of hours. Since then, I have been exploring OpenStack documentation and source code to understand this platform better with private cloud as a specific application in mind.<br />
<h2>
OpenStack Components</h2>
The modularized architecture of OpenStack includes following service components:<br />
<ol>
<li>Compute (Nova)</li>
<li>Object Store (Swift)</li>
<li>Block Storage (Cinder)</li>
<li>Neutron, formerly Quantum (Network)</li>
<li>Image (Glance)</li>
<li>Identity (Keystone)</li>
<li>Dashboard (Horizon)</li>
</ol>
In the next blog post, I will elaborate on each services components. Being from data storage industry, I am very interested in learning about the storage service components of OpenStack in-depth.<br />
<br />
As I realized that I learn best by writing and sharing, future blog posts will be my journey toward understanding OpenStack and how to use it to establish and manage private clouds.<br />
<h2>
Book Resources</h2>
<ul>
<li><a href="http://amzn.to/1mt8dVQ">OpenStack Operations Guide</a></li>
<li><a href="http://amzn.to/1mt8Y10">Deploying OpenStack</a></li>
<li><a href="http://amzn.to/1eSUDbk">OpenStack Operations Guide</a></li>
</ul>
<div class="blogger-post-footer">(c) 2014 Anil Gupta. Published at http://andirog.blogspot.com. I do not receive compensation from discussed vendors and advertisers unless a reader sign up or purchase by clicking through the banners and links provided.</div>Anil Guptahttp://www.blogger.com/profile/04626638497955200142noreply@blogger.com2tag:blogger.com,1999:blog-7209606.post-43826180466031981322013-04-08T07:30:00.000-07:002013-04-08T07:30:01.136-07:00Lending Club Borrower's Income Verification, Loan Issued Year, and Initial List Status<div dir="ltr" style="text-align: left;" trbidi="on">
Recently Lending Club modified the historical loan data file, included several new loan and borrower attributes and removed a few. One of the new fields is whether a borrower's income was verified by Lending Club during the loan application process. Recently, there was a discussion about <a href="http://www.lendacademy.com/forum/index.php?topic=909.15" target="_blank">verified income at LendAcademy forum</a>. Some of the questions and concerns raised during the discussion were:<br />
<ul style="text-align: left;">
<li>Has the number of available loans with verified income gone down recently?</li>
<li>Does the income verification really matter with loan performance?</li>
<li>Does Lending Club verify income for all loans?</li>
<li>Which borrowers are more likely to have their income verified?</li>
</ul>
It will be interesting to find answers to some of these questions and supporting data from the new historical loan data file.<br />
<br />
<h3 style="text-align: left;">
Loan Issued Year</h3>
The chart below shows the borrowers' income verification for the loans by issued year. The loans with verified income are listed as TRUE and with unverified income are listed as FALSE. Two questions listed above are right away addressed from this chart.<br />
<ul style="text-align: left;">
<li>Lending Club doesn't verify borrower's income for all loans issued.</li>
<li>The percentage of loans issued with verified income has gone up recently. Whether the retail lenders are seeing the loans with verified income at the time of offering is an open question.</li>
</ul>
In 2007, borrowers' income was not verified at all. Since then, the percentage of loans with verified income has been rising. In 2013 year to date, more loans were issued that borrower's income was verified than the loans with unverified income.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://1.bp.blogspot.com/-sSjV2Wu8P8M/UWI2rCVbvNI/AAAAAAAAGQ0/Sb0uZYo0I2E/s1600/IncV_issue_d.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="400" src="http://1.bp.blogspot.com/-sSjV2Wu8P8M/UWI2rCVbvNI/AAAAAAAAGQ0/Sb0uZYo0I2E/s400/IncV_issue_d.png" width="302" /></a></div>
<br />
<h3 style="text-align: left;">
Initial List Status of Loan</h3>
Lending Club reserves a few loans for 12 hours and offers them to the institutional and large retail lenders who want to lend the whole amount for a loan. I am not sure whether the historical loan data file includes the loans that were offered and picked up by lenders as 'whole' loans. But, the loans that were initially offered as whole, designated with 'w', but not picked up as 'whole' loans are listed in historical loan data file.<br />
<br />
The chart below shows the percentage of loans with verified and unverified income of borrowers with initial listing status and issued year of the loans. Lending Club started offering the 'whole' loans only since late 2012. With the limited data, there doesn't appear to be any significant difference in percentage of loans with verified income between the loans that were initially offered as whole or fractional.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://2.bp.blogspot.com/-kqzLsdD5CAc/UWJDtmmCNoI/AAAAAAAAGRE/BVRjHEQoibg/s1600/IncV_ils_issue_d.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="400" src="http://2.bp.blogspot.com/-kqzLsdD5CAc/UWJDtmmCNoI/AAAAAAAAGRE/BVRjHEQoibg/s400/IncV_ils_issue_d.png" width="380" /></a></div>
<br />
<h3 style="text-align: left;">
Key Takeaways</h3>
<ul style="text-align: left;">
<li>Lending Club is verifying borrower's income for greater percentage of loans issued on its platform recently.</li>
<li>There is no significant difference in income verification for loans initially listed as fractional or whole.</li>
</ul>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://www.dpbolvw.net/click-5760380-10873031" style="margin-left: 1em; margin-right: 1em;" target="_blank">
<img alt="" border="0" height="250" src="http://www.awltovhc.com/image-5760380-10873031" width="250" /></a></div>
</div>
<div class="blogger-post-footer">(c) 2014 Anil Gupta. Published at http://andirog.blogspot.com. I do not receive compensation from discussed vendors and advertisers unless a reader sign up or purchase by clicking through the banners and links provided.</div>Anil Guptahttp://www.blogger.com/profile/04626638497955200142noreply@blogger.com4tag:blogger.com,1999:blog-7209606.post-23064342317718162482013-03-21T07:30:00.000-07:002013-03-21T07:30:00.727-07:00Lending Club Loans Issued Since 2010 - Principal Paid Back and Months of Payment<div dir="ltr" style="text-align: left;" trbidi="on">
This post is the last in the series of posts discussing when default of loans start to peak (<a href="http://andirog.blogspot.com/2013/02/lending-club-loans-defaults-with-loan.html" target="_blank">Part 1</a>, <a href="http://andirog.blogspot.com/2013/02/lending-club-loans-months-of-payment.html" target="_blank">part 2</a>, <a href="http://andirog.blogspot.com/2013/03/lending-club-loans-principal-paid-back.html" target="_blank">part 3</a>, and <a href="http://andirog.blogspot.com/2013/03/lending-club-loans-principal-paid-back_18.html" target="_blank">part 4</a>).<br />
<br />
<h3>
Months of Payment</h3>
The chart below shows the percentage of 36 month and 60 month loans defaulted as a function of months of payment for loans issued since 2010. By reviewing both 36 month and 60 month loans issued in same time frame, we may be able to better compare such loans. While the default patterns are very similar for first 10 months of payment, the rate of defaults increases rapidly for 60 month loans after 10 months of payment. 50% of defaults for both 36 month and 60 month loans occurred within 8 months or so, the 80% of defaults for 60 month loans occurred within 13 months compared to 15 months for 36 month loans.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://2.bp.blogspot.com/-G2IfjRBQ2EE/UUZbnm7_hkI/AAAAAAAAGP0/hwuiH-0qzik/s1600/Pmt_default_term_2010.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="355" src="http://2.bp.blogspot.com/-G2IfjRBQ2EE/UUZbnm7_hkI/AAAAAAAAGP0/hwuiH-0qzik/s640/Pmt_default_term_2010.png" width="640" /></a></div>
<br />
<h3 style="text-align: left;">
Principal Paid Back</h3>
Similar chart for Principal paid back is shown below. It is clear from the chart that while 50% of loans of both maturities defaulted within 8 months, the 60 month loans paid back (9%) only half of principal compared to the principal paid back by 36 month loans (18%). Can the 60 month loans that continue to make payment make up for this extra loss in principal with longer repayment duration and/or higher interest rate?<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://1.bp.blogspot.com/--MNvtuZVsIk/UUZprz2J56I/AAAAAAAAGP8/fDteDcx4vtM/s1600/PrincBack_default_term_2010.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="355" src="http://1.bp.blogspot.com/--MNvtuZVsIk/UUZprz2J56I/AAAAAAAAGP8/fDteDcx4vtM/s640/PrincBack_default_term_2010.png" width="640" /></a></div>
<br />
Another interesting observation from above chart is the increasing difference in principal paid back between loans of 36 month and 60 month maturities. For example, the 20% of defaulted 60 month loans paid back 4% of principal little more than half of 7% principal paid back by 20% of defaulted 36 month loans. In comparison, the 80% of defaulted 60 month loans paid back 16% of principal less than half of 37% principal paid back by 80% of defaulted 36 month loans.<br />
<br />
The chart below shows the scatter plot of Principal paid back and Months of payment for 36 month and 60 month loans issued since 2010. A second order polynomial trend line is shown on the chart separately for 36 month and 60 month loans. As the principal portion in monthly repayments for 60 month loans is much smaller than that for similar 36 month loans, the increasing difference between principal paid back with months of payment is understandable.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://4.bp.blogspot.com/-u2xKbwXswPU/UUZ0KaIOj9I/AAAAAAAAGQE/IufWvwoLm4A/s1600/Princback_pmt_term_2010.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="355" src="http://4.bp.blogspot.com/-u2xKbwXswPU/UUZ0KaIOj9I/AAAAAAAAGQE/IufWvwoLm4A/s640/Princback_pmt_term_2010.png" width="640" /></a></div>
<br />
<h3 style="text-align: left;">
Key Takeaways</h3>
<div style="text-align: left;">
</div>
<ul style="text-align: left;">
<li>In the end, the months of payment is much more straightforward method to determine when defaults peak.</li>
<li>For 36 month loans, 50% of defaults are expected to occur within 10 months of payment, and 80% of defaults within 20 months. </li>
<li>The default trend for both 36 month and 60 month loans is very similar for first 8 months of payment.</li>
</ul>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://www.kqzyfj.com/click-5760380-10880198" style="margin-left: 1em; margin-right: 1em;" target="_blank">
<img alt="LT" border="0" height="51" src="http://www.lduhtrp.net/image-5760380-10880198" width="400" /></a></div>
</div>
<div class="blogger-post-footer">(c) 2014 Anil Gupta. Published at http://andirog.blogspot.com. I do not receive compensation from discussed vendors and advertisers unless a reader sign up or purchase by clicking through the banners and links provided.</div>Anil Guptahttp://www.blogger.com/profile/04626638497955200142noreply@blogger.com4tag:blogger.com,1999:blog-7209606.post-80736776616946519922013-03-18T07:30:00.000-07:002013-03-18T07:30:02.553-07:00Lending Club Loans - Principal Paid Back and Defaults<div dir="ltr" style="text-align: left;" trbidi="on">
In this post, I will analyze the defaults based on principal paid back by the borrowers before default. For earlier posts in the series, please refer to <a href="http://andirog.blogspot.com/2013/02/lending-club-loans-defaults-with-loan.html" target="_blank">Lending Club Loans - Defaults with Loan Age</a>, <a href="http://andirog.blogspot.com/2013/02/lending-club-loans-months-of-payment.html" target="_blank">Lending Club Loans - Months of Payment before Default</a>, and <a href="http://andirog.blogspot.com/2013/02/lending-club-loans-months-of-payment.html" target="_blank">Lending Club Loans - Principal Paid Back and Months of Payment</a>.<br />
<br />
<h3>
Loan Length</h3>
The chart below shows the percentage of loans defaulted as a function of principal paid back for 36 and 60 months loans. Similar to previous methodologies, the curve for 60 month loan is exaggerated, i.e. higher defaults at lower principal paid back because all of 60 month loans are less than 3 years old.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
</div>
<div class="separator" style="clear: both; text-align: center;">
<a href="http://4.bp.blogspot.com/-WwgiO1miq60/UTaZEDGElCI/AAAAAAAAGO8/XYmGjde7GtU/s1600/PrincBack_default_term.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="355" src="http://4.bp.blogspot.com/-WwgiO1miq60/UTaZEDGElCI/AAAAAAAAGO8/XYmGjde7GtU/s640/PrincBack_default_term.png" width="640" /></a></div>
<br />
One interesting observation from this chart is that 2.7% of 36 month loans that default pay back less than 0.04% of principal, i.e. borrower only makes one or two payments on the loan. A few other interesting observations for 36 month defaulted loans are:<br />
<ul>
<li>About 44% of defaulted loans pay back less than 20% of principal.</li>
<li>About 80% of defaulted loans pay back less than 50% of principal.</li>
<li>About 95% of defaulted loans pay back less than 80% of principal.</li>
</ul>
Put another way, we can expect 50% of our defaulted loans to pay back less than 24% of principal. This causes a double whammy for peer to peer lenders who are using a non-retirement account for lending. The interest earned is taxed at higher ordinary income tax rate while the principal lost to default is deducted from capital gains that are taxed at much lower rate. The monthly repayments during the first year consist mostly of interest resulting in lender paying higher percentage of interest income in taxes while lower percentage of principal loss to offset the capital gains if borrower defaults within a year.<br />
<br />
<h3 style="text-align: left;">
Credit Grade</h3>
The chart below shows the percentage of loans defaulted as a function of principal paid back for various credit grades. There are no surprises here.<br />
<ul style="text-align: left;">
<li>The defaults with principal paid back for loans with credit grades E, F, and G behave very similar to each other. The similar trend is also seen for loans with credit grades B, C, and D. This may suggest that better returns to be have by investing in the loans with higher interest rate within each group.</li>
<li>As expected the defaults of higher quality loans, i.e. credit grade A loans, tend to pay back larger portion of original principal. The open question is whether the lower interest payments for such loans cover the principal loss.</li>
</ul>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://2.bp.blogspot.com/-0pdHUhtbNKM/UTajLCNEiLI/AAAAAAAAGPM/DabSuu7pKRo/s1600/PrincBack_default_grade.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="352" src="http://2.bp.blogspot.com/-0pdHUhtbNKM/UTajLCNEiLI/AAAAAAAAGPM/DabSuu7pKRo/s640/PrincBack_default_grade.png" width="640" /></a></div>
<br />
<h3 style="text-align: left;">
Key Takeaways</h3>
Overall, I am disappointed that principal paid back didn't prove to be as effective of methodology as months of payment in determining when loan defaults peak. It appears sometime simpler measurements are much more effective in describing the trends. Also, none of the methodologies discussed able to explain the defaults of 60 month loans without observing such loans to maturity.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://www.kqzyfj.com/click-5760380-10730068" style="margin-left: 1em; margin-right: 1em;" target="_blank">
<img alt="Once You Know, You Newegg" border="0" height="60" src="http://www.awltovhc.com/image-5760380-10730068" width="468" /></a></div>
</div>
<div class="blogger-post-footer">(c) 2014 Anil Gupta. Published at http://andirog.blogspot.com. I do not receive compensation from discussed vendors and advertisers unless a reader sign up or purchase by clicking through the banners and links provided.</div>Anil Guptahttp://www.blogger.com/profile/04626638497955200142noreply@blogger.com2tag:blogger.com,1999:blog-7209606.post-2814321465376240082013-03-04T07:30:00.000-08:002013-03-16T16:31:55.377-07:00Lending Club Loans - Principal Paid Back and Months of Payment<div dir="ltr" style="text-align: left;" trbidi="on">
In the <a href="http://andirog.blogspot.com/2013/02/lending-club-loans-months-of-payment.html" target="_blank">last post</a>, I analyzed the defaults based on number of monthly payments made by borrower before default. In next post, I will analyze the defaults using another methodology of principal paid back before default. In this post, I will review the relationship between principal paid back and months of payment.<br />
<br />
<h3 style="text-align: left;">
Principal Paid Back</h3>
While months of payments methodology provides us a time frame when most defaults occur, it doesn't provide a decent comparison for loans in different maturity cycle and loans of different maturity length. My expectation is that the principal paid back will serve as an appropriate proxy for matching the loans at the same point in maturity cycle. For example, a 3 year loan at 10% interest rate would take about 20 months (55% of maturity length) to pay off 50% of principal while same loan with 5 year term would take about 34 months (56% of maturity length) to pay off 50% of principal. In this analysis, I assume that defaults for these two loans should behave similarly when each has paid off same percentage of principal.<br />
<br />
Principal Paid Back is one of my favorite data point in evaluating a lending strategy as it is a good method to gage the risk tolerance of a lender. It quickly communicates on average what percentage of principal is going to be recovered from defaulted loans. Combined with the return from fully paid loans, it also communicates how many loans a lender needs to recover principal lost from defaulted loans and just break-even.<br />
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<a href="http://3.bp.blogspot.com/-uVzw4xwKU-E/UTPmZWRc6fI/AAAAAAAAGOU/OulNvR-o6EA/s1600/own_mature.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="310" src="http://3.bp.blogspot.com/-uVzw4xwKU-E/UTPmZWRc6fI/AAAAAAAAGOU/OulNvR-o6EA/s400/own_mature.png" width="400" /></a></div>
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For example, the screen capture above from <a href="http://www.peercube.com/" target="_blank">PeerCube</a> shows historical performance of loans issued between 2007 and 2009 for a specific lending strategy that only includes borrowers who own their home. On average, each defaulted loan paid back only about 42% of principal. To break-even, this strategy need to recover 58% of lost principal from other loans in the portfolio. With, on average, only 14% return (ROI to be discussed in future blog post) from fully paid loans, a lender need at least 4 loans to be fully paid to just break-even. If a lender invested in all loans meeting this criteria between 2007 and 2009, 55% of loans contributed 0% to return and only 45% loans contributed to achieving 7.32% ROI from this strategy.<br />
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<h3 style="text-align: left;">
Months of Payment</h3>
The chart below shows the Principal Paid Back as a function of Months of Payment for both 36 and 60 month loans. Actually axis are swapped as certain observations listed below are easier to see this way. <i><span style="color: blue;">[Edits 03/16/2013: As requested by Andrew in comments below, updated the chart to include linear trend lines and screen capture of trend model description.]</span></i><br />
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<a href="http://4.bp.blogspot.com/-Q72HoxboXns/UUT_3CNNKmI/AAAAAAAAGPc/yNtcaI68gUU/s1600/Pmt_PrincBack_term.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="355" src="http://4.bp.blogspot.com/-Q72HoxboXns/UUT_3CNNKmI/AAAAAAAAGPc/yNtcaI68gUU/s640/Pmt_PrincBack_term.png" width="640" /></a></div>
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<a href="http://2.bp.blogspot.com/-T7Xv_YN4xzo/UUUABdQoVuI/AAAAAAAAGPk/A68LltvMKlo/s1600/Pmt_PrincBack_term_trendmodel.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="424" src="http://2.bp.blogspot.com/-T7Xv_YN4xzo/UUUABdQoVuI/AAAAAAAAGPk/A68LltvMKlo/s640/Pmt_PrincBack_term_trendmodel.png" width="640" /></a></div>
<br />
The 36 month loans and 60 month loans clearly have two different paths on the chart. It is clear that the principal payback schedule is different for 36 month and 60 month loans. The scatter plot for 60 month loans shows most data points in the region below 30 months of payment and left of 50% principal paid back. This is primarily due to 60 month loans issued only since second quarter of 2010. The solid color at 100% principal paid back mark for loans with both terms is due to loans that are fully paid either on schedule or ahead of schedule.<br />
<br />
The chart below shows the Principal Paid Back as a function of Months of Payment for loans with various credit grade.<br />
<br />
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<a href="http://3.bp.blogspot.com/-iomcWVtsRFI/UTP5IIoresI/AAAAAAAAGOs/Zq7k5UtOyr8/s1600/Pmt_PrincBack_grade.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="339" src="http://3.bp.blogspot.com/-iomcWVtsRFI/UTP5IIoresI/AAAAAAAAGOs/Zq7k5UtOyr8/s640/Pmt_PrincBack_grade.png" width="640" /></a></div>
<br />
This chart is very similar to the previous chart. From density of different colors, it can be observed that the 60 month loans are primarily carry credit grade E, F, and G. Also, it appears that majority of 60 month loans that are paid off early carried credit grade A, B, and C.<br />
<br />
<h3 style="text-align: left;">
Key Takeaways</h3>
<ul style="text-align: left;">
<li>The Principal Paid Back would be a good data point to gage the risk tolerance of a lender and variance in return of a lending strategy over the loan maturity cycle.</li>
<li>Reviewing the loans that have paid back less than 50% of principal may offer better comparison between 36 and 60 month loans.</li>
</ul>
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<div class="blogger-post-footer">(c) 2014 Anil Gupta. Published at http://andirog.blogspot.com. I do not receive compensation from discussed vendors and advertisers unless a reader sign up or purchase by clicking through the banners and links provided.</div>Anil Guptahttp://www.blogger.com/profile/04626638497955200142noreply@blogger.com8tag:blogger.com,1999:blog-7209606.post-42609821821294316632013-02-27T07:30:00.000-08:002013-02-27T07:30:00.791-08:00Lending Club Loans - Months of Payment before Default<div dir="ltr" style="text-align: left;" trbidi="on">
In the <a href="http://andirog.blogspot.com/2013/02/lending-club-loans-defaults-with-loan.html" target="_blank">last post</a>, I reviewed the defaults based on loan issued date. As I mentioned in the previous post, due to point in time snapshot of historical loan data that Lending Club provides, it is difficult to determine exactly when a loan actually was charged off or defaulted.<br />
<br />
<h3 style="text-align: left;">
Months of Payment</h3>
In this post, I will review the defaults using a different methodology. Before a loan is charged off or defaulted, borrowers stops making monthly payments on the loan. Based on the total payments made by borrower, we can determine approximately the number of months or number of times monthly payments were made before loan was charged off.<br />
<br />
The months of payment will always be smaller than when actually loans was charged off as Lending Club can take significant time to write off a loan once payment stops. Also, as there is no information about partial payments and any late fees in historical loan data file, this analysis assumes that all payments were made toward monthly payments.<br />
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<h3 style="text-align: left;">
Loan Length</h3>
The chart below shows the percentage of defaulted loans as a function of number of monthly payments made for 36 month and 60 month loan terms.<br />
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<div class="separator" style="clear: both; text-align: center;">
<a href="http://1.bp.blogspot.com/-aYtlcur6kPQ/USxMYY6OvzI/AAAAAAAAGMk/HmTalUi_25Q/s1600/Pmt_default_term.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="355" src="http://1.bp.blogspot.com/-aYtlcur6kPQ/USxMYY6OvzI/AAAAAAAAGMk/HmTalUi_25Q/s640/Pmt_default_term.png" width="640" /></a></div>
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<div style="text-align: left;">
At first glance, someone may make following observations:</div>
<ul style="text-align: left;">
<li>The 60 month loans default quicker than 36 month loans.</li>
<li>Most 60 month loans default within first 24 months.</li>
<li>Both 36 and 60 month loans have similar default trend within first six months after loan issued date.</li>
</ul>
Such conclusion may not be correct. While 36 month loans of at least three vintage issued years have reached full maturity, none of the 60 month loans have gone through complete maturity cycle. The 60 month loans were first issued in early 2010. This is the main reason why the curve for 60 month loans gives the impression that most defaults happen within first two years.<br />
<br />
Following observations can be made for default behavior of 36 month loans:<br />
<div style="text-align: left;">
</div>
<ul style="text-align: left;">
<li>About 20% of all defaulted loans make five or less monthly payments.</li>
<li>About 50% of all defaulted loans make ten or less monthly payments.</li>
<li>About 80% of all defaulted loans make twenty or less monthly payments.</li>
</ul>
Put another way, we can expect half of our default loans to occur before a borrower makes ten complete monthly payments. Assuming Lending Club takes on average four months (120 days) after payments stop to charge off loan, we can expect half of our defaults to occur by 14th month after issue date.<br />
<br />
<h3 style="text-align: left;">
Credit Grade</h3>
The chart below shows the percentage of defaulted loans as a function of number of monthly payments made for different Credit Grades.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://3.bp.blogspot.com/-fHz64mAkDqk/USzfZIhEZZI/AAAAAAAAGNU/gs3__7XQyng/s1600/Pmt_default_grade.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="352" src="http://3.bp.blogspot.com/-fHz64mAkDqk/USzfZIhEZZI/AAAAAAAAGNU/gs3__7XQyng/s640/Pmt_default_grade.png" width="640" /></a></div>
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There doesn't appear to be any significant difference in default trend for loans with different credit grade. The separation of curves for Grade E, F, and G from rest of the pack at 15 months of payment and higher may suggest that greater number of such loans are defaulting earlier. Majority of E, F, and G grade loans are of 60 month term. As mentioned earlier none of the 60 month loans have reached full maturity yet. The separation in curve is most likely result of incomplete defaults data for 60 month loans to maturity.<br />
<br />
<h3 style="text-align: left;">
Key Takeaways</h3>
<ul style="text-align: left;">
<li>We can expect half of our default loans to occur before a borrower makes ten monthly payments, i.e. by 14th month after loan issue date.</li>
<li>It is too early to compare default trend of 60 month loans with that of 36 month loans.</li>
<li>There is no significant difference in default trend for loans with different credit grade.</li>
</ul>
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<div class="blogger-post-footer">(c) 2014 Anil Gupta. Published at http://andirog.blogspot.com. I do not receive compensation from discussed vendors and advertisers unless a reader sign up or purchase by clicking through the banners and links provided.</div>Anil Guptahttp://www.blogger.com/profile/04626638497955200142noreply@blogger.com7tag:blogger.com,1999:blog-7209606.post-86059817395118713842013-02-25T07:30:00.000-08:002013-02-25T07:30:01.021-08:00Lending Club Loans - Defaults with Loan Age, Part I<div dir="ltr" style="text-align: left;" trbidi="on">
<div dir="ltr" style="text-align: left;" trbidi="on">
February has been slow month from blogging perspective for me. I spent majority of time making improvements to <a href="http://www.peercube.com/" target="_blank">PeerCube</a>. Three major enhancements released this month are ability to invest in multiple loans together from the list of loans, more robust BLE Risk Index that now includes 19 different loan and borrower attributes, and showing a list of loans with similar risk profiles as the one being viewed by a user.<br />
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<h3 style="text-align: left;">
When Default of Loans Start to Peak?</h3>
Recently, a participant on LendAcademy forum asked <a href="http://www.lendacademy.com/forum/index.php?topic=747.0" target="_blank">when defaults of loans start to peak</a>. It is an interesting question so I decided to look further into historical data for Lending Club loans and see if I can find patterns for loan defaults. Unfortunately, Lending Club only provides point-in-time snapshot of historical loan data so I can't observe when a loan entered in default state. But, there are several different methods that can help provide insights from point-in-time snapshot.<br />
<br />
One such method is to review the loans that are currently in default and when they were issued. This method assumes that similar pattern, in aggregate, will persist for loans in the future. One challenge with this method is that any variation in loan volume will skew the pattern. For example, if 1,000 loans defaulted out of 100,000 loans issued last year versus 400 loans out of 10,000 loans issued prior year, we may erroneously assume that loans default more within a year of being issued. In following analysis, I use the percentage of loans with default status to smooth out any effect of volume.<br />
<br />
The chart below shows the percentage of loans with default status as a function of loan issued date. I only included 3 year term loans primarily because I have the historical data that covers the loans from issued date to maturity. Also, the 5 year term loans may have different default pattern. A peculiarity you may notice is the way I have chosen to plot X-axis (loan issued date). Instead of ascending issued year, I have reversed the axis and plotted percentage loan defaults with descending issued year. In fact, the chart below is a mirror image. As we are more interested in knowing when a loan may default, I believe flipping the X-axis better communicates visually the trend.<br />
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<div class="separator" style="clear: both; text-align: center;">
</div>
<div class="separator" style="clear: both; text-align: center;">
<a href="http://1.bp.blogspot.com/-Bgv46LiT5c4/USrL2cWg2CI/AAAAAAAAGL0/y2qc9C06Rvg/s1600/Default_Age.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="409" src="http://1.bp.blogspot.com/-Bgv46LiT5c4/USrL2cWg2CI/AAAAAAAAGL0/y2qc9C06Rvg/s640/Default_Age.png" width="640" /></a></div>
<br />
While reviewing this chart, think of that you are trying to find out how many 3 year term loans issued in January 2013 may default by the end of 2016. Think of right side of 2012 being end of 2013, right side of 2011 being end of 2014 and so on. The major assumption here is that future monthly default trend is exactly represented by the past monthly default trend.<br />
<br />
<h3 style="text-align: left;">
Observations</h3>
While reviewing the above chart, two observations right away stand out:<br />
<div style="text-align: left;">
</div>
<ol style="text-align: left;">
<li>No loans are charged off or defaulted within first six months. This is understandable as majority of loans will go through stages of In Grace Period, Late (16 - 30 days), and Late (31 - 120 days) before being charged off. So, earliest most loans can be charged off is at least 120 days (4 months) after being issued.</li>
<li>Th peaks appear during the year at regular interval. I am not very sure but I suspect this may have to do either with the time (end of December) when this historical loan file was downloaded or the Lending Club defaulting loans in batches at regular interval.</li>
</ol>
Based on the trend line models in this chart, for all 3 year term loans purchased in January 2013, we can expect 2.3% loans in default by the end of first year, 6.2% loans in default by the end of second year and 10.5% loans in default by the end of third year. By the time all loans mature, we can expect 12.4% loans originally issued to default. These numbers were obtained by substituting 0 for Month of Issued Date in trend line model for each year.<br />
<br />
For 100 loans issued in January 2013, 2.3 loans can be expected to default in first year, 3.9 loans default in second year, 4.3 loans default in third year, and another 1.9 loan default after third year.<br />
<br />
<div style="text-align: left;">
<h3 style="text-align: left;">
Key Takeaway</h3>
</div>
<div style="text-align: left;">
We may conclude from this analysis that the most default happen during the third year of 3 year term loans. But we need to be cognizant of the fact that the loans defaulting late in their maturity cycle have much lower impact on return as such loans have already paid back greater share of original principal.</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
In next post, I will further look in to default patterns of loans and also investigate other methods to analyze historical data for default patterns.</div>
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<div class="blogger-post-footer">(c) 2014 Anil Gupta. Published at http://andirog.blogspot.com. I do not receive compensation from discussed vendors and advertisers unless a reader sign up or purchase by clicking through the banners and links provided.</div>Anil Guptahttp://www.blogger.com/profile/04626638497955200142noreply@blogger.com10tag:blogger.com,1999:blog-7209606.post-86623650207442923562013-02-04T07:30:00.000-08:002013-02-04T07:30:02.010-08:00Lending Club Borrower's Revolving Credit Utilization, Loan Purpose and Defaults<div dir="ltr" style="text-align: left;" trbidi="on">
While reviewing the loan volume with borrower's revolving credit utilization, I became curious to know how the revolving credit utilization of borrowers impact their reasons for borrowing on peer to peer platform. My initial thought was that borrowers with high revolving credit utilization most likely borrow for credit card refinancing purpose.<br />
<br />
<h3 style="text-align: left;">
Loan Purpose</h3>
The chart below shows the cumulative loan volume % by loan purpose as a function of borrower's revolving credit line utilization. The findings here don't surprise me. The percentage loan volume for credit card refinancing and debt consolidation purposes is much higher (steepest slope) for borrowers with high revolving credit line utilization. The borrowers with low revolving credit utilization are more likely to borrow for house buying, major purchase, and educational purposes.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://4.bp.blogspot.com/-X__SS72LXkA/UQ7fyH6yqhI/AAAAAAAAGIs/zRLHI4Z5dnc/s1600/RCLU_vol_purpose.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="220" src="http://4.bp.blogspot.com/-X__SS72LXkA/UQ7fyH6yqhI/AAAAAAAAGIs/zRLHI4Z5dnc/s400/RCLU_vol_purpose.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club Loan Volume by Purpose and Borrower's Revolving Credit Line Utilization</td></tr>
</tbody></table>
<br />
<h3 style="text-align: left;">
Loan Status</h3>
The chart below shows the moving average of loan volume by loan status as a function of borrower's revolving credit line utilization. There is not much of a surprise here either. In general, the loan defaults and charged off rise with rising revolving credit line utilization of borrowers. Even though the volume of fully paid loans declines with rising revolving credit line utilization, the volume of fully paid loans appears to be somewhat constant for lower revolving credit line utilization.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://2.bp.blogspot.com/-fIG67CF8fos/UQ7x6ibH36I/AAAAAAAAGJc/bN8aLk1O6Js/s1600/RCLU_vol_status.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="277" src="http://2.bp.blogspot.com/-fIG67CF8fos/UQ7x6ibH36I/AAAAAAAAGJc/bN8aLk1O6Js/s400/RCLU_vol_status.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club Loan Volume by Status and Borrower's Revolving Credit Utilization</td></tr>
</tbody></table>
<br />
The chart below is similar to the one above. In this chart, the revolving credit line utilization is divided into buckets. Each bucket (bin) is 10% wide. For example, the first bin includes all loans issued to borrowers who have revolving credit line utilization between 0 and 9.99%. The loans issued to borrowers who have revolving credit line utilization either below 10% or above 90% seem to default much more.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://4.bp.blogspot.com/-z17hbCcftrg/UQ7_s7bkSAI/AAAAAAAAGJk/efUFPe1K2J0/s1600/RCLU_default.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="332" src="http://4.bp.blogspot.com/-z17hbCcftrg/UQ7_s7bkSAI/AAAAAAAAGJk/efUFPe1K2J0/s400/RCLU_default.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club Loan Status and Borrower's Revolving Credit Line Utilization</td></tr>
</tbody></table>
<br />
Higher number of loans are fully paid off that were issued to borrowers with revolving credit line utilization below 20%. This observation leads to the question of whether borrowers with low revolving credit line utilization tend to pay off loans early.<br />
<br />
The chart below shows the loans that were charged off or fully paid for issued year 2009 through 2012 as function of revolving credit line utilization. The ratio of loans charged off to fully paid appears to be about 7 for borrowers with lower revolving credit line utilization, i.e. such loans are seven times more likely to be paid off early than charged off.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://4.bp.blogspot.com/-yYfJRGhqYIc/UQ8JwkwWAEI/AAAAAAAAGKU/7-ng80wEFrc/s1600/RCLU_default_0912.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="305" src="http://4.bp.blogspot.com/-yYfJRGhqYIc/UQ8JwkwWAEI/AAAAAAAAGKU/7-ng80wEFrc/s400/RCLU_default_0912.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club 2009-2012 Loan Status and Borrower's Revolving Credit Line Utilization</td></tr>
</tbody></table>
<br />
Another observation worth highlighting is that unlike the earlier chart above, this chart doesn't show that defaults and charged off are higher for loans issued to borrowers with very low revolving credit utilization. The reason of discrepancy may be due to much higher loan volume in recent years that skews the default rate in the earlier chart.<br />
<br />
<h3 style="text-align: left;">
Key Takeaways</h3>
<ul style="text-align: left;">
<li>The borrowers with high revolving credit line utilization are more likely to borrow on Lending Club platform for debt consolidation and credit card refinancing purposes.</li>
<li>The default rate of loans rises with rising revolving credit line utilization of the borrowers. In contrast, the loan pay off rate declines with rising revolving credit line utilization of the borrowers.</li>
<li>The borrowers with low revolving credit utilization are seven time more likely to pay off loan early than to default on the loan.</li>
</ul>
<br />
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<div class="blogger-post-footer">(c) 2014 Anil Gupta. Published at http://andirog.blogspot.com. I do not receive compensation from discussed vendors and advertisers unless a reader sign up or purchase by clicking through the banners and links provided.</div>Anil Guptahttp://www.blogger.com/profile/04626638497955200142noreply@blogger.com2tag:blogger.com,1999:blog-7209606.post-26683959986539370802013-02-01T07:30:00.000-08:002013-02-01T07:30:03.440-08:00Lending Club Loan Volume and Borrower's Revolving Credit Line Utilization<div dir="ltr" style="text-align: left;" trbidi="on">
In next few posts, I will review the loan characteristics and default rate with respect to the revolving credit line utilization of borrowers. I believe revolving credit line utilization is one of the major borrower attribute that influences the chances for borrowers to default.<br />
<br />
<h3 style="text-align: left;">
Loan Volume</h3>
The chart below shows the Loan Volume (right Y-axis) and Cumulative Loan Volume % (left Y-axis) as a function of borrower's revolving credit line utilization. Almost 20% of loans are issued to borrowers who have revolving credit utilization less than 29% and 20% of loans are issued to borrowers who have revolving credit utilization greater than 80%. The loan volume rises with rising revolving credit utilization up to about 70% revolving credit utilization. A few loans have also been issued to borrowers whose revolving credit utilization was greater than 100%.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://2.bp.blogspot.com/-1hBtpFpMJ_M/UQre8FUFYRI/AAAAAAAAGGc/IpbcHKcnXnc/s1600/RCLU_vol.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="273" src="http://2.bp.blogspot.com/-1hBtpFpMJ_M/UQre8FUFYRI/AAAAAAAAGGc/IpbcHKcnXnc/s400/RCLU_vol.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club Loan Volume and Borrower's Revolving Credit Line Utilization</td></tr>
</tbody></table>
The chart below shows the Cumulative Loan Volume % by loan issued year as a function of borrower's revolving credit line utilization. Do you notice a wide gap between the lines for loans issued in 2012 from the lines for loans issued in prior years? This gap indicates that borrower profile based on revolving credit line utilization for loans issued in 2012 is very different from prior years. In 2011, 18% of loans were issued to borrowers who used up to 20% of their revolving credit. The share of loan volume to such borrowers dropped almost half to 9% in 2012. Similarly, about 30% of loans in 2011 were issued to borrowers who used up 70% or higher of available revolving credit. The share of loans volume to such borrowers rose about 20% to 36%.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://2.bp.blogspot.com/-bUnWZhPt_S8/UQrnrTunSVI/AAAAAAAAGHM/rTqabP0iCqI/s1600/RCLU_vol_yr.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="308" src="http://2.bp.blogspot.com/-bUnWZhPt_S8/UQrnrTunSVI/AAAAAAAAGHM/rTqabP0iCqI/s400/RCLU_vol_yr.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club Loan Volume by Issued Year and Borrower's Revolving Credit Line Utilization</td></tr>
</tbody></table>
These trends may indicate that quality borrowers with low revolving credit utilization are not much interested in borrowing through peer to peer lending platform. Also, peer to peer lending platform being attractive to borrowers with higher revolving credit utilization may have resulted in <a href="http://andirog.blogspot.com/2013/01/recent-changes-in-minimum-credit.html" target="_blank">Lending Club relaxing the minimum credit criteria</a> late last year.<br />
<br />
<h3 style="text-align: left;">
Key Takeaway</h3>
<ul style="text-align: left;">
<li>If defaults and returns are closely related with borrower's revolving credit line utilization, I expect the loans issued in 2012 to behave very differently than the loans issued in prior years.</li>
</ul>
<br />
<h3 style="text-align: left;">
Expanded Credit Utilization Information on PeerCube</h3>
The Loan Details page on <a href="http://www.peercube.com/" target="_blank">PeerCube</a> contains additional information related to revolving credit line utilization that provides better context to lenders about borrower. For example, the screen capture below shows such information for a currently available loan that carries F2 credit grade. I typically gravitate toward reviewing information highlighted below. This borrower is carrying, on average, about $10,000 balance on each of his revolving accounts. All of his bankcards are maxed out and total credit balance exceeds $100,000.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://3.bp.blogspot.com/--yIzFo3i0WQ/UQrs540voYI/AAAAAAAAGH8/bj_oJajAUGE/s1600/revol_util.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="217" src="http://3.bp.blogspot.com/--yIzFo3i0WQ/UQrs540voYI/AAAAAAAAGH8/bj_oJajAUGE/s640/revol_util.png" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Loan Details page on PeerCube with expanded credit utilization information.</td></tr>
</tbody></table>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://www.kqzyfj.com/click-5760380-10875874" style="margin-left: 1em; margin-right: 1em;" target="_blank">
<img alt="LT" border="0" height="250" src="http://www.lduhtrp.net/image-5760380-10875874" width="300" /></a></div>
</div>
<div class="blogger-post-footer">(c) 2014 Anil Gupta. Published at http://andirog.blogspot.com. I do not receive compensation from discussed vendors and advertisers unless a reader sign up or purchase by clicking through the banners and links provided.</div>Anil Guptahttp://www.blogger.com/profile/04626638497955200142noreply@blogger.com0tag:blogger.com,1999:blog-7209606.post-18788058242310275292013-01-21T07:30:00.000-08:002013-01-21T07:30:02.146-08:00Recent Changes in Minimum Credit Criteria by Lending Club<div dir="ltr" style="text-align: left;" trbidi="on">
<h2 style="text-align: left;">
Minimum Credit Criteria</h2>
In November, Lending Club not only hide the details of underwriting process, as described in my previous post <a href="http://andirog.blogspot.com/2013/01/lending-club-loans-impact-of-recent.html" target="_blank">Lending Club Loans - Impact of Recent Changes</a>, but also changed the minimum credit criteria for the borrowers. The new minimum credit criteria is much more lenient and directed at attracting lower quality borrowers.<br />
<br />
The minimum credit criteria in the <a href="https://www.lendingclub.com/fileDownload.action?file=Clean_As_Filed_20121128.pdf&type=docs" target="_blank">latest prospectus filed in November 2012</a> is listed as follows:<br />
<blockquote class="tr_bq">
<i>Under the current credit policy, prospective borrower members must have among other elements:</i><br />
<ul style="text-align: left;">
<li><i>a minimum FICO score of 660 (as reported by a consumer reporting agency);</i></li>
<li><i>a debt-to-income ratio (excluding mortgage) below 35%;</i></li>
<li><i>minimum credit history of 36 months;</i></li>
<li><i><b>6 or less inquiries in the last 6 months</b>; and</i></li>
<li><i>at least 2 revolving trade accounts.</i></li>
</ul>
</blockquote>
The minimum credit criteria in the <a href="https://www.lendingclub.com/fileDownload.action?file=Clean_As_Filed_20120809.pdf&type=docs" target="_blank">previous prospectus filed in August 2012</a> is listed as follows:<br />
<blockquote class="tr_bq">
<i>Under the current credit policy, prospective borrower members must have among other elements:
</i>
<br />
<ul style="text-align: left;"><i>
<li>a minimum FICO score of 660 (as reported by a consumer reporting agency);</li>
<li>a debt-to-income ratio (excluding mortgage) below 35%;</li>
<li>a credit report (as reported by a consumer reporting agency) <strike>without any current delinquencies, recent bankruptcy, tax liens or non-medical related collections opened within the last 12 months</strike>, and reflecting:</li>
<li>at least two accounts currently open;</li>
<li><strike>for credit credits 740 and higher, no more than 8 credit inquiries on the credit report in the past six months and for credit scores below 740, no more than 3 inquiries on the credit report in the past six months;</strike></li>
<li><strike>a revolving credit balance of less than $150,000</strike>;</li>
<li><strike>utilization of credit limit not exceeding 98%</strike>; and</li>
<li>a minimum credit history of 36 months.</li>
</i></ul>
</blockquote>
The bold text above indicates the new condition added in the minimum credit criteria and the strikeout text above indicates the conditions removed. The new condition is nothing more than the lenient version of number of credit inquiries in the past six months.<br />
<br />
<h2 style="text-align: left;">
Public Records</h2>
There was some discussion on LendAcademy forum about <a href="http://www.lendacademy.com/forum/index.php?topic=587.0" target="_blank">Increase in Applicants With Public Records</a>. The table below shows the monthly loan volume with respect to number of public records for loans issued in 2012. In November, 127 loans were issued to borrowers who had at least one public record. The number of such loans increased to 202 in December, an increase of almost 60% over previous month.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://1.bp.blogspot.com/-PAasqsST0q8/UPx6dSayR8I/AAAAAAAAF-w/UnqMnx7gEl4/s1600/20121012_pub_record.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="185" src="http://1.bp.blogspot.com/-PAasqsST0q8/UPx6dSayR8I/AAAAAAAAF-w/UnqMnx7gEl4/s640/20121012_pub_record.png" width="640" /></a></div>
<br />
I believe the changes in the minimum credit criteria as mentioned in <a href="https://www.lendingclub.com/fileDownload.action?file=Clean_As_Filed_20121128.pdf&type=docs" target="_blank">November prospectus</a> may have resulted in increase of borrowers with public records in December. No longer Lending Club excludes borrowers with current delinquencies, recent bankruptcies, tax liens, and non-medical related collections in past 12 months.<br />
<br />
Did Lending Club modify 'proprietary' credit grade model to accommodate this change in minimum credit criteria? I was expecting the credit grade shifting to the right toward grade G for such loans. The table below shows the monthly volume and credit grade of loans issued to borrowers with more than 2 public records. There is no shift in credit grade of loans to borrowers with public records. It doesn't appear that Lending Club credit grade model accounts for the number and type of public records.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://3.bp.blogspot.com/-bfQSD_fvbYQ/UPyGqN3uQaI/AAAAAAAAF_c/u1GMiy7bO9Q/s1600/2012_pub_rec_grade.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="232" src="http://3.bp.blogspot.com/-bfQSD_fvbYQ/UPyGqN3uQaI/AAAAAAAAF_c/u1GMiy7bO9Q/s640/2012_pub_rec_grade.png" width="640" /></a></div>
<br />
<h2 style="text-align: left;">
Accounts Now Delinquent</h2>
The table below shows the monthly loan volume with respect to borrowers' number of accounts currently delinquent. It is clear from the table that prior to December, Lending Club didn't issue any loans to borrowers who had delinquent accounts at the time of applying for loan. In December 2012, Lending Club issued 15 loans to borrowers who had one or two accounts delinquent at the time of loan application.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://1.bp.blogspot.com/-OGddtAL6n10/UPyV3oKc_iI/AAAAAAAAGAI/wi7S0QYjMXg/s1600/20121012_acc_now_delinq.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="137" src="http://1.bp.blogspot.com/-OGddtAL6n10/UPyV3oKc_iI/AAAAAAAAGAI/wi7S0QYjMXg/s640/20121012_acc_now_delinq.png" width="640" /></a></div>
<br />
The credit grade for loans to borrowers with one account delinquent ranged from A5 to F1 while the one loan to borrower with two accounts delinquent has credit grade of F3. It is too early to determine whether Lending Club's proprietary credit grade model accounts for borrowers who have accounts delinquent currently.<br />
<br />
<h2 style="text-align: left;">
Amount Delinquent</h2>
The table below shows the monthly loan volume with respect to total amount currently delinquent for borrowers. Similar to accounts now delinquent above, in December 2012, Lending Club started issuing loans to borrowers who have any amount delinquent currently. In December 2012, Lending Club issued 10 loans to borrowers who had between $25 and $65,000 amount delinquent.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://2.bp.blogspot.com/-QF1RkKSbhiA/UPyZKxIZSuI/AAAAAAAAGA0/MPPochSOTQs/s1600/20121012_delinq_amt.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="265" src="http://2.bp.blogspot.com/-QF1RkKSbhiA/UPyZKxIZSuI/AAAAAAAAGA0/MPPochSOTQs/s640/20121012_delinq_amt.png" width="640" /></a></div>
<br />
Did Lending Club proprietary credit grade model account for borrowers who have any amount delinquent currently? Not a chance! Any reasonable proprietary model most likely will consider borrower with higher delinquent amount to be of higher credit risk.<br />
<br />
See the table below that shows the credit grade of loans issued in December 2012 to borrowers who had any delinquent amount. First, there is no visible pattern between credit grade and delinquent amount. Second, which reasonable model that accounts for currently delinquent amount will assign credit grade A5 to a loan for a borrower who has $65,000 in delinquent amount versus grade F1 to a loan for a borrower who has $25 in delinquent amount? This leads me to believe that the credit grade model doesn't account for amount currently delinquent.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://4.bp.blogspot.com/-LwLwWn0IMQ0/UPycL4wCVtI/AAAAAAAAGBk/Af_WVpsomcU/s1600/2012_delinq_amt_grade.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="275" src="http://4.bp.blogspot.com/-LwLwWn0IMQ0/UPycL4wCVtI/AAAAAAAAGBk/Af_WVpsomcU/s640/2012_delinq_amt_grade.png" width="640" /></a></div>
<br />
<h2 style="text-align: left;">
Key Takeaways</h2>
<ul style="text-align: left;">
<li>Lending Club has relaxed the minimum credit criteria to attract more borrowers that most likely will result in more borrowers with higher credit risk on lending club platform.</li>
<li>Lending Club proprietary credit grade model doesn't appear to account for the credit quality of the new borrowers that only became eligible since lowering of minimum credit criteria.</li>
<li>Lenders may benefit by taking the 'common sense' approach to details of public record, and accounts and amount currently delinquent until sufficient historical data is captured to show the pattern and impact of such borrower attributes.</li>
</ul>
<h2 style="text-align: left;">
How can PeerCube help?</h2>
The loan details page on <a href="http://www.peercube.com/" target="_blank">PeerCube</a> can be of great help to lenders as it shows 71 different loan and borrower attributes including the above-mentioned attributes that may shed better light on borrower's credit quality.<br />
<br />
Below is a screen capture of PeerCube's loan detail page for a C2 credit grade loan with such attributes highlighted. Will you invest in a C2 grade loan whose borrower has one bankruptcy, two tax liens, two delinquent accountss and $5,369 amount currently delinquent?<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://2.bp.blogspot.com/-vJUzy7yT5wI/UPynJt_k0YI/AAAAAAAAGCU/ta0ftDMvuAo/s1600/loandetail01.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="126" src="http://2.bp.blogspot.com/-vJUzy7yT5wI/UPynJt_k0YI/AAAAAAAAGCU/ta0ftDMvuAo/s640/loandetail01.png" width="640" /></a></div>
<br />
Reviewing the loan detail page, PeerCube users can avoid loans that may be of higher risk than the assigned credit grade represents.<br />
<br />
<h2 style="text-align: left;">
Around the Web</h2>
In last few weeks, I have become a big fan of blog <a href="http://www.longtermreturns.com/" target="_blank">Long-Term Returns</a>. I highly recommend the blog to all readers interested in personal finance and investment. Most personal finance bloggers tend to express opinions based on personal experiences and without supporting data. That is where this blogger sets himself apart with the analytical perspective. Though the blogger is not a fan of peer to peer lending, p2p lenders will also benefit from his coverage of related topics of bonds, treasuries and fixed income securities.<br />
<br />
<div style="text-align: center;">
<iframe border="0" frameborder="0" height="60" marginwidth="0" scrolling="no" src="http://rcm.amazon.com/e/cm?t=randothoug075-20&o=1&p=26&l=ur1&category=books&banner=07A5YDZW1YN7CT62EMR2&f=ifr" style="border: none;" width="468"></iframe>
</div>
</div>
<div class="blogger-post-footer">(c) 2014 Anil Gupta. Published at http://andirog.blogspot.com. I do not receive compensation from discussed vendors and advertisers unless a reader sign up or purchase by clicking through the banners and links provided.</div>Anil Guptahttp://www.blogger.com/profile/04626638497955200142noreply@blogger.com0tag:blogger.com,1999:blog-7209606.post-51891257019819326042013-01-14T07:30:00.000-08:002013-01-14T07:30:02.970-08:00Lending Club Loans - Impact of Recent Changes<div dir="ltr" style="text-align: left;" trbidi="on">
Recently, in response to my post <a href="http://andirog.blogspot.com/2013/01/lending-club-2012-in-review-part-i-loan.html" target="_blank">Lending Club 2012 in Review, Part I: Loan Volume and Amount Funded</a>, a commentator pointed out a few recent changes related to Credit Grade in Lending Club's November 2012 prospectus and scarcity of F credit grade loans. Also, on <a href="http://www.lendacademy.com/forum/index.php" target="_blank">LendAcademy forums</a>, there were a few related discussions: <a href="http://www.lendacademy.com/forum/index.php?topic=613.0" target="_blank">High demand for D-G grades</a>, <a href="http://www.lendacademy.com/forum/index.php?topic=587.0" target="_blank">Increase in Applicants With Public Record?</a>, and <a href="http://www.lendacademy.com/forum/index.php?topic=561.0" target="_blank">Has LC loan quality dropped?</a>. So, I decided to review the prospectus to see if I can find these changes.<br />
<br />
Below is a highlight from the <a href="https://www.lendingclub.com/fileDownload.action?file=Clean_As_Filed_20121128.pdf&type=docs">November 2012 prospectus</a> available at Lending Club website:<br />
<blockquote class="tr_bq">
<i>Q: What are LendingClub loan grades?</i><br />
<br />
<i>A: For borrower members who qualify, we assign one of 35 loan grades, from A1 through G5, to each loan request, based on the borrower member’s:</i><br />
<ul style="text-align: left;">
<li><i>FICO score; </i></li>
<li><i><b>our proprietary scoring model </b>which takes into account many of the attributes previously used by us and <b>also allows borrowers to have delinquencies and public records</b>; </i></li>
<li><i>loan term and loan amount</i></li>
</ul>
</blockquote>
In addition to replacing previously listed loan and borrower attributes with the proprietary scoring model, the current prospectus also mentions <span style="background-color: white;">allowing borrowers with delinquencies and public records.</span> Both terms are highlighted above in bold.<br />
<br />
The fewer low quality D-G grade loans may be result of the proprietary scoring model modifying weight of previously used loan and borrower attributes or incorporation of new 'unknown' attributes. <span style="background-color: white;">Allowing borrowers with delinquencies and public records may be resulting in increase in borrowers with public record.</span><br />
<br />
Such changes are not surprising as Lending Club is gearing up for IPO. It's focus has been shifting to non-lending financial institutions as lenders and attracting more borrowers to its platform becoming higher priority.<br />
<br />
Can we confirm these changes using historical data from 2012?<br />
<br />
<h3 style="text-align: left;">
Credit Grade Distribution of Monthly Loan Volume</h3>
The chart below shows the monthly loan volume in 2012 in relation to Credit Grade. The monthly volume lines for most months follow the same pattern except for December (Green line). There is a shift in the line for December from regular pattern for other months indicating there may have been a change in December how loans were allocated to different Credit Grade buckets.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://2.bp.blogspot.com/-gGySBjaH2jU/UPMONgo1DEI/AAAAAAAAF7U/S1tZEiVCFwQ/s1600/2012_mo_vol.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="295" src="http://2.bp.blogspot.com/-gGySBjaH2jU/UPMONgo1DEI/AAAAAAAAF7U/S1tZEiVCFwQ/s400/2012_mo_vol.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club Monthly Loan Volume and Credit Grade in 2012</td></tr>
</tbody></table>
For most businesses, December tend to be a unique month due to holidays and end of calendar year. The chart below shows the monthly loan volume for 2011. The hypothesis being that if December is somehow unique month for share of loan volume across Credit Grade, it should show up in previous years too. As the chart shows, there is no deviation in line for December compared to the pattern for other months in 2011. This confirms that something changed in how credit grades are assigned for loans issued in December 2012.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://2.bp.blogspot.com/-caH7HdNbL3w/UPMR97UVyJI/AAAAAAAAF8A/ZHr_gBhniRU/s1600/2011_mo_vol.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="296" src="http://2.bp.blogspot.com/-caH7HdNbL3w/UPMR97UVyJI/AAAAAAAAF8A/ZHr_gBhniRU/s400/2011_mo_vol.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club Monthly Loan Volume and Credit Grade in 2011</td></tr>
</tbody></table>
<h3 style="text-align: left;">
Monthly Loan Volume Change</h3>
The chart below shows the percentage change in loan volume for each credit grade in December from previous month in 2012. The large spreads in percentage change for credit grades that normally has low loan volume is understandable. The interesting observation is that the percentage volume change for credit grade D through G is consistently negative in the month of December, indicating the loan volume for credit D through G was much smaller in December than previous month.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://2.bp.blogspot.com/-TDz7yWJUjKs/UPM2jkTmN7I/AAAAAAAAF8s/Q4YVUQ_Ii-A/s1600/20121112_vol_grade.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="376" src="http://2.bp.blogspot.com/-TDz7yWJUjKs/UPM2jkTmN7I/AAAAAAAAF8s/Q4YVUQ_Ii-A/s400/20121112_vol_grade.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club Loans - Percentage Monthly Volume Change in December 2012</td></tr>
</tbody></table>
As a comparison, the chart below shows the percentage change in loan volume in November from previous month in 2012. The loans with credit grade D through G show large percentage increase in volume from previous month. Was the volume drop in December for loans with credit grade D through G due to increase in volume of same grade loans in previous month? At this point, it is difficult to separate the influence of policy changes from the up volume in previous month.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://3.bp.blogspot.com/-A41-aeLvQ-A/UPM4RHbYBPI/AAAAAAAAF9Y/awX5ChPxpVs/s1600/20121011_vol_grade.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="386" src="http://3.bp.blogspot.com/-A41-aeLvQ-A/UPM4RHbYBPI/AAAAAAAAF9Y/awX5ChPxpVs/s400/20121011_vol_grade.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Percentage Monthly Loan Volume Change in Nov 2012</td></tr>
</tbody></table>
Another interesting observation is the large spreads in loan volume for loans with A through C credit grades in December. As shown in the chart for November, most volume changes for such loans will be typically low due to the high volume of loans. An usually large spread in volume will indicate influence of a policy change where shifting of loans taking place across credit grades from credit grade with decline in volume to credit grades with rise in volume.<br />
<br />
<h3 style="text-align: left;">
Key Takeaways</h3>
<ul style="text-align: left;">
<li>The "proprietary scoring model" appears to have made some adjustments that is shifting the loans across credit grade, most probably toward B and C credit grades.</li>
<li>Without knowing the actual changes taking place in credit grade assessment of a loan, the credit grade will become an unreliable indicator of quality of loans. In my estimate, just considering Credit Grade as loan selection criteria was accounting for the quarter of the default risk.</li>
<li>With the credit grade becoming "proprietary" measure, most lenders may benefit by using Interest Rate bins (buckets) instead. Any analysis of historical data based on credit grade will become less valuable due to uncertain changes in credit grade over time.</li>
</ul>
<h3 style="text-align: left;">
PeerCube: Benefits of Loan Details on One Page</h3>
In my last blog post <a href="http://andirog.blogspot.com/2013/01/lending-club-2012-in-review-part-iii.html">Lending Club 2012 in Review. Part III: Loan Title, Loan Description and State of Residence</a>, I mentioned that I may take a short break to discuss a few development at PeerCube. In response, I received a suggestion to maintain the continuity of historical data analysis and discuss any <a href="http://www.peercube.com/lc">PeerCube</a> updates in a small separate section of the blog post. I thought the idea was excellent and time to time I plan to include PeerCube updates at the end of regular blog posts.<br />
<br />
The loan details page on <a href="http://www.peercube.com/">PeerCube</a> includes 71 different loan and borrower attributes on one page. This collection of information enables users to quickly scan loan details to identify any unusual attributes. With the recent changes in Lending Club policies, it is becoming much more important to review the loan details.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://2.bp.blogspot.com/--XnpDswZ8q4/UPNGcv3WfAI/AAAAAAAAF-E/Hrcw2wHGtEA/s1600/loandetail_01.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="92" src="http://2.bp.blogspot.com/--XnpDswZ8q4/UPNGcv3WfAI/AAAAAAAAF-E/Hrcw2wHGtEA/s640/loandetail_01.png" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">PeerCube Loan Details page: Borrower Details</td></tr>
</tbody></table>
The above screen capture of Loan Details page for a loan shows an example of discrepency that can be caught by reviewing this page. The Home Ownership is self-reported by the borrower. In this case, borrower reports Renting. Total Mortgage Accounts is reported by the borrower's credit report. In this case, credit report mentions borrower has three mortgage accounts.<br />
<br />
Depending on your risk profile, you may decide to skip lending to this borrower due to financial uncertainty of the borrower. For example, this borrower may be a divorcee on hook for mortgage payments on a house occupied by ex-spouse, alimony, child support, etc. Such uncertainty about borrower's financial situation raises the risk profile of this loan significantly. Unless a lender was reviewing multiple spreadsheets made available by Lending Club or easy-to-scan one pager for the loan on PeerCube, he or she will misjudge the default risk with this loan.<br />
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<div class="blogger-post-footer">(c) 2014 Anil Gupta. Published at http://andirog.blogspot.com. I do not receive compensation from discussed vendors and advertisers unless a reader sign up or purchase by clicking through the banners and links provided.</div>Anil Guptahttp://www.blogger.com/profile/04626638497955200142noreply@blogger.com9tag:blogger.com,1999:blog-7209606.post-65663911319380339222013-01-10T07:30:00.000-08:002013-01-10T07:30:01.870-08:00Lending Club 2012 in Review. Part III: Loan Title, Loan Description and State of Residence<div dir="ltr" style="text-align: left;" trbidi="on">
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Continuing the year-end review of Lending Club loans issued in 2012 from <a href="http://andirog.blogspot.com/2013/01/lending-club-2012-in-review-part-i-loan.html" target="_blank">Part I</a> and <a href="http://andirog.blogspot.com/2013/01/lending-club-2012-in-review-part-ii.html" target="_blank">Part II</a> where I discussed Loan Volume, Amount Funded, Interest Rate, Credit Grade and Loan Purpose ...</div>
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<h3 style="text-align: left;">
Loan Title</h3>
<div style="text-align: left;">
In 2012, the number of loans issued in relation to number of characters in Loan Title continue to follow similar pattern as previous years. Almost 25% of loans issued in 2012 had exactly 18 characters in loan title. Almost 50% of loans issued had less than 17 characters and 90% had less than 24 characters.</div>
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<a href="http://2.bp.blogspot.com/-CgXNyJHPNWQ/UOotb6PEwGI/AAAAAAAAF0U/A91PycAGtqw/s1600/2012_title.png" imageanchor="1"><img border="0" height="286" src="http://2.bp.blogspot.com/-CgXNyJHPNWQ/UOotb6PEwGI/AAAAAAAAF0U/A91PycAGtqw/s400/2012_title.png" width="400" /></a></div>
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://2.bp.blogspot.com/-e8-OyeLAmKA/UOvDoc_DA_I/AAAAAAAAF4c/8li3Et3Qnnk/s1600/2012_title_pct.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="253" src="http://2.bp.blogspot.com/-e8-OyeLAmKA/UOvDoc_DA_I/AAAAAAAAF4c/8li3Et3Qnnk/s400/2012_title_pct.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Length of Lending Club Loan Title, Loan Volume, and Total Amount Funded</td></tr>
</tbody></table>
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The most popular 18 characters loan titles in 2012 are listed below. Considering 77% of all loans in 2012 were issued for debt consolidation and credit card refinancing purposes, it is not surprising to see related phrases dominating the loan titles.</div>
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<ul style="text-align: left;">
<li>Debt Consolidation</li>
<li>Credit Card Payoff</li>
<li>Consolidation Loan</li>
<li>2012 Consolidation / Consolidation 2012</li>
<li>2012 Personal Loan</li>
<li>Bill Consolidation</li>
<li>Card Consolidation</li>
</ul>
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<h3 style="text-align: left;">
Loan Description</h3>
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In 2012, 38% loans issued had no loan description. 50% loans issued had loan description with less than 90 characters. 90% of loans issued had loan description with less than 332 characters.</div>
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<a href="http://3.bp.blogspot.com/-qk9f-3WxAvU/UOpdIzccRBI/AAAAAAAAF3w/blVjyvBqtX8/s1600/2012_desc.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="286" src="http://3.bp.blogspot.com/-qk9f-3WxAvU/UOpdIzccRBI/AAAAAAAAF3w/blVjyvBqtX8/s400/2012_desc.png" width="400" /></a></div>
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<tr><td style="text-align: center;"><a href="http://1.bp.blogspot.com/-FukfVUUSS68/UOvD-xKfaYI/AAAAAAAAF4k/SuJI5Nn9lps/s1600/2012_desc_pct.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="253" src="http://1.bp.blogspot.com/-FukfVUUSS68/UOvD-xKfaYI/AAAAAAAAF4k/SuJI5Nn9lps/s400/2012_desc_pct.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Length of Loan Description, Loan Volume, and Total Amount Funded</td></tr>
</tbody></table>
There was not much surprise with 53 character length of loan description, majority of them mentioned debt consolidation or similar variation and a few words. Similarly, 335 character length of loan description was primarily borrowers who wrote a complete sentence.</div>
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<h3 style="text-align: left;">
State of Residence</h3>
In 2012, borrowers from 45 different states took out loans on Lending Club platform. Only borrowers from state of Iowa (IA), Idaho (ID), Maine (ME), Mississippi (MS), Nebraska (NE), North Dakota (ND), and Tennessee (TN) were absent. Borrowers from Indiana (IN) joined in 2012. Iowa (IA) dropped off in 2011 and Mississippi (MS) dropped off in 2012.<br />
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The average amount per loan continue to rise for borrowers from all states with most increase from 2011 was for borrowers from state of New Mexico (NM), Vermont (VT), and Delaware (DE). The borrowers from Alaska (AK), Massachusetts (MA), and New Mexico (NM) borrowed the highest average amount per loan.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://4.bp.blogspot.com/-MlzV_ctzDVc/UO5KtMnJKcI/AAAAAAAAF58/uBvz7xDxWe4/s1600/2012_state_avg_amt.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="172" src="http://4.bp.blogspot.com/-MlzV_ctzDVc/UO5KtMnJKcI/AAAAAAAAF58/uBvz7xDxWe4/s640/2012_state_avg_amt.png" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Borrower's State of Residence and Average Amount Funded</td></tr>
</tbody></table>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://3.bp.blogspot.com/-I4X4R_GMgds/UO5MKMXsDdI/AAAAAAAAF6o/_4_NhMfIBMg/s1600/2012_state_avg_amt_growth.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="164" src="http://3.bp.blogspot.com/-I4X4R_GMgds/UO5MKMXsDdI/AAAAAAAAF6o/_4_NhMfIBMg/s640/2012_state_avg_amt_growth.png" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Borrower's State of Residence and Rise in Average Amount Funded</td></tr>
</tbody></table>
One change in 2012 from 2011 was that Texas bumped Florida to be in third place for the highest number of loans issued and total amount funded. California and New York continue to maintain first two spots. There were no significant changes in share of loans issued and amount funded to borrowers in each state in 2012 from 2011.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://4.bp.blogspot.com/-UUhrxNw5Ias/UO5FTEW3D_I/AAAAAAAAF5Q/XMhNXCaRUeA/s1600/2012_state.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="292" src="http://4.bp.blogspot.com/-UUhrxNw5Ias/UO5FTEW3D_I/AAAAAAAAF5Q/XMhNXCaRUeA/s400/2012_state.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Borrower's State of Residence, Loan Volume, and Total Amount Funded</td></tr>
</tbody></table>
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In future blog posts, I may take a short break from reviewing characteristics of Lending Club loans in 2012 to discuss a few developments at <a href="http://www.peercube.com/" target="_blank">PeerCube</a>.<br />
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<div class="blogger-post-footer">(c) 2014 Anil Gupta. Published at http://andirog.blogspot.com. I do not receive compensation from discussed vendors and advertisers unless a reader sign up or purchase by clicking through the banners and links provided.</div>Anil Guptahttp://www.blogger.com/profile/04626638497955200142noreply@blogger.com0tag:blogger.com,1999:blog-7209606.post-40029434923398839642013-01-04T07:30:00.000-08:002013-01-04T07:30:02.071-08:00Lending Club 2012 in Review. Part II: Interest Rate, Credit Grade, and Loan Purpose<div dir="ltr" style="text-align: left;" trbidi="on">
<div dir="ltr" style="text-align: left;" trbidi="on">
Continuing the year-end review of Lending Club loans from my <a href="http://andirog.blogspot.com/2013/01/lending-club-2012-in-review-part-i-loan.html" target="_blank">previous post</a> where I discussed Loan Volume and Amount Funded ...<br />
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<h3 style="text-align: left;">
Interest Rate</h3>
In 2012, Lending Club increased the interest rates for most credit grade three times, in January, March, and July of 2012. By the end of 2012, the interest rate for loans ranged from 6.03% for credit grade A1 to 24.89% for credit grade G3, G4, and G5. I am happy to see Lending Club continuing to tweak interest rates and making loans more expensive for lowest quality borrowers. It will be great if in 2013 Lending Club can start issuing a summary of discussions from their Interest Rate pow-wow at least every quarter. I'm interested in knowing what made Lending Club to decide to change the rates.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://1.bp.blogspot.com/-rlvPNGqRYcI/UOSNpKyZSyI/AAAAAAAAFtU/UppHKecWwJY/s1600/2012_int_rate_grade.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="400" src="http://1.bp.blogspot.com/-rlvPNGqRYcI/UOSNpKyZSyI/AAAAAAAAFtU/UppHKecWwJY/s400/2012_int_rate_grade.png" width="386" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">2012 Interest Rate and Credit Grade for Lending Club Loans</td></tr>
</tbody></table>
As seen from the loan volume chart in my previous post, raising interest rates doesn't seem to have much impact on loan demand. But is the slowdown in loan volume growth in second half of the year due to interest rate hike in July? The average interest rate for loans has risen about 13% from 12.49% in January to 14.12% in December. The average interest rate (13.64%) in 2012 was the highest compared to previous five years; it has increased over 10% from the average interest rate in 2011. I'm afraid that higher average interest rate may lead to higher default rates.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://3.bp.blogspot.com/-3QZGpKETQWo/UOSP3D1jkCI/AAAAAAAAFuI/45c-j5yIByU/s1600/2012_avg_int_rate.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="347" src="http://3.bp.blogspot.com/-3QZGpKETQWo/UOSP3D1jkCI/AAAAAAAAFuI/45c-j5yIByU/s400/2012_avg_int_rate.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Average Interest Rate for Lending Club Loans in 2012</td></tr>
</tbody></table>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://2.bp.blogspot.com/-IxOtFABk9E0/UOSeQbOInVI/AAAAAAAAFu0/Hn-VK-5Y19I/s1600/2012_avg_int_rate_yoy.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="400" src="http://2.bp.blogspot.com/-IxOtFABk9E0/UOSeQbOInVI/AAAAAAAAFu0/Hn-VK-5Y19I/s400/2012_avg_int_rate_yoy.png" width="242" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Average Interest Rate, year over year for Lending Club Loans</td></tr>
</tbody></table>
The average interest rate for loans with 36 month term and 60 month term in 2012 was 12.63% and 18.08% respectively. The rise in average interest rate for both loan terms was similar from previous year.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://4.bp.blogspot.com/-e_XRqJQKFhI/UOSi63CeEtI/AAAAAAAAFvg/j1ZtYZOp-UU/s1600/2012_avg_int_rate_term.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="400" src="http://4.bp.blogspot.com/-e_XRqJQKFhI/UOSi63CeEtI/AAAAAAAAFvg/j1ZtYZOp-UU/s400/2012_avg_int_rate_term.png" width="237" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Average Interest Rate for Lending Club Loans with 36 month and 60 month terms</td></tr>
</tbody></table>
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<h3 style="text-align: left;">
Credit Grade</h3>
The Credit Grade and its relationship with Loan Volume, Total Amount Funded, and Interest Rate has already been discussed in <a href="http://andirog.blogspot.com/2013/01/lending-club-2012-in-review-part-i-loan.html" target="_blank">previous post</a> and earlier in this post. The lower quality loans with credit grade E, F, and G are continuing to be dominated by loans with 60 month terms in 2012. Since 2010 when Lending Club first issued 60 month term loans, 23.85% of all loans have been issued with 60 month term. Year 2013 will be a pivotal year in better understanding the defaults behavior of 60 month term loans as such loans are reaching mid-way point in their maturity cycle. This will also offer better insights into lower quality loans as such loans recently have been primarily 60 month term loans.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://2.bp.blogspot.com/-4UkVqjdf8qg/UOS3-sDNRJI/AAAAAAAAFwM/bNSFfKKY9tY/s1600/2012_grade_term.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="315" src="http://2.bp.blogspot.com/-4UkVqjdf8qg/UOS3-sDNRJI/AAAAAAAAFwM/bNSFfKKY9tY/s400/2012_grade_term.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Credit Grade and Loan Term for Lending Club Loans, 2010 - 2012</td></tr>
</tbody></table>
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<h3 style="text-align: left;">
Loan Purpose</h3>
In 2012, Lending Club borrowers reported loan purpose as debt consolidation and credit card refinancing 77% of the time. Year over year, the percentage of loans with reported loan purpose of debt consolidation and credit card refinancing continues to rise. 77.15% of total amount raised in 2012 was used to fund loans with reported loan purpose of debt consolidation and credit card refinancing. This is an increase of almost 25% over 2011.<br />
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At this growth rate, soon loan purpose attribute will become irrelevant as a selection criteria for loans. There is nothing stopping borrowers from claiming debt consolidation and credit card refinancing by running expenses for other loan purposes through credit card.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://1.bp.blogspot.com/-dLez7ApUW_Q/UOS-buLHjBI/AAAAAAAAFw4/Nn6xSZOD3AE/s1600/2012_purpose.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="308" src="http://1.bp.blogspot.com/-dLez7ApUW_Q/UOS-buLHjBI/AAAAAAAAFw4/Nn6xSZOD3AE/s400/2012_purpose.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Loan Purpose Reported by Lending Club Borrowers, 2010 - 2012.</td></tr>
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://1.bp.blogspot.com/-DB-xw15SrAs/UOTDKq10pLI/AAAAAAAAFxk/h6Trajv3Alk/s1600/2012_purpose_amt_funded.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="308" src="http://1.bp.blogspot.com/-DB-xw15SrAs/UOTDKq10pLI/AAAAAAAAFxk/h6Trajv3Alk/s400/2012_purpose_amt_funded.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Loan Purpose and Amount Funded for Lending Club Loans, 2010 - 2012</td></tr>
</tbody></table>
While there has been significant growth in volume and total amount funded for loans with reported purpose of debt consolidation and credit card refinancing, the pattern for average loan amount has stayed the same for past three years. The highest average loan amount are for loans for small business, house purchase and debt consolidation purposes.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://3.bp.blogspot.com/-IzeTJPHtDz0/UOYuS8-jr2I/AAAAAAAAFyQ/laragPloJZE/s1600/2012_purpose_avg_amt.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="307" src="http://3.bp.blogspot.com/-IzeTJPHtDz0/UOYuS8-jr2I/AAAAAAAAFyQ/laragPloJZE/s400/2012_purpose_avg_amt.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club Average Loan Amount and Loan Purpose, 2010 - 2012</td></tr>
</tbody></table>
The average interest rate for debt consolidation loans has risen to 14.11% in 2012 from 12.72% in 2011. The loans for car and major purchase purposes continue to carry lowest average interest rate for past three years.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://2.bp.blogspot.com/-dVnAARkq5Z8/UOY3X3xoFWI/AAAAAAAAFy8/ZVmoOMD-05k/s1600/2012_purpose_int_rate.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="305" src="http://2.bp.blogspot.com/-dVnAARkq5Z8/UOY3X3xoFWI/AAAAAAAAFy8/ZVmoOMD-05k/s400/2012_purpose_int_rate.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club Loan Purpose and Average Interest Rate, 2010 - 2012</td></tr>
</tbody></table>
The table below shows the percentage of reported loan purposes within a specific credit grade. An interesting observation is that the debt consolidation loan purpose was more often reported for lower quality loans with grades E, F and G while the credit card refinancing loan purpose was more often reported for higher quality loans with grades A through D. Another interesting data is that the majority of loans for major purchases and car carry the high quality grade A rating while the majority of loans for home purchase carry the lowest quality grade G.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://2.bp.blogspot.com/-ralIvZZTS2c/UOZGwz6rPTI/AAAAAAAAFzo/Yjeg3ys5h44/s1600/2012_purpose_grade.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="177" src="http://2.bp.blogspot.com/-ralIvZZTS2c/UOZGwz6rPTI/AAAAAAAAFzo/Yjeg3ys5h44/s400/2012_purpose_grade.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Loan Purpose and Credit Grade for Lending Club Loans in 2012</td></tr>
</tbody></table>
In my next post, I will continue reviewing the characteristics of Lending Club loans issued in 2012.<br />
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<div class="blogger-post-footer">(c) 2014 Anil Gupta. Published at http://andirog.blogspot.com. I do not receive compensation from discussed vendors and advertisers unless a reader sign up or purchase by clicking through the banners and links provided.</div>Anil Guptahttp://www.blogger.com/profile/04626638497955200142noreply@blogger.com0tag:blogger.com,1999:blog-7209606.post-72027783698112610122013-01-02T07:30:00.000-08:002013-01-02T07:30:00.232-08:00Lending Club 2012 in Review, Part I: Loan Volume and Amount Funded<div dir="ltr" style="text-align: left;" trbidi="on">
Happy New Year to all my readers and to lenders on Lending Club platform. As Peter mentioned in his post <a href="http://www.lendacademy.com/2012-p2p-lenders-871-million/" target="_blank">In 2012 U.S. P2P Lenders Issue $871 Million in New Loans</a>, Lending Club had terrific 2012.<br />
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<h3 style="text-align: left;">
Loan Volume</h3>
In 2012, Lending Club issued 53,367 loans, more than double the number of loans issued (21,721) in 2011. On monthly basis, in recent months the number of loans issued seem to be reaching plateau of little over 6,000 loans.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://3.bp.blogspot.com/-M4YPtDw8atk/UOODkdqWcYI/AAAAAAAAFlo/ux2WYke_MhQ/s1600/2012_loan_volume.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="340" src="http://3.bp.blogspot.com/-M4YPtDw8atk/UOODkdqWcYI/AAAAAAAAFlo/ux2WYke_MhQ/s400/2012_loan_volume.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club 2012 Monthly Loan Volume</td></tr>
</tbody></table>
In 2012, over 90% of loans issued were of higher quality with credit grade of A, B, C, and D. Only 8.92% of loans (4,761 loans) were issued with credit grade E, F and G. In comparison, Lending Club issued 12.26% of loans with credit grade E, F, and G in 2011. Lending Club continues to show commitment toward improving listing of higher quality loans on its platform.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://3.bp.blogspot.com/-o3Cp6Z6cJqw/UOOM04L_TEI/AAAAAAAAFng/jEElGPGsLkI/s1600/2012_loan_vol_grade.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="241" src="http://3.bp.blogspot.com/-o3Cp6Z6cJqw/UOOM04L_TEI/AAAAAAAAFng/jEElGPGsLkI/s400/2012_loan_vol_grade.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club Loan Volume by Credit Grade 2010 - 2012</td></tr>
</tbody></table>
As Lending Club announced in its blog post <a href="http://blog.lendingclub.com/2012/09/28/investor-updates-and-enhancements/" target="_blank">Investor Updates and Enhancements</a>, beginning October 2012, LC started to reserve some loans for institutional and other investors who wanted to fully fund loans themselves. Since then percentage of loans offered initially as Whole on monthly basis is continuing to increase. In October 2012, only 13.51% of loans were initially offered as Whole and that ratio more than doubled to 29.10% by December. Overall in Quarter 4, 20.85% of loans were initially offered as Whole.<br />
<br />
I will recommend lenders, who would like to filter loans using initial list status as criteria, to consider using PeerCube filters. <a href="http://www.peercube.com/" target="_blank">PeerCube</a> now enables users to filter loans using 41 different loan and borrower attributes including Initial List Status.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://2.bp.blogspot.com/-aR-emXxti4w/UOOKiymfliI/AAAAAAAAFm4/A_e0pu5fOfk/s1600/2012_loan_vol_ils.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="180" src="http://2.bp.blogspot.com/-aR-emXxti4w/UOOKiymfliI/AAAAAAAAFm4/A_e0pu5fOfk/s400/2012_loan_vol_ils.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club 2012 Loan Volume by Initial List Status</td></tr>
</tbody></table>
As I expressed concerns in my blog post <a href="http://andirog.blogspot.com/2012/06/lending-club-loan-length-and-default.html" target="_blank">Lending Club Loan Length and Default Rate</a> about excessive 60 month term loans in 2011, it appears that the share of 60 month term loans in 2012 dropped to 18.55% of total loans issued, almost half of the 35.08% share in 2011.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://3.bp.blogspot.com/-aIy1OE9GcUc/UOOzfvOPr2I/AAAAAAAAFoI/ShTjStOw8sc/s1600/2012_vol_term.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="207" src="http://3.bp.blogspot.com/-aIy1OE9GcUc/UOOzfvOPr2I/AAAAAAAAFoI/ShTjStOw8sc/s400/2012_vol_term.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club Loan Volume by Loan Term, 2010 - 2012</td></tr>
</tbody></table>
<br />
<h3 style="text-align: left;">
Loan Amount</h3>
Lending Club lenders funded $718 million in loans issued in 2012. This amount is over two-and-a-half times more than $257 million funded in 2011. As mentioned earlier, while the number of loans issued in last four months of 2012 stagnated, the amount funded continued to rise in the same period.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://2.bp.blogspot.com/-Paw61KLwJ0E/UOO8LXM79qI/AAAAAAAAFow/JW-jEyncXwY/s1600/2012_amt_funded.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="341" src="http://2.bp.blogspot.com/-Paw61KLwJ0E/UOO8LXM79qI/AAAAAAAAFow/JW-jEyncXwY/s400/2012_amt_funded.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club 2012 Loan Amount Funded</td></tr>
</tbody></table>
The stagnant number of loans but higher loan amount funded in last quarter of 2012 indicates that most likely the amount funded per loan was much higher than loans issued prior to last quarter. In fact, on average $14,100 was lent per loan in last quarter, almost 10% increase from previous quarter. This also reverses the declining trend in average amount funded per loan for past three quarters.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://2.bp.blogspot.com/-_2CxsgPoyF0/UOO-hmRwilI/AAAAAAAAFpY/RCXZf8WqKxs/s1600/2012_avg_loan_amt.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="338" src="http://2.bp.blogspot.com/-_2CxsgPoyF0/UOO-hmRwilI/AAAAAAAAFpY/RCXZf8WqKxs/s400/2012_avg_loan_amt.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club 2012 Average Amount Funded per Loan</td></tr>
</tbody></table>
While only 8.92% of loans with credit grade E, F, and G were issued in 2012, such loans received 15.29% of the funding. The funding for such loans was slightly lower compared to 18.74% in 2011.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://2.bp.blogspot.com/-fdsF6_w8XW0/UOPJo3bMcCI/AAAAAAAAFqA/ouLVCG57CLg/s1600/2012_amt_funded_grade.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="312" src="http://2.bp.blogspot.com/-fdsF6_w8XW0/UOPJo3bMcCI/AAAAAAAAFqA/ouLVCG57CLg/s400/2012_amt_funded_grade.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club Total Amount Funded by Credit Grade, 2010 - 2012</td></tr>
</tbody></table>
The small reduction in funding for lower quality E, F, and G grade loans doesn't match the significant reduction in number of such loans issued in 2012. The average amount per loan increased across all credit grades but the increase in average amount was much higher for loans with credit grade E, F, and G.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://3.bp.blogspot.com/-ZR-9EuJA8KQ/UOPUhp9GaKI/AAAAAAAAFqo/zXZOMhuxUBE/s1600/2012_avg_amt_grade.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="295" src="http://3.bp.blogspot.com/-ZR-9EuJA8KQ/UOPUhp9GaKI/AAAAAAAAFqo/zXZOMhuxUBE/s400/2012_avg_amt_grade.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club Average Amount per Loan by Credit Grade, 2010 - 2012</td></tr>
</tbody></table>
Going forward, I am particularly interested in monitoring Initial Listing Status and how it impacts retail lenders like myself. I was surprised to see that the percentage of total amount funded for Whole loans is almost same as the percentage of loans initially listed as Whole loans. With such a short duration since initial listing status went into effect, it is difficult to make any significant observations.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://4.bp.blogspot.com/-iHWl5RkdR5I/UOPZvcfKEMI/AAAAAAAAFrQ/KfddfIFZ9qY/s1600/2012_amt_funded_ils.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="210" src="http://4.bp.blogspot.com/-iHWl5RkdR5I/UOPZvcfKEMI/AAAAAAAAFrQ/KfddfIFZ9qY/s400/2012_amt_funded_ils.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club Total Amount Funded by Initial Listing Status</td></tr>
</tbody></table>
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://4.bp.blogspot.com/-XTOnBMi7Dzc/UOPccP6pw6I/AAAAAAAAFr4/lOFq65nbjlI/s1600/2012_avg_amt_ils.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="400" src="http://4.bp.blogspot.com/-XTOnBMi7Dzc/UOPccP6pw6I/AAAAAAAAFr4/lOFq65nbjlI/s400/2012_avg_amt_ils.png" width="232" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club Average Loan Amount by Initial Listing Status</td></tr>
</tbody></table>
Similar to decrease in number of loans with 60 month term, the percentage of total amount funded in 60 month term loans also decreased from 48.50% in 2011 to 29.39% in 2012. Still, over $200 million were contributed toward 60 month term loans in 2012, almost 70% increase from 2011.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://1.bp.blogspot.com/-H9BcLb5SWlo/UOPfRNCRTBI/AAAAAAAAFsg/y9Ftnh8yrzs/s1600/2012_amt_funded_term.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="230" src="http://1.bp.blogspot.com/-H9BcLb5SWlo/UOPfRNCRTBI/AAAAAAAAFsg/y9Ftnh8yrzs/s400/2012_amt_funded_term.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club Total Amount Funded by Loan Length</td></tr>
</tbody></table>
The average amount funded per loan significantly increased (by almost 30%) for 60 month term loans from $16,382 in 2011 to $21,246 in 2012. Similar increase (by almost 25%) is observed for 36 month term loans.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://1.bp.blogspot.com/-ELX_y504hUE/UOPffP5E-fI/AAAAAAAAFso/hnsklrs6fCw/s1600/2012_avg_amt_term.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="400" src="http://1.bp.blogspot.com/-ELX_y504hUE/UOPffP5E-fI/AAAAAAAAFso/hnsklrs6fCw/s400/2012_avg_amt_term.png" width="242" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club Average Loan Amount by Loan Length</td></tr>
</tbody></table>
Lending Club had spectacular year 2012 as observed by total amount funded. There is significant increase in larger loans issued last year. I expect the growth in 2013 to be driven by loans of larger amounts rather than increase in number of loans listed on LC platform.<br /><br />
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<div class="blogger-post-footer">(c) 2014 Anil Gupta. Published at http://andirog.blogspot.com. I do not receive compensation from discussed vendors and advertisers unless a reader sign up or purchase by clicking through the banners and links provided.</div>Anil Guptahttp://www.blogger.com/profile/04626638497955200142noreply@blogger.com2tag:blogger.com,1999:blog-7209606.post-10998699829691533502012-12-21T07:30:00.000-08:002012-12-21T07:30:02.559-08:00Lending Club Borrower's Home Ownership and Loan Characteristics, Part II<div dir="ltr" style="text-align: left;" trbidi="on">
Continuing the review of loan characteristics as a function of home ownership status of borrower from <a href="http://andirog.blogspot.com/2012/12/lending-club-borrowers-home-ownership.html" target="_blank">previous post</a> ...<br />
<br />
<h3 style="text-align: left;">
Interest Rate</h3>
The chart below shows the average interest rate of loans issued between 2007 and 2012 YTD as a function of borrower's home ownership status. Due to very small volume of loans issued to borrowers who claimed home ownership as Any or None, those loans are removed from this chart. The average interest rate is an arithmetic equal-weighted average and not loan amount-weighted average.<br />
<br />
The average interest rate is slightly higher for borrowers who rent homes compared to their counterparts who carry mortgage on their homes. This pattern has been quite consistent year over year. The reason for the slightly higher average interest rate may be due to lower FICO scores and shorter credit history because borrowers who rent home are likely to be younger and with limited credit history.<br />
<br />
Similarly, the average interest rate is slightly lower for borrowers who own homes compared to borrowers who carry mortgage, loans issued in 2009 being the exception. The reason may be due to long credit history and higher FICO scores because borrowers who outright own homes are likely to be older and with decent credit history.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://1.bp.blogspot.com/-6Ky_Aas7t-w/UNOCtCMwNqI/AAAAAAAAFhQ/spysFV0k7oA/s1600/ho_ir_avg.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="347" src="http://1.bp.blogspot.com/-6Ky_Aas7t-w/UNOCtCMwNqI/AAAAAAAAFhQ/spysFV0k7oA/s400/ho_ir_avg.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club Borrower's Home Ownership and Average Interest Rate</td></tr>
</tbody></table>
<br />
To confirm the assumptions, I decided to chart the average credit age at the time of issue of loan with the home ownership status of borrowers as shown below. Sure enough, the average credit age of borrowers who have mortgage on their homes is significantly and consistently greater than their counterparts who rent home. For example, in 2012 YTD, the credit age for borrowers who have mortgage is 15.8 years versus 12.6 years for their counterparts who rent. But there is no such relation between the borrowers who outright own their homes and credit age.<br />
<div>
<br /></div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://1.bp.blogspot.com/-2hye4ZyKmzo/UNOjhWwNbrI/AAAAAAAAFjI/ST15XEuPa3U/s1600/ho_ecl_avg.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="352" src="http://1.bp.blogspot.com/-2hye4ZyKmzo/UNOjhWwNbrI/AAAAAAAAFjI/ST15XEuPa3U/s400/ho_ecl_avg.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club Borrower's Home Ownership and Average Credit Age</td></tr>
</tbody></table>
<br />
Next I decided to chart the composition of home ownership status for each FICO score range of borrowers. It's clear that the lower FICO range are dominated by borrowers who rent and higher FICO score range by borrowers who have mortgage. For example, 56.1% of borrowers with FICO score between 660 and 664 rent their homes while only 19.75% of borrowers with FICO score between 800 and 804 rent their homes.<br />
<div>
<br /></div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://1.bp.blogspot.com/-6I1554TB-78/UNOon3gjBYI/AAAAAAAAFjw/QnaQSUm7mMc/s1600/ho_fico.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="370" src="http://1.bp.blogspot.com/-6I1554TB-78/UNOon3gjBYI/AAAAAAAAFjw/QnaQSUm7mMc/s400/ho_fico.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club Borrower's Home Ownership and FICO Range</td></tr>
</tbody></table>
<br />
Both Credit Age and FICO Range appear to offer a reasonable explanation for average interest rate to be slightly higher for borrowers who are renters. It is also not surprising considering that FICO Range is a key component of <a href="https://www.lendingclub.com/public/how-we-set-interest-rates.action" target="_blank">calculations used by Lending Club in setting Interest Rate for a loan</a>.<br />
<div>
<br />
<div>
<h3 style="text-align: left;">
Loan Length</h3>
The chart below shows the percentage of 36 months and 60 months loans issued between 2010 and 2012 YTD to borrowers as a function of their home ownership status. Prior to 2010, Lending Club issued loans with 36 months term only thus the data prior to 2010 is excluded from this analysis.<br />
<br />
The borrowers who carry mortgage on their home are more likely to request loans with longer terms compared to their counterparts who own outright or rent their homes. In 2012 YTD, 23.60% of borrowers with mortgage received loans of 60 months term. In comparison, only 13.4% of borrowers who rent home received loans of 60 months term. This pattern is very consistent since Lending Club started issuing loans with both 36 and 60 months term.<br />
<br />
A likely reason could be the management of debt repayment load. The 60 months loan will have lower monthly payment compared to 36 months loan of the same amount and interest rate. Typically, mortgage holders already have high debt payment burden, i.e. high debt-to-income ratio; thus, they may prefer smaller monthly payments and longer term loans.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://4.bp.blogspot.com/-8ExQnoALALM/UNOOyCzdx4I/AAAAAAAAFh4/KuEQZOjbhuE/s1600/ho_length_vol.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="320" src="http://4.bp.blogspot.com/-8ExQnoALALM/UNOOyCzdx4I/AAAAAAAAFh4/KuEQZOjbhuE/s400/ho_length_vol.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club Borrower's Home Ownership Status and Loan Length</td></tr>
</tbody></table>
<br />
The chart below shows the percentage of borrowers' home ownership status as a function of loan length. This chart shows the same data as the chart above, but shows the composition of borrowers who own, rent, or carry mortgage on their homes for 36 month and 60 month term loans. With this chart, it is much easier to point out that higher number of 36 month term loans are issued to borrowers who rent home and higher number of 60 month term loans are issued to borrowers who have mortgage on their home.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://3.bp.blogspot.com/-ApWuD0NJktY/UNOddHeCvDI/AAAAAAAAFig/GwIMnHGgeSI/s1600/ho_vol_length.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="400" src="http://3.bp.blogspot.com/-ApWuD0NJktY/UNOddHeCvDI/AAAAAAAAFig/GwIMnHGgeSI/s400/ho_vol_length.png" width="318" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club Loan Length and Borrower's Home Ownership Status</td></tr>
</tbody></table>
<br />
The chart below shows the borrowers' home ownership status and average monthly loan payment for loans issued between 2010 and 2012 YTD. The average monthly payment for borrowers who have mortgage is higher than for borrowers who rent their homes. This observation is not surprising considering the average loan amount for borrowers who have mortgage is much higher as observed in the <a href="http://andirog.blogspot.com/2012/12/lending-club-borrowers-home-ownership.html" target="_blank">previous post</a>. However, it doesn't help in explaining the propensity of borrowers with mortgages to take out longer term loans at Lending Club.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://2.bp.blogspot.com/-SXCeC7SMDKQ/UNOyiDtP1LI/AAAAAAAAFkY/TK3JR0MPGC0/s1600/ho_mopmt.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="400" src="http://2.bp.blogspot.com/-SXCeC7SMDKQ/UNOyiDtP1LI/AAAAAAAAFkY/TK3JR0MPGC0/s400/ho_mopmt.png" width="340" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club Borrower's Home Ownership and Average Monthly Loan Payment</td></tr>
</tbody></table>
<br />
The chart below shows the borrowers' home ownership status and their average debt-to-income ratio for loans issued between 2010 and 2012 YTD. There is no significant difference in average debt-to-income ratio of borrowers based on their home ownership status.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://1.bp.blogspot.com/-WYOEd0vp-ZM/UNO50kikrNI/AAAAAAAAFlA/r1cKRFTjry8/s1600/ho_dti.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="400" src="http://1.bp.blogspot.com/-WYOEd0vp-ZM/UNO50kikrNI/AAAAAAAAFlA/r1cKRFTjry8/s400/ho_dti.png" width="337" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club Borrower's Home Ownership Status and Average Debt to Income Ratio</td></tr>
</tbody></table>
<br />
It appears that both monthly loan payment and debt-to-income ratio are not associated with the propensity toward longer term loans by borrowers who have mortgage.<br />
<br />
<h3 style="text-align: left;">
Key Takeaways</h3>
<ul style="text-align: left;">
<li>With the interdependence of Interest Rate with Borrower's FICO range, credit age and home ownership status, most lenders would be fine with only using one of these three parameters or may need to de-emphasize the weightings of all these parameters to not let them overly influence loan selection process.</li>
<li>The Loan Length appears to be independent of Borrower's debt-to-income ratio, home ownership status, and monthly loan payment. It would be recommended for lenders consider all these parameters in loan selection process. </li>
</ul>
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<div class="blogger-post-footer">(c) 2014 Anil Gupta. Published at http://andirog.blogspot.com. I do not receive compensation from discussed vendors and advertisers unless a reader sign up or purchase by clicking through the banners and links provided.</div>Anil Guptahttp://www.blogger.com/profile/04626638497955200142noreply@blogger.com0tag:blogger.com,1999:blog-7209606.post-41259803332290630562012-12-18T07:30:00.000-08:002012-12-18T07:30:01.014-08:00Lending Club Borrower's Home Ownership and Loan Characteristics, Part I<div dir="ltr" style="text-align: left;" trbidi="on">
In this post, I will review the home ownership status of borrowers and loans issued at Lending Club platform. Lending Club categorizes the home ownership status of borrowers as Rent, Mortgage, Own, None, and Any. While Rent, Mortgage and Own are self-descriptive, I am not so sure what None and Any categories represent and how they differ from each other. For the purpose of analysis, I combined the None and Any categories together.<br />
<br />
Over the past year, I have come across multiple loan listings where a borrower indicated home ownership status of Own but had one or more mortgage accounts, loan description or Q&A mentioned having mortgage. I believe some borrowers may be confusing the Mortgage and Own categories.<br />
<br />
<h3 style="text-align: left;">
Loan Volume</h3>
The chart below shows the percentage of loans issued in each application year to borrowers with each of the four categories of home ownership status: Any or None, Own, Mortgage, and Rent.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://2.bp.blogspot.com/-wvLwe2gLqHw/UM-UydVMgqI/AAAAAAAAFek/lFihCbL7dUY/s1600/ho_vol.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="260" src="http://2.bp.blogspot.com/-wvLwe2gLqHw/UM-UydVMgqI/AAAAAAAAFek/lFihCbL7dUY/s400/ho_vol.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club Borrower's Home Ownership Status and Loan Volume</td></tr>
</tbody></table>
The combined category of Any or None accounted for less than 0.002% of loan issued in 2012 YTD and 0.004% in 2011. The highest percentage of loan issued to borrowers with home ownership status of Any or None was 1.90% in 2008. Between 2007 and 2012, only 102 loans were issued to borrowers with home ownership status of Any or None.<br />
<br />
Majority of loans are issued to borrowers who declared either renting home (on average 50% from 2007 to 2012) or having mortgage on home (on average 42%). Lenders excluding any one of these two categories in their loan selection criteria are ignoring almost half of the loans available on Lending Club platform.<br />
<br />
With the exception of 2012 YTD, the percentage of borrowers who rent home is declining while borrowers who has mortgage on their home is rising. Considering we went through a deep recession, primarily due to Real Estate bubble, the rise in borrowers who have mortgage on their homes is not surprising. The 2012 may be start of reversal in these trends.<br />
<br />
<h3 style="text-align: left;">
Loan Amount Funded</h3>
The chart below shows the percentage of total loan amount funded in each application year to borrowers with different home ownership status.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://1.bp.blogspot.com/-e_BzS6ITizw/UM-eVwjX1iI/AAAAAAAAFfQ/7jVFQiVak0A/s1600/ho_loanamt_tot.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="260" src="http://1.bp.blogspot.com/-e_BzS6ITizw/UM-eVwjX1iI/AAAAAAAAFfQ/7jVFQiVak0A/s400/ho_loanamt_tot.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club Borrower's Home Ownership Status and Total Loan Amount Funded</td></tr>
</tbody></table>
What is interesting about this chart is that the percentage of loan amount funded for borrowers who rent home is lower than the percentage of loan volume for such borrowers as shown in the previous chart. For example, in 2012 YTD, borrowers who rent home received 47% of total loans but only 42% of total loan amount. The trend is reverse for borrowers who have mortgage on their home. This observation seems to indicate that the borrowers who have mortgage seem to request higher loan amount than the borrowers who rent home. These observations are also confirmed by the chart below that shows the average loan amount funded for borrowers with different home ownership status.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://1.bp.blogspot.com/-bYIZY10-zk0/UM-r7zACogI/AAAAAAAAFf4/onmp7j1s3mk/s1600/ho_loanamt_avg.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="258" src="http://1.bp.blogspot.com/-bYIZY10-zk0/UM-r7zACogI/AAAAAAAAFf4/onmp7j1s3mk/s400/ho_loanamt_avg.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club Borrower's Home Ownership Status and Average Loan Amount Funded</td></tr>
</tbody></table>
As the chart shows, in 2012 YTD, borrowers who have mortgage on their home borrowed almost $3,000 (~20%) more than their counterparts who rent home. This observation is perplexing as why a borrower who already have a mortgage (supposedly much larger than any other debt) would request loans for large amount. Only logical explanations I could come up with are that most borrowers don't consider mortgage same as other debt, they are more comfortable carrying additional debt, and they are likely to borrow for large value home improvement projects.<br />
<br />
To confirm whether borrowers who have mortgage borrow large amount for home improvement purposes, I filtered the above chart to only include loans where borrower declared the loan purpose to be home improvement. The chart below is its result.<br />
<br />
This chart indicates that in 2012 YTD the borrowers who carried mortgage borrowed on average $13,589 for home improvement loan purpose compared to $14,681 borrowed for all loan purposes. This would indicate that hypothesis of higher average loan amount due to home improvement projects is incorrect.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
</div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://1.bp.blogspot.com/-de5hlOYubQ4/UM-1gjwlNWI/AAAAAAAAFgo/GUKxR0rWIQ0/s1600/hom_loanamt_avg_home.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="313" src="http://1.bp.blogspot.com/-de5hlOYubQ4/UM-1gjwlNWI/AAAAAAAAFgo/GUKxR0rWIQ0/s400/hom_loanamt_avg_home.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Lending Club Borrower's Home Ownership Status and Average Loan Amount for Home Improvement Loans</td></tr>
</tbody></table>
<h3 style="text-align: left;">
Key Takeaways</h3>
<ul style="text-align: left;">
<li>Excluding any one of the home ownership status of mortgage or rent will reduce the loans available for lending by almost 50%.</li>
<li>The borrowers who carry mortgage are likely to request larger loan amounts and such loans will not necessarily be for home improvement purpose.</li>
</ul>
<br />
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<div class="blogger-post-footer">(c) 2014 Anil Gupta. Published at http://andirog.blogspot.com. I do not receive compensation from discussed vendors and advertisers unless a reader sign up or purchase by clicking through the banners and links provided.</div>Anil Guptahttp://www.blogger.com/profile/04626638497955200142noreply@blogger.com0tag:blogger.com,1999:blog-7209606.post-87347662116940410902012-12-10T07:30:00.000-08:002012-12-10T07:30:02.155-08:00Lending Club Borrower's Credit Age and Loan Defaults<div dir="ltr" style="text-align: left;" trbidi="on">
<div dir="ltr" style="text-align: left;" trbidi="on">
In this post, I continue the analysis of borrower's earliest credit line and relationship with loan status. As Lending Club doesn't publish the age of borrower, in this analysis I use the year of earliest credit line, termed credit age, as proxy for borrower's age. I am particularly interested in finding out whether:<br />
<div style="text-align: left;">
</div>
<ul style="text-align: left;">
<li>The finding from past consumer finance research of older borrowers being higher credit risk holds true for peer-to-peer lending platforms, and</li>
<li>The borrowers with recent earliest credit line are higher credit risk, as asserted by White Coat Investor in his blog post <a href="http://whitecoatinvestor.com/peer-to-peer-lending-update/" target="_blank">Peer to Peer Lending Club Update</a>.</li>
</ul>
Personally, I believe that Lending Club borrowers with earliest credit line several decades old likely to be much higher credit risk. Such borrowers in need for loan with high interest rate are likely to be not very savvy in managing their finances.<br />
<div style="text-align: left;">
<br /></div>
<h3 style="text-align: left;">
Earliest Credit Line and Loan Status</h3>
<div style="text-align: left;">
The chart below shows the loan status as a function of the year of earliest credit line. The loans issued to borrowers who started their credit in early 70's or earlier seem to have higher charged off, defaults and late payments. With 40+ years of credit history, these borrowers are likely to be in their late 50's and early 60's.</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
It may appear from the chart that loans issued to young borrowers who started their credit history in 2007 and later seem to have lower charged off and later payments. Considering that the fully paid loans are also lower for such borrowers, I believe most of these loans were recently issued. Even though I didn't find any explicit statement, I believe Lending Club doesn't issue loans to borrowers who have less than three years of credit history.</div>
<div style="text-align: left;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="http://2.bp.blogspot.com/-QiDeqtSSzwE/UMUu-RPKnsI/AAAAAAAAFcA/xszXVZYZ3uk/s1600/ecl_default.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="262" src="http://2.bp.blogspot.com/-QiDeqtSSzwE/UMUu-RPKnsI/AAAAAAAAFcA/xszXVZYZ3uk/s400/ecl_default.png" width="400" /></a></div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
The chart below shows the charged off and default loan status as a function of the year of earliest credit line by loan application year 2008 through 2010. The loans issued to borrowers that started their credit history in 1970's or earlier appear to have consistently higher charged off and default status. There is no such pattern for borrowers with recently established credit history.</div>
<div style="text-align: left;">
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<div style="text-align: left;">
<div class="separator" style="clear: both; text-align: center;">
<a href="http://4.bp.blogspot.com/-QsECENws4lw/UMVJArdndeI/AAAAAAAAFco/ig2gXl-EOIc/s1600/ecl_default_yr.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="196" src="http://4.bp.blogspot.com/-QsECENws4lw/UMVJArdndeI/AAAAAAAAFco/ig2gXl-EOIc/s640/ecl_default_yr.png" width="640" /></a></div>
<br />
<h3 style="text-align: left;">
Credit Age and Loan Status</h3>
The chart below shows the loan status as a function of credit age. The pattern of loans issued to borrowers with longest credit history (40+ years) with higher charged off and default loan status, observed in first chart appears to hold. Also, loans issued to borrowers with credit history less than four year old appears to have higher charged off and default loan status.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://3.bp.blogspot.com/-D0OrQJ8l5bk/UMVLrWwuXrI/AAAAAAAAFdQ/YLrM5PGyuDI/s1600/ecl_yr_default.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="261" src="http://3.bp.blogspot.com/-D0OrQJ8l5bk/UMVLrWwuXrI/AAAAAAAAFdQ/YLrM5PGyuDI/s400/ecl_yr_default.png" width="400" /></a></div>
<br />
The chart below shows the charged off and default status as a function of credit for application year 2008 through 2010. While borrowers with long credit history continue to show higher tendency to have loans charged off and defaults, there is no such consistent pattern for borrowers with short credit history.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://1.bp.blogspot.com/-yQVtQLLsmNE/UMVPQgHtn6I/AAAAAAAAFd4/sLRfeL6pM7g/s1600/ecl_yr_default_yr.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="204" src="http://1.bp.blogspot.com/-yQVtQLLsmNE/UMVPQgHtn6I/AAAAAAAAFd4/sLRfeL6pM7g/s640/ecl_yr_default_yr.png" width="640" /></a></div>
<br />
<h3 style="text-align: left;">
Key Takeaways</h3>
<div style="text-align: left;">
</div>
<ul style="text-align: left;">
<li>The borrowers with long credit history (40+ years) tend to have more loans charged off or defaulted. Risk averse lenders may benefit by avoiding older borrowers.</li>
<li>There is no consistent patterns of charged off and defaults with younger borrowers. Lenders may consider taking a cautious approach toward borrowers who have less than four years of credit history.</li>
</ul>
<br /></div>
</div>
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<div class="blogger-post-footer">(c) 2014 Anil Gupta. Published at http://andirog.blogspot.com. I do not receive compensation from discussed vendors and advertisers unless a reader sign up or purchase by clicking through the banners and links provided.</div>Anil Guptahttp://www.blogger.com/profile/04626638497955200142noreply@blogger.com0tag:blogger.com,1999:blog-7209606.post-27857496126059758692012-12-05T07:30:00.000-08:002012-12-05T07:30:03.197-08:00Lending Club Loan Borrower's Earliest Credit Line and Loan Volume<div dir="ltr" style="text-align: left;" trbidi="on">
After returning from vacation, I have started to analyze Lending Club historical loan data again and have improved <a href="http://www.peercube.com/" target="_blank">PeerCube</a> further. I am pleased to see PeerCube user base growing another 20% in my absence. <a href="http://www.lendacademy.com/" target="_blank">Peter</a> was kind enough to set up <a href="http://www.lendacademy.com/forum/index.php?board=16.0" target="_blank">a section for PeerCube</a> on Lend Academy <a href="http://www.lendacademy.com/forum/index.php" target="_blank">forum</a>. I'd like to encourage you to use the forum to suggest enhancements, request new features, and report any issues on PeerCube.<br />
<br />
In a few posts, I will analyze a correlation between borrower's earliest credit line and credit risk. The past consumer finance research indicates that age of the borrower is significantly related to credit risk. As Lending Club doesn't publish the age of the borrowers, I have been using Earliest Credit Line as a proxy for age in my loan selection at Lending Club.<br />
<br />
I am particularly interested in finding out whether the year of earliest credit line moves with loan application year as that would indicate a particular age group of borrowers more likely to use peer to peer lending for their credit needs. My impression is that most people start their credit in late teens and typically get into credit problems in late 20's or early 30's if they don't manage money properly. I expect that most borrowers on Lending Club to have their earliest credit line opened 10 to 15 years ago.<br />
<br />
The chart below shows the loan volume as a function of the year of earliest credit line. The surprising pattern is that the borrowers with first credit line established in year 2000 appears to have most loans issued, year after year. The breadth of years when first credit line was established for which most loans were issued seem to be narrowing with application year.<br />
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<div class="separator" style="clear: both; text-align: center;">
<a href="http://3.bp.blogspot.com/-ox1_97MYfG0/UL6P1UgMTZI/AAAAAAAAFaI/mNNxhdlP9xs/s1600/ecl_vol.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="272" src="http://3.bp.blogspot.com/-ox1_97MYfG0/UL6P1UgMTZI/AAAAAAAAFaI/mNNxhdlP9xs/s400/ecl_vol.png" width="400" /></a></div>
<br />
I wanted to see whether the distribution of loans by borrowers' earliest credit line is changing year over year. The chart below shows the distribution of loans by borrowers' earliest credit line for each application year. The percentage distribution for each application year appears to track closely. While the previous chart indicates that borrowers who established credit line in 2000 have the biggest share of loans, this chart indicates that the percentage of loans issued to borrowers with earliest credit line established in 2000 is rising with each application year and shifted from 1999 and 1996 in earlier application years.<br />
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<div class="separator" style="clear: both; text-align: center;">
<a href="http://3.bp.blogspot.com/-LJTuUkFfWDk/UL6701CGNMI/AAAAAAAAFaw/jBlb9f5V1K0/s1600/eclpct_vol.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="272" src="http://3.bp.blogspot.com/-LJTuUkFfWDk/UL6701CGNMI/AAAAAAAAFaw/jBlb9f5V1K0/s400/eclpct_vol.png" width="400" /></a></div>
<br />
I also calculated the Credit Age in years, the number of days between the earliest credit line date and application date. The chart below shows the loan volume as a function of credit age. The chart is not that different from the first one above. Even though no additional insights I gained from this chart, I expect the credit age to be handy when I analyze loan defaults.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://3.bp.blogspot.com/-X3RHF3kSIEM/UL7MxoXjfSI/AAAAAAAAFbY/687evJzir1o/s1600/eclyr_volume.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="296" src="http://3.bp.blogspot.com/-X3RHF3kSIEM/UL7MxoXjfSI/AAAAAAAAFbY/687evJzir1o/s400/eclyr_volume.png" width="400" /></a></div>
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In the next post, I will analyze loan defaults with respect to earliest credit line and credit age.<br />
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<div class="blogger-post-footer">(c) 2014 Anil Gupta. Published at http://andirog.blogspot.com. I do not receive compensation from discussed vendors and advertisers unless a reader sign up or purchase by clicking through the banners and links provided.</div>Anil Guptahttp://www.blogger.com/profile/04626638497955200142noreply@blogger.com0tag:blogger.com,1999:blog-7209606.post-59731570151550550002012-11-08T07:30:00.000-08:002012-11-08T07:30:03.644-08:00Lending Club Loan Selection using PeerCube's BLE Risk IndexOne lesson I learnt from <a href="http://www.lendacademy.com/peercube-review/" target="_blank">Peter's review of PeerCube</a> and subsequent discussions is that I need to share how <a href="http://www.peercube.com/lc" target="_blank">PeerCube</a> can be used effectively during loan selection at Lending Club. In this post, I would like to provide some basic examples of strategies with <a href="http://andirog.blogspot.com/2012/10/lending-club-loan-purpose-default-rate.html" target="_blank">BLE Risk Index</a>.<br />
<br />
As a refresher, BLE Risk Index of 1.0 is considered average risk. The lower the number, the lower the risk and the higher the number, the higher the risk.<br />
<br />
<h3>
Strategy #1: Loans with BLE Index below a specified value</h3>
The easiest way to use the BLE Risk Index during loan selection process might be to select loans on the basis of BLE Risk Index below a specified value. Very conservative lenders may consider selecting loans with BLE Risk Index below 0.90, while moderately conservative lenders may select loans with BLE Risk Index below 1.10.<br />
<br />
PeerCube makes this strategy easier by listing loans with lowest BLE Risk Index under menu Lending Club -> Loan Review -> Low BLE Risk Loans. As the screen capture shows below, most available loans with BLE Risk Index below 0.90 are likely to be Grade A and B loans with Interest Rate as high as 12.12%. The moderately conservative lender can pick loans up to Grade D with interest rate as high as 19.72% while keeping the BLE Risk Index below 1.10.<br />
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<div class="separator" style="clear: both; text-align: center;">
<a href="http://1.bp.blogspot.com/-JqdbVHyMjc0/UJdKSxOcV2I/AAAAAAAAFYw/IFwU3-Xvm5E/s1600/ble090.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="356" src="http://1.bp.blogspot.com/-JqdbVHyMjc0/UJdKSxOcV2I/AAAAAAAAFYw/IFwU3-Xvm5E/s640/ble090.png" width="640" /></a></div>
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<a href="http://3.bp.blogspot.com/-bqcbkKRniS0/UJdMYA7M3_I/AAAAAAAAFY4/OjYhUOxd1u4/s1600/ble110.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="216" src="http://3.bp.blogspot.com/-bqcbkKRniS0/UJdMYA7M3_I/AAAAAAAAFY4/OjYhUOxd1u4/s640/ble110.png" width="640" /></a></div>
<br />
Selecting loans solely on the basis of BLE Risk Index is the quickest way to make lending decisions. But in my opinion, this strategy may not be appropriate for most lenders because it puts too much faith on the current applicability of methodology used in a 1940 research and PeerCube's ability to implement the methodology correctly after 70 years.<br />
<br />
At present, both concerns are valid ones and can't be ignored before adopting this strategy. The additional questions may arise about the "right" BLE Risk Index number for a lender and foregoing additional returns possible by increasing the threshold value, as previously discussed as part of <a href="http://andirog.blogspot.jp/2012/10/lending-club-loan-length-and-interest.html" target="_blank">BLE Index Caveats</a>.<br />
<br />
<h3>
Strategy #2: Loans with lowest BLE Index in Each Credit Grade</h3>
This strategy is slight variation of previous strategy. Instead of relying on absolute specific value of BLE Risk Index, it relies on the relative risk as represented by BLE Risk Index.<br />
<br />
One way to use relative risk is choosing loans with the lowest BLE Risk Index within a Credit Grade. This strategy will enable lenders to capture higher interest rate offered by higher credit grade while minimizing the BLE Risk Index within that credit grade.<br />
<br />
We plan to utilize similar strategy in our new account with Lending Club. Our lending strategy with new account will be to:<br />
<ol>
<li>Invest in total seven loans per week.</li>
<li>Invest in loans from all credit grade per week.</li>
<li>Invest in one loan per day.</li>
<li>Invest in loan with the lowest BLE Risk Index in each credit grade.</li>
<li>Not review loan details or any other quantitative and qualitative criteria.</li>
</ol>
PeerCube makes implementing this strategy a breeze by listing loans with the lowest BLE Risk Index for each Credit Grade under menu Lending Club -> Loan Review -> Low BLE Risk Loans. The concerns with this strategy are very similar to the concerns with the previous strategy. By not considering a fixed value of BLE Risk Index, the strategy minimizes the impact of errors in BLE Risk Index calculations as such errors will manifest for all loans.<br />
<br />
<h3>
Strategy #3: BLE Index as additional criteria with Filtered Loan Results</h3>
I believe this strategy is the most prudent among the three strategies discussed in this post. With this strategy, a lender considers BLE Risk Index as a data point for review after filtering available loans based on other loan and borrower parameters.<br />
<br />
The advantage with this strategy is similar to the second strategy discussed above. Instead of linking BLE Risk Index with Credit Grade, as in the second strategy, this strategy links the BLE Risk Index with a lender's filtering criteria. A lender can choose to include either BLE Risk Index below a specified value or relative value of BLE Risk Index among loans available after filtering.<br />
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PeerCube now lists BLE Risk Index alongside the major loan and borrower parameters for filtered loan as shown below. This change facilitates easier consideration of BLE Risk Index.<br />
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<div class="separator" style="clear: both; text-align: center;">
<a href="http://3.bp.blogspot.com/-_EGvAObI62w/UJukdBQ7JmI/AAAAAAAAFZg/TOA15Ftfpyc/s1600/bleff.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="312" src="http://3.bp.blogspot.com/-_EGvAObI62w/UJukdBQ7JmI/AAAAAAAAFZg/TOA15Ftfpyc/s640/bleff.png" width="640" /></a></div>
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Personally, I use BLE Risk Index with <a href="http://andirog.blogspot.jp/2012/09/peercube-founders-loan-filter-for.html" target="_blank">Founders' Filter</a> in my current portfolio. I consider filtered loans with BLE Risk Index below 0.90 first and then loans with index below 1.10. I typically minimize investing in filtered loans with index above 1.10.<br />
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Hopefully, these examples will help readers come up with more creative and appropriate strategies leveraging PeerCube platform. Please share through comments how you are using BLE Risk Index in your selection process for Lending Club loans.<br />
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<i>Note: I am currently on vacation. For next three weeks, posts and responses to comments will be infrequent.</i><br />
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<div class="blogger-post-footer">(c) 2014 Anil Gupta. Published at http://andirog.blogspot.com. I do not receive compensation from discussed vendors and advertisers unless a reader sign up or purchase by clicking through the banners and links provided.</div>Anil Guptahttp://www.blogger.com/profile/04626638497955200142noreply@blogger.com1tag:blogger.com,1999:blog-7209606.post-63025160035588905462012-11-02T07:30:00.000-07:002012-11-02T07:30:02.300-07:00PeerCube Update - Comprehensive Details for Lending Club LoansLast week, Peter wrote an excellent <a href="http://www.lendacademy.com/peercube-review/" target="_blank">review of PeerCube</a> on his blog. The number of <a href="http://www.peercube.com/" target="_blank">PeerCube</a> users has greatly increased since his coverage including interest from individual and institutional investors. The major focus of users has been on PeerCube Loan Filter and Peer Filters. Users are becoming more comfortable with sharing and using Peer Filters which have been used almost 250 times. Three users, excluding myself, have shared their filters with the broader community. I also posted half-a-dozen curated peer filters.<br />
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Peer Insights functionality continues to be under-utilized. Originally, I saw peer insights features to be natural extension of crowdfunding nature of peer-to-peer lending. But as Peter suggested, quick churning of loans may be preventing users from rating and discussing loans. Any suggestions for increasing traction of peer insights are most welcome.<br />
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<h3>
New Features on PeerCube</h3>
In last couple of weeks, I also learnt that I need to frequently update users on changes and improvements made to PeerCube and discuss ways to use PeerCube effectively. I have been quietly rolling out new functionalities and changes almost every week or two on PeerCube. Going forward, I will start writing blog posts to introduce new features and usage.<br />
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Peter already introduced Bad Loan Experience (BLE) Risk Index that is now integrated on PeerCube. For past few weeks, I have been discussing on this blog the <a href="http://andirog.blogspot.com/2012/10/lending-club-loan-purpose-default-rate.html" target="_blank">BLE Index</a> according to various loan parameters (<a href="http://andirog.blogspot.com/2012/10/lending-club-loan-purpose-default-rate.html" target="_blank">Loan Purpose</a>, <a href="http://andirog.blogspot.com/2012/10/lending-club-loan-length-and-interest.html" target="_blank">Loan Length, Interest Rate</a>, <a href="http://andirog.blogspot.com/2012/10/lending-club-loan-amount-and-credit.html" target="_blank">Loan Amount, Credit Grade</a>, <a href="http://andirog.blogspot.com/2012/10/lending-club-borrowers-location-and-bad.html" target="_blank">Borrower's Location</a>, and <a href="http://andirog.blogspot.com/2012/10/lending-club-loans-borrowers-fico-score_29.html" target="_blank">FICO Scores</a>). In future posts, I plan to discuss more about the foundation underlying BLE Risk Index and how lenders can use it more effectively during loan selection process.<br />
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In this post, I would like to introduce another change on PeerCube that I rolled out this week. Now the loan detail page on PeerCube includes comprehensive details about the loan and borrower. Except for the Q&A, almost all other available information is included on PeerCube loan detail page.<br />
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<blockquote class="tr_bq">
<span style="font-size: large;"><i>I am not aware of any place online including Lending Club's own loan detail page where as much information about a loan is available as on PeerCube's loan detail page.</i></span></blockquote>
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<h3>
Frequently Updated Funding Progress</h3>
Upon user's request, PeerCube does not display most 100% funded loans anymore. PeerCube has taken further steps in displaying more up-to-date funding progress. During business hours, funding progress is updated every four hours that results in reducing further the chances that a user will encounter fully funded loans during loan selection using PeerCube.<br />
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<a href="http://1.bp.blogspot.com/-ykJ83Uq9sA8/UJNJbU6dhFI/AAAAAAAAFXE/c2fJY4zvs5I/s1600/fundingprogress.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="83" src="http://1.bp.blogspot.com/-ykJ83Uq9sA8/UJNJbU6dhFI/AAAAAAAAFXE/c2fJY4zvs5I/s640/fundingprogress.png" width="640" /></a></div>
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<h3>
Expanded Loan Request Summary</h3>
The Loan Request Summary is significantly expanded with Initial List Status, Review Status, and various dates such as when Lending Club reviewed the application, pulled the credit report and borrower acceptance of the loan terms. The changes are highlighted below.<br />
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<a href="http://4.bp.blogspot.com/-tyGv6lc83Kk/UJNM76Zh_CI/AAAAAAAAFXo/BQY_F4XOSso/s1600/loansummary.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="244" src="http://4.bp.blogspot.com/-tyGv6lc83Kk/UJNM76Zh_CI/AAAAAAAAFXo/BQY_F4XOSso/s640/loansummary.png" width="640" /></a></div>
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<h3>
Comprehensive Borrower Details</h3>
The Borrower Details section now includes lot more information about borrower's employment and items from borrower's credit report. The changes are highlighted below.
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<a href="http://2.bp.blogspot.com/-k16Jr7voqv8/UJNQ8IEQW5I/AAAAAAAAFYM/Rv5rlWnUKXA/s1600/borrower.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="300" src="http://2.bp.blogspot.com/-k16Jr7voqv8/UJNQ8IEQW5I/AAAAAAAAFYM/Rv5rlWnUKXA/s640/borrower.png" width="640" /></a>
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<h3>
Thank You</h3>
Overall I am very impressed with the progress PeerCube has made in last two months since introduction. I thank users of PeerCube who continue to engage with me and give suggestions and feedback. I have been enjoying all interactions and they stimulate ideas.<br />
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Thank you to all users of PeerCube and thank you for following this blog. I'm looking forward to coming up with many more ideas. Stay tuned...<br />
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<div class="blogger-post-footer">(c) 2014 Anil Gupta. Published at http://andirog.blogspot.com. I do not receive compensation from discussed vendors and advertisers unless a reader sign up or purchase by clicking through the banners and links provided.</div>Anil Guptahttp://www.blogger.com/profile/04626638497955200142noreply@blogger.com4