loans to self-employed borrowers

[umwol13]

I've been discriminating against these borrowers as I believe they tend to be more risky in this economy.  Can anyone offer some thoughts if they are different than mine?

[ResearchPro]

Since their DTI is not known, they are riskier by definition. And non-stable income is an additional risk too.
However, in some cases I'd say that this risk could be ok, especially if the loan amount is very low.

[sosocratic]

I believe (based on my own observations) that when the DTI is not calculated prosper plugs it into their risk calculator as > 40% . In many cases I think this causes proser's estimate to be falsely high. Often you can get a good feel for it either because they tell you what their payments are or because they have very low revolving debt. When in doubt you could ask what they pay to service debt each month but that would require looking at loans more than just a  few hours in advance.

The biggest draw-back is that the reason it is not calulated for you by prosper, which does have their debt payment info, is that their income can't be verified so you have to just take their word for it.

Also keep in mind that Prosper does not count mortgage payments which falsely lowers the DTI of homeowners and it does count the loan being applied for which falsely raises it for people who are paying off other debts with the loan (you just need to take their word for it that that is what they will do once they get the money).

[go4reward]

I agree. Self employ does not have DTI computed. Risk can be very hard to assessed.

[VBPlayer]

I tend not to have a problem with self-employeds as long as they are not starting a new biz.  I evaluate the other credit issues shown and have no problem lending to someone who is self-employed who owns their home and has at least two years working in that business.  For my book, they have to show no lates or DQs, have less than 5 recent credit inquiries and have at least 50% reserves left on their bankcard utilization calculation.  This gives them some wiggle room if things tighten up in any given month.

Someone who has maxxed out their Credit Cards (or almost) and is starting a new business, I would not touch no matter what the rest of the profile says.

Interestingly enough, of all my past due loans (about 8% of 230 loans), not one is a self-employed who meet this criteria.

Others thoughts?

Mark - VBPlayer

[go4reward]

I have decided that if they put down 0 as income for self employed. I would stay away from it.