Has anyone been keeping up with Upstart’s current securitized loan delinquency rates?
I just looked on KBRA to check on them and this is looking like an enormous red flag to me…
On January 18, 2022 a new pre-sale report came out from UPST onto KBRA’s site (https://www.kbra.com/documents/report/61852/upstart-pass-thr…).
I put a screenshot from the report here (https://ibb.co/RNR8vh1) to help visualize this but it is a very disturbing trend. Delinquency rates on loans packaged before 8 months ago are exhibiting nearly twice the rate of delinquencies seen on loans packaged in 2020, 2019, 2018 etc that had experienced by the same months of seasoning.
For example, see below. I compared 2019 loans to 2021 loans at roughly same number of months seasoned. We see at 5 months, the 2021 loans (4.29%, bolded in table) are 1.84 times more delinquent than the 2019 loans (2.33%, bolded in table).
Deal Months Delinquency%
2021-ST3 8 3.85
2021-ST4 6 3.71
2021-ST5 6 4.03
2021-ST6 5 **4.29**
2021-ST7 4 3.38
2021-ST8 3 2.16
2021-ST9 2 1.04
2019-2 5 **2.33**
2019-1 4 1.90
2019-3 1 0.49
I specifically chose the 2019 set of loans to compare as that would strip out COVID/stimulus; which in theory would benefit the 2020 loans. Although I think the 2021 loan delinquency rates are just as worse when compared to the 2020 loans!
And, when I look at competitor LendingPoint (https://www.kbra.com/documents/report/61196/lendingpoint-202…), which issued a new securitization report on Jan 14, 2022 for close comparison, I do NOT see a huge uptick in cumulative net loss rates like what I am seeing for UPST’s 2021 pass-through trust loans. So I don’t think I can reason this as “normal return” to usual macroeconomic environment with COVID stimulus fading away, if UPST’s peers are not experiencing the same.
What’s going on here? Is it a problem with UPST’s AI underwriting model? Was the model tweaked or learning in a way that is causing them to lend too loosely (but allowing them to transact more loans in the short term)?
In the longer run, if delinquency rates are spiking too high for UPST and eroding its underwriting competitive advantage versus peers, how can they maintain their bank partnerships in the future?
I didn’t look too closely at all the UPST individual reports but if someone can dig around the details and come up with good rationale for this finding (that makes this concern go away) I would very much like to hear it.
For the time being, what I am seeing is just another red flag to pile on to my list of reasons why I will not hold UPST through Q4 report and rather wait for management’s numbers/guidance/explanations (hopefully analysts will ask about delinquency rates on the conference call).