# How to value a portfolio of non-mature consumer loans?

I'm looking for the best way to value a portfolio of consumer loans that have NOT reached maturity and for which I do observe the payment/default history to date?

I'm working with a large database of consumer (peer-to-peer) loan data. The majority of these loans have yet to reach maturity. Still, I observe the payment history as of, say, today. For each loan, I observe a vector of borrower characteristics (accurate to the time of loan origination) including credit score, city/state, occupation, monthly income, debt/income, homeowner indicator, loan purpose, previous loan outcomes, etc. All the loans mature after 36 months.

I'd like to compare the performance of various bundles of these loans. I'm not sure what's the approach. Ideally, I'd like to fit the data to some structural credit model.

Until now, I've been using the following approach for computing ROI (found here http://www.nickelsteamroller.com/#!/stats/roi):

$ROI \triangleq \frac{\sum_{i} \left(I_i - S_{i} - \textsf{E}[L_{i}] \right)}{\sum_{i} \left(\frac{I_{i}}{r_{i}}\right)}$

where

$I_{i} \triangleq$ cumulative interest payments received by creditors on loan $i$,

$r_{i} \triangleq$ interest rate on loan $i$,

$S_{i} \triangleq$ cumulative loan servicing fees paid by creditors on loan $i$, and

$\textsf{E}[L_{i}] \triangleq$ expected loss on remaining principle for loan $i$. To compute expected loss, I use the following loss estimates conditional on loan status:

1 Month Late: 70.00%

2 Months Late: 80.00%

3+ Months Late: 95.00%

Charged Off: 100.00%

Current: 0.00%

Default: 96.00%

Fully Paid: 0.00%

In Grace Period: 30.00%

Late: 50.00%

• What's the question? – Clark Henry Aug 13 '14 at 21:40
• Hi bmoallemi, welcome to quant.SE! Thank you for asking and clarifying the question. Do you have any more variables you can consider in your model? – Bob Jansen Aug 14 '14 at 7:31
• @BobJansen For each loan, I observe a vector of borrower characteristics (accurate to the time of loan origination) including credit score, city/state, occupation, monthly income, debt/income, homeowner indicator, loan purpose, previous loan outcomes, etc. All the loans mature after 36 months. Does this answer your question? Thanks! – Bobak Digital Aug 14 '14 at 15:55
• It does. I've added this information into the question. – Bob Jansen Aug 15 '14 at 15:23