> Apparently they found recent grads with very large student debt load but commensurately high future earning potential had inaccurately low credit scores.
Credit scores measure the risk of future default based on past borrowing behavior. A borrower's credit score is not "inaccurately low" if there is little to no past borrowing behavior to apply the credit scoring model to.
Lenders can and frequently do take into account criteria other than credit score, such as income, when underwriting loans. In some lending markets (mostly commercial), individual consumer credit scores aren't even used.
That Earnest and other upstart lenders are choosing to more heavily weigh factors other than credit score is not particularly interesting. The true test of their underwriting criteria will come in the next down cycle. Having worked in this space, I should point out that there are many consumers with high incomes (or high earning potential) who are vulnerable. As such, I'd suggest that income and earning potential alone are of limited use in underwriting. It's not uncommon to see borrowers with high incomes who also have very low credit scores because they were over-leveraged and had serious negative credit events occur.
I assume as they are getting outside funding, someone has vetted their underwriting models and loan population. I was curious to learn more about their sources of funds, number of current employees, i.e. fund performance, unfortunately nothing written here.
They are mining more information and winning a lower rate for it. To that end they are succeeding. Without understanding the source of funds, and any guarantees they are making, it's important that they provide long-term durable ROI to justify the lower rates.
If they get the lower default rate they are paying for, then Earnest has created a superior product. Their default rate doesn't and shouldn't have to be zero, but I would be afraid of trying to make up on bad underwriting with poor servicing tactics. I hope both centers are striving to be excellent at their respective jobs.
Since default rates on these loans is high and rising, there is a strong incentive to lower it. If default rates were consistently low, paying more for a marginal additional reduction wouldn't be worthwhile. When default rates are trending higher, I believe you need exponentially higher interest rates in order to break even.
> ...we've been in this cycle of "easy money, spend spend spend" followed by "crap, bubble". Sure there's money to be made on the upside, but there's even more to lose on the way down.
I'm sure this comment will be downvoted, but there's just as much if not more money to make on the way down. When people, companies and governments take on too much debt, and capital is misallocated, incredible opportunities to profit are created.
Yes, should probably be downvoted. The fact that a small minority can profit greatly in a downturn has virtually nothing to do with the question of how best to grow the economy.
I can assure you that you don't have to be a member of the the 0.1% to profit in a downturn. If you can buy shares of stock and call options, you can short shares of stock and purchase puts.
Of course, you'll never win much sympathy profiting from sanity. If you want sympathy, help "grow the economy" by leveraging yourself to the hilt and blaming evil bankers when your debt catches up to you. But please recognize that you're not really growing the economy; you're just mortgaging your future.
> Agh, this thread is just full of people boasting about their immunity to interest in Facebook. Congratulations, you're fantastic, oh that we could all be as enlightened as you.
> That said, this study doesn't surprise me. In terms of public posts everyone projects their "best life", so you're browsing through a catalogue of amazing experiences while you sit at home feeling a little fat.
> I'm not sure what the answer to that is.
I'm not on Facebook, Twitter, Snapchat, etc. (and I'm probably one of a very small minority who has never had accounts) and I wouldn't consider myself "enlightened."
I think "the answer" is to reflect on what it is that adds value to your life and what subtracts value from your life.
If your personal use of social media is focused on activities that you conclude are beneficial, there's no reason you should stop using it. On the other hand, if your use of social media is making you less happy, you should treat it the same way you'd logically treat anything else that makes you less happy.
Unfortunately, as these studies demonstrate, a lot of the people using social media aren't happier for it, and more problematically, many clearly aren't reflecting on that.
To a large extent, yes, but social media has made faking a lifestyle you don't lead even easier. Anybody with a smartphone and a desire to portray themselves in a particular light can do so pretty effectively with very limited intelligence and skill required.
Thanks for your feedback on the quality of the architecture. Are you suggesting that I try to come in with a starting offer of $350 and see if we can close somewhere just north of $400?
> In New York City, many of the businesses that move in are banks. There are more than 1,800 bank branches in New York — 60% more than there were a decade ago.
There was an article about this in the Wall Street Journal last year[1]. Excerpt:
> But why open a branch on every corner? The blame, it turns out, lies with us. We're asking for it.
> TD, which has more than 1,300 branches in cities up and down the East Coast, conducted a customer survey and discovered that, compared to the rest of the nation, New Yorkers are obsessed with branch convenience. While folks in other towns value frivolities like friendly service, New Yorkers more often rank convenient ATMs and branches a top priority. They want locations near their homes, their offices and the offices of their spouses, says Mr. Giamo. They want to see their bank everywhere they go.
When it comes to the subject of community, a lot of people don't want to accept that communities are dynamic. The ways in which they change are almost always driven by the needs and wants of the people in those communities, even though you will always find vocal people in those communities who swear that can't be the case.
I guess I wonder though... Physical locations are pretty large expenses so do New Yorkers pay more for their banking services per capita than other bank customers to support this psychological need to see their bank everywhere or is this psychological want just something being underwritten by the rest of the bank customers.
Interesting to read that the number of bank branches is actually increasing in New York. In the UK the opposite is happening as more and more consumers are doing their banking online: "the UK has lost a quarter of its retail bank branches over the past ten years" (650 estimated closures in 2015, 500 in 2014 and 222 in 2013) [0]. Many of the closed banks are turned into bars, see [1] for some nice examples.
I have a hard time believing any conclusion based on the premise that banks listen to their customers (depositors), given a long-standing behavior of anti-customer behavior like a plethora of fees, minimum deposit, and in general, sagging interest rates.
The "sagging interest rates" are a product of Fed monetary policy, and much of the fee-generating behavior you describe has been motivated in some part by the Fed's monetary policy too. But please don't let that stop you from blaming the banks.
If you're suggesting that the member banks of the twelve regional Federal Reserve Banks have banded together to manipulate Fed policy so they can stick it to retail banking customers, please do yourself a favor and research how the Federal Reserve System operates. The policy decisions we're discussing are made by the Federal Open Market Committee and Federal Reserve Board. If you educate yourself as to their composition, you will quickly see that member banks, let alone a handful of large member banks, are not calling the shots.
"The U.S. Government does not own shares in the Federal Reserve System or its component banks, but does receive all of the system's annual profits after a statutory dividend of 6% on their capital investment is paid to member banks and a capital account surplus is maintained."
So part of their profits go to member banks. Who are the member banks that profit from these dividends?
> Theranos often drew the same employee’s blood twice, first with blood from a finger prick and then the traditional method of a needle in the arm, according to one former Safeway executive.
> The former executive said he worried that Theranos’s finger-prick process was still a work in progress. “If the technology is fully developed, why would you need to do a venipuncture?” this person said, using the term for a traditional blood draw.
> The concerns deepened when Theranos’s test results for several Safeway employees differed from the results the same employees got from other laboratories, according to the former executive. Another former Safeway executive confirmed those recollections.
> Theranos also backed away from putting its blood analyzers in Safeway’s clinics so patients could get the results quickly, the current and former executives said.
> Instead, Theranos said blood samples collected at Safeway would have to be shipped to a central lab for analysis, according to the former executives.
Where is the line between grossly exaggerating ones product and criminal fraud drawn?
Personally I view things where you give someone a false health diagnosis to be among the most egregious deceptions possible, a step beyond running a Ponzi scheme and in line with other things where users are severely hurt or killed.
I will be very surprised if Elizabeth hasn’t crossed the line over to fraud at some point. She is pulling down some very well connected people - she had better like orange.
Credit scores measure the risk of future default based on past borrowing behavior. A borrower's credit score is not "inaccurately low" if there is little to no past borrowing behavior to apply the credit scoring model to.
Lenders can and frequently do take into account criteria other than credit score, such as income, when underwriting loans. In some lending markets (mostly commercial), individual consumer credit scores aren't even used.
That Earnest and other upstart lenders are choosing to more heavily weigh factors other than credit score is not particularly interesting. The true test of their underwriting criteria will come in the next down cycle. Having worked in this space, I should point out that there are many consumers with high incomes (or high earning potential) who are vulnerable. As such, I'd suggest that income and earning potential alone are of limited use in underwriting. It's not uncommon to see borrowers with high incomes who also have very low credit scores because they were over-leveraged and had serious negative credit events occur.