Statement of Problem: Understand the nature of borrowers going delinquent or charged off.
When borrowers are delinquent, the company makes significant efforts to contact the delinquent borrowers, collect outstanding payments, and bring the loans back to current status. Once loans become delinquent, an attempt to contact borrowers via email, phone, and letter to collect any past due payments is done. Often review recent credit reports to understand the current credit status of the delinquent borrowers. Depending on the circumstances, accordingly work or plan is put down with the borrowers to arrange for payment to be made immediately, structure a new plan for paying of the monthly amount, or take other appropriate action, all in an attempt to prevent the loan status from deteriorating further.
The collections process in general is highly regulated. The internal servicing team and professional third-party debt collection agencies collect payments from delinquent borrowers in compliance with the extensive consumer protection laws related to servicing and collections activities.
Why This Topic Chosen: Will help understand the collections efforts needed to prevent borrowers from going delinquent and resume collections efforts on such borrowers who are prone to go delinquent in the near future.
What Contribution would the Project Make and to whom: Will give a better picture to understand on which borrowers to focus on and how to change the collections efforts if needed to. This in turn will help in increasing the overall revenue for the organization.
A Delinquency begins when a Borrower fails to make a payment by the payment due date. Borrowers are assigned categories of delinquency based on the number of Days Past Due (DPD). Borrowers who are up to 30 DPD are assigned to "Bucket 1", up to 60 DPD are assigned to "Bucket 2", up to 90 DPD are assigned to "Bucket 3", and up to 120 DPD are assigned to "Bucket 4". After 120 DPD, a Loan assigned to "Bucket 5" and evaluated for Charge Off.
If the Borrower makes a payment within a 15-day Grace Period (up to 15 days past due), the payment is not considered Late and no Late Fee is assessed. Beginning on Day 16, we assess a Late Fee. Then we employ a variety of in-house means and third party collection agencies by which to collect principal, interest, and late fees.
If a payment is less than 30 days past due, then we classify these Loans as "Bucket 1" and we contact the Borrower directly. A Borrower who pays their Past Due Balance in full returns their Loan to Current status. A Borrower who makes a partial payment on their Past Due Balance is still considered Delinquent.
After 30 days past due, LC outsources payment collection to Collection Agencies. First we stop contacting the Borrower, then we screen Loans for certain criteria, and lastly we send qualified Loans to the Collection Agency for collections. Selection criteria includes: Bankruptcy, Cease and Desist Order, Deceased Borrower, Fraudulent Loan Claim, Promise to Pay, Payment Plan, and Debt Settlement Plan. The Collection Agencies proceed to collect on these accounts. Collection Agencies collect on the Past Due Balance or any amount the Borrower is willing to pay, up to the entire Outstanding Balance. The Collection Agencies send the collected amount to Lending along with an invoice for the contracted commission fee. The company pays the invoices and disburses the net collected amount to the Investors. If the Borrower pays the entire Outstanding Balance, then the Loan is retired. If the Borrower pays the Past Due Balance, then Loan becomes current and The company recalls the Loan from the Collection Agency. Note: this does not happen in a timely manner. If a Borrower makes a partial payment on the Past Due Balance, then the Loan is still considered Delinquent, the Loan is assigned to a bucket commensurate with the remaining Past Due Balance, and the Collection Agency continues to collect on the account. A Borrower may choose to pay The company directly. In this case, The company still pays the contracted commission fee to the Collection Agency, and disburses net collected amount to the Investors. A Borrower may choose to work with a Debt Settlement Company. In this case, The company is required to stop all collection efforts and recalls this loan from the Collection Agency. If a Borrower continues to be delinquent with their payment in spite of efforts to collect, we assign the Borrower into categories based on the number of Days Past Due. This process continues until a Loan reaches Bucket 5, where the Loan is evaluated for Charge Off.
Delinquency – Process
Delinquency tracking is used in order to track then statuses of 2 measures:
1. "Past due amount" – The "past due amount" provides a status for how delinquent a loan is depending on the total amount of dollars that have not been paid on-time. This amount depends on the amount of accrued interest and amortized principal amount due each month, in the world of term loans this corresponds to the "RPA" and in the LoC world it corresponds to the monthly "billed" amount (minus any previous past due amount or delinquencies). In order to track the "past due amount" we use the concept of delinquency buckets.
2. "Days past due" – The "days past due" amount provides the number of days since the borrower has paid their full due amount. The number of days past due is calculated using the number bills which have any amount overdue (that is having any amount >$0 outstanding on any bills).
a. Each delinquent bill will have it's own "days past due" calculation. Which will count days past due from the bill's payment due date. To find the "days past due" for the entire line, use the "days past due" of the most delinquent bill on the line.
b. The "days past due" calculation can be used for both internal credit product status (line status, etc.) as well as for risk calculation by external investors. The 30 / 360 logic that LC classic uses to report to the credit bureaus will also be used in LS. This will not provide the "actual" days past due, but instead the "calculated" days past due. There are not currently any use cases for calculating "actual" days past due, so instead we will use the following logic:
c. 30 / 360 calendar
i. If borrower is 1 bill delinquent, days are calculated on a calendar basis with a cap of 30 days
1. 3/1 due date (first payment not received)
2. As of 3/15, borrower will be 14 days past due
3. As of 4/1, borrower will be 30 days past due
ii. If borrower has multiple bills delinquent, days are calculated assuming each month equals 30 days plus the calendar days since the payment due date of the most recent bill
1. 3/1 due date (first payment not received)
2. 4/1 (second payment not received)
3. As of 4/15, borrower is 44 days past due
3. Delinquency payment waterfall – unlike the regular payment waterfall, the delinquency waterfall is as follows. The two waterfalls are not parallel.
a. Billed interest
b. Billed principal
c. Billed late fees
d. Unbilled late fees
Delinquency Bucket Flow
Each past due bill becomes the 'max fill line' of a bucket if a payment is not made in full by the designated bucket entrance date. For LoC these are configured as the following:
The 'max fill line' of each bucket changes with each subsequent missed bill. The 'max fill line' = total bill amount – past due principal – past due interest – late fees
The bucket entrance date is defined as the payment due date + 1 day
• The days past due calculation will be based off of each bucket, much like term loan delinquency buckets
• Buckets fill and empty in accordance with a "first in, first out" strategy
• The bucket is filled to the 'max fill line' at the end of billing cycle with an effective date set as the bucket entrance date (payment due date +1) , that way any ad-hoc payments that post in between the billing cycle end date and the due date will be applied against the bucket amount
• Delinquency Buckets
• Report delinquencies to credit agencies accurately
• Currently done manually
• If not reported correctly, then we have to handle more disputes (e-OSCAR)
• Only one bucket exists today for all loans 31-120 days past due
• Eventually, we will charge collection fees based off buckets
• Need to update loan status first, not part of the scope of the initial project
• Days Past Due
• Special investors (banks) need the exact number of days past due
• Calculated off of the buckets
• Buckets
• 5 delinquency buckets, plus a special bucket for late fees
• Each bucket (except for late fee bucket) represents 30 days past due
• Bucket 1: 1-30 days past due
• Bucket 2: 31-60 days past due
• Bucket 3: 61-90 days past due
• Bucket 4: 91-120 days past due
• Bucket 5: 120+ days past due
• Late Fee Bucket: only filled when late fee is applied
• ‘Max Fill Line’ for each bucket = RPA
• In order to move to the next bucket, the preceding bucket must be full
• Days Past Due
• DaysPastDue=(bucket-1)*30+(Today-LastDueDate)
• Use this formula to populate NPI report in the LCA portal
• Column for DaysPastDue already exists
• Other Additions to the NPI Report
• LastPaymentDate
• Due date that corresponds to the last payment made
• LastPaymentDate=DueDate-CurrentBucket
• PaymentPlan
• Y/N ‘flag’ that looks up Loan ID in cp$xvx
Bucket Characteristics
θ Buckets fill in ascending order: 1, 2, 3, 4, 5
θ Buckets empty in descending order: 5, 4, 3, 2, 1
θ The highest numbered bucket with any $ in it is the bucket the loan is in
θ Bucket 1 is filled when loan flips from 10 to 11 (current to in grace period)
θ Buckets 2-5 fill at Due Date+1 day (we assume borrower will miss payment)
Delinquency Status – LoC
• Late (1-30 Days)
• Late (31-60 Days)
• Late (61-90 Days)
• Late (91-120 Days)
• Late (121-150 Days)
• Late (151-180 Days)
• Charge-off (181+ Days)
Bucket Status
When a loan enters a bucket, it is assigned a status that will tell us the state of the bucket. Each status is defined below.
Pending (0) – If there is a payment=DUE_AMT applied on DUE_D, then status=0 is noted until that payment either fails, or succeeds
• If payment fails, bucket status can move to either filled or confirmed (whichever is appropriate per the definition of the statuses)
• If payment succeeds, then status=4
Confirmed (1) – If a bucket is not completely filled, but there are dollars in the bucket, then status=1
• Amount in bucket < RPA (except for bucket 5)
• Bucket 5 has no set fill amount
Filled (2) – If a bucket contains amount=RPA, then status=2
• Since bucket 5 has no fill amount, bucket 5 status can never = 2
Emptied (3) – If a bucket was either in status=1 or status=2, and payment clears the bucket so there is no amount in the bucket, then status=3
Cancelled (4) – If a bucket was in status=0 and the payment associated with the pending status is successful, then status=4
• Status=4 can only happen if the last bucket status was =0
•
•
• 5 Delinquency buckets and a Late Fee bucket
• Bucket 1 is 'filled' when the loan enters grace period
• Buckets 2-5 are 'filled' the day following the due date
• Bucket Statuses
• Delinquency Bucket Statuses
• Bucket 5 is 'bottomless' i.e. the max fill line concept does not apply here as there is no other bucket for the payments to spill into
• Buckets fill in ascending order
• Bucket 1 must be filled before Bucket 2 can be filled. Bucket 2 must be filled before Bucket 3 can be filled, etc.
• Buckets empty in descending order
• Bucket 5 must be emptied before Bucket 4 can be emptied. Bucket 4 must emptied before Bucket 3 can be emptied, etc.
• Each bucket has a 'max fill line'=RPA
• When the max fill line is exceeded, it spills over to the next bucket
• Except bucket 5
• Late Fee bucket is filled when the late fee is charged
• The late fee is put in its own special bucket because the late fee cannot hold a loan in a delinquency bucket/status
• Only post issuance loans should find themselves in a bucket
• Issued, Current, Fully Paid, and Charged Off loans are not in a bucket
Bucket Design Requirements
• Capture the current bucket each loan in our platform is in at any point in time
• Capture the dollar amount in each bucket
• Capture the change from bucket to bucket until the loan is Fully Paid or Charged Off (similar to loan_status)
• Capture whether or not the loan was on a payment plan at the time the bucket was filled.
Days Past Due Calculation
• DPD = ((nb of buckets with amount > 0) – 1) * 30 + (today's date – due date) if count (nb of buckets with amount > 0) > 0, 0 otherwise
• This formula will be used to populate an existing column in the NPI report
Additions to the NPI Report
• DaysPastDue
• See above for calculation requirements
• LastPaymentDate
• Due date that corresponds to the last payment made
• LastPaymentDate=DueDate-CurrentBucket
• PaymentPlan
• Indicates whether or not a loan is on a contractual payment plan
• If the loan is in pay_plan, then Y is present
• If the loan is not in pay_plan, then N is present
Delinquency Payment Waterfall:
get payment amount
get payment waterfall
get bucket waterfall
get list of delinquent bills order by bucket priority desc, payment due date asc
map<billId, money> billAgingEntryCredit;
money lateFeeAgingEntryCredit;
get billed components from waterfall steps
get unbilled components from waterfall steps
for each bill in billed components AND there is amount left {
for each billed components {
if there is billed balance for the billed component {
get list of tranches along with billed balances and store to list of payment posting
total bill
if there is not enuff payment amount left to cover total {
get prorate of each tranche billed balance and store to list of payment posting
total bill
}
}
}
add total bill to billAgingEntryCredit
if billed balance for the bill is paid off {
exit bill bucket
}
}
if there is amount left {
if there is billed late fee balance for the billed late fee component {
get list of tranches along with billed balances and store to list of payment posting
total latefee
if there is not enuff payment amount left to cover total {
get prorate of each tranche billed balance and store to list of payment posting
total latefee
}
set lateFeeAgingEntryCredit with total latefee
if late fee billed balance is paid off {
exit late fee bucket
}
}
}
if ALL bill buckets exited AND there is amount left {
prepare to exit from here and switch to regular waterfall processing
return payment entries for posting
return aging enries for posting
} else if amount is left {
for each unbilled components AND there is amount left {
if there is unbilled balance {
get list of tranches along with unbilled balances and store to list of payment posting
total unbill type
if there is not enuff payment amount left to cover total {
get prorate of each tranche unbilled balance and store to list of payment posting
total unbill type
}
}
}
}
return payment entries for posting
return aging entries for posting