Eric's Credit Community

In a nutshell, the EricsCC ROI figure is meant to be a snapshot of your portfolio's current performance, taking into account losses due to defaults as well as estimated losses based on the chance of default for your currently late loans. It is not meant to predict future results (beyond the effect of lates already in your portfolio). It is strictly a measure of current performance.

For loans that are current or simply "Late", the ROI is calculated by dividing the estimated interest paid by the amount invested and then annualizing that figure. For late loans, one months interest is subtracted to account for the interest accrued but not paid. The estimated interest paid is based on the borrower making the "minimum payment", so if they have paid more than the minimum or made extra payments, that may throw off the estimate somewhat.

For loans that are 1, 2, or 3 months late, the ROI is calculated by dividing the "return" by the amount invested. The "return" part is the interest received minus a percentage of the principal to account for the chance of default (90% for 1 month late, 98% for 2 months, 99% for 3 months) plus the amount that the loan would be expected to fetch at debt sale.

For loans that are 4+ months late or in Default, the calculation is similar to the calculation for 1 or 2 months late. The chance of default for 4+ months late is 99% and of course 100% for Defaulted loans. The biggest difference is that the interest received part of the return is estimated based on the date the loan went into "3+ months late" status as a loan could be in 3+ months late status for quite some time.

To keep things simple, loans that are Paid or Repurchased are assumed to have a return equal to the lender rate for that loan. Cancelled loans are not considered in the calculation, and the final ROI figure is a dollar-weighted average of the returns on all the loans in the portfolio.

Since this figure is mostly an estimate of current portfolio performance, the methodology will tend to favor newer portfolios. Always take into consideration the average loan age of a portfolio when looking at the ROI as newer portfolios will not have had the opportunity to accumulate any lates yet.