On December 28th, Lending Club sent investors an e-mail regarding a brand new segment of loans. The new segment is called “Direct Pay Loan.” This new segment will guarantee a portion of the loan to go directly to the borrower’s creditor to refinance. This greatly increases the predictability of loan usage to refinance/consolidate existing debt.
- Reduce erroneous loan usage
- Reduce fraud – likely more documentation are required for this type of loans
- Allows Lending Club and investors to tap deeper into higher risk population
Potential Implementation to Lending Alpha Selection
The new loan segment is currently in pilot mode and we will not see a sizeable data until another year or more. We will investigate the grades that these loans are appropriated to and see how different they are compared to non direct–pay loans. Likely these loans will be allocated into a lower interest rate loans, but we will investigate to make sure. Once we see that these loans have its advantage, we will add them into our existing filter. Unfortunately, this may take another year to validate that this loan segment can compete with our current filters. We will strive to maximize client’s loan selection with both logical borrowers and statistical outperformance.
Let us know if you have any questions or would like to schedule a 1:1 with us to chat via web or in person in Los Angeles/San Diego.