By now you’ve probably received many emails from financial institutions related to what they are doing for those impacted by COVID-19. Last week we reached out to several of the largest consumer lenders in the US to understand exactly what they were doing to help borrowers as well as to get insight into changes made to underwriting, impacts on loan demand and what they are telling investors. However perhaps the most transparency we are seeing today is with LendingClub, the largest personal loan provider in the US. While we can see what many are doing on the borrower side, the investor side of the equation isn’t always clear. Because LendingClub serves individual investors they continue to update investors regularly on the current environment.
On the borrower side LendingClub has waived late fees starting April 1st through May 31st according to a recent LendingClub blog post. They have also ramped up collections and servicing capabilities which includes tripling the number of people available to help customers over the phone.
They also introduced hardship plans to allow eligible borrowers the flexibility to make interest-only payments for a few months. Borrowers are able to apply for the hardship plan online, a feature which eases the burden on LendingClub support. LendingClub borrowers are able to share their current circumstances and provide the amount they believe they can reasonably pay during the hardship period. LendingClub then processes the request and responds to the borrower within 7-10 days. While the situation remains fluid currently LendingClub reports that borrowers requesting hardship plans amounts to less than 2% of total loans outstanding. More information for borrowers is available on this LendingClub support page.
These changes will undoubtedly impact investors, though the proactive programs in place are likely to benefit investors in the long run as borrowers are given the opportunity to defer payments during challenging times. What is most interesting is looking at new issuance. LendingClub has reduced approval rates for certain higher-risk borrower populations, something they have been consistently doing for years. More and more LendingClub has become a platform serving prime and super prime consumers. Other changes include increased income and employment verification requirements which makes sense given current unemployment data. Interest rates are increasing between 2% and 4%, making borrowing significantly more expensive to borrowers. As a result, investors will see fewer C and D grade loans available and LendingClub noted that investors who focus on higher rate loans should consider the impacts of cash drag.
In my own portfolio I noticed several instances of hardship plans on loans that I own. Below is a look at the collection logs of two loans I currently have in my portfolio.
Conclusion
We’re still very much in the early days of fully understanding the true impact of COVID-19. Americans still have yet to receive stimulus funds and we still don’t know how long the country will need to practice social distancing. LendingClub has clearly taken quick action related to these events and it will be interesting to see what more the company shares in their next earnings call.
