Delinquency, roll rates and vintages: how lenders read a loan book

Delinquency, roll rates and vintages: how lenders read a loan book

A loan portfolio doesn't fail all at once. Borrowers miss one payment, then two, then stop paying. Lenders track that slide with three tools: delinquency buckets, roll rates, and vintage curves. Together they show trouble months before it turns into a loss.

Delinquency buckets

A loan is delinquent when a payment is past due. Lenders group delinquent loans by how far behind they are:

• Current: no payment overdue
• 1–29 days past due (DPD)
• 30–59 DPD
• 60–89 DPD
• 90+ DPD
• Charged off: the lender has written the loan off as a loss

The delinquency rate is the share of the portfolio's balance in each bucket. A rising 30+ DPD rate is usually the first sign that something is changing.

Early delinquency is noisy. Plenty of borrowers miss a due date by a few days and catch up. That's why most credit agreements use 30, 60, or 90 days as the trigger for action, not one day.

Roll rates

A roll rate is the share of loans in one bucket that move to the next bucket a month later. If 1,000 loans are 30–59 DPD this month and 400 of them are 60–89 DPD next month, the 30-to-60 roll rate is 40%.

Roll rates turn a snapshot into a forecast. Multiply them together and you get an estimate of how many of today's late loans will end up charged off. If 40% roll from 30 to 60, 60% roll from 60 to 90, and 80% roll from 90 to charge-off, then roughly 19% of today's 30-day delinquencies will become losses.

Roll rates also catch changes that a delinquency rate hides. A portfolio that's growing fast adds lots of new, current loans, which pushes the delinquency rate down even if older loans are deteriorating. Roll rates don't have that problem.

Vintages

A vintage is a group of loans originated in the same period, usually the same month or quarter. Vintage analysis tracks each group's cumulative losses against the age of the loans.

Plot it and you get one curve per vintage. The x-axis is months since origination. The y-axis is cumulative loss as a share of original balance. Healthy portfolios show curves that rise steeply early and then flatten, with each new vintage tracking close to the ones before it.

The power of vintages is that they compare like with like. A loan originated in January and a loan originated in June are at different stages of life. Comparing them at the same age, say month six, shows whether underwriting has loosened or tightened.

If the March vintage is running at 2% cumulative loss at month six and every earlier vintage was at 1%, something changed in how March loans were made. That's a question for the originator, and it shows up long before the March loans finish paying off.

Why it matters

Headline numbers like yield and default rate are backward-looking. Delinquency, roll rates, and vintages are where problems appear first.

For a credit investor, these three views are the core of ongoing monitoring. They're all calculated from the loan tape, so they're only as reliable as the tape itself. A loan that's quietly modified and reset to current will never show up as delinquent at all. Checking tape data against actual cash received is what keeps these numbers honest.