Lending Club Sadness

[tommytebco]

I've been in LC for a bit over a year.

I read the on line advice on "How" and wanting % return to be high, I set up my account to be mainly the higher , riskier accounts ( 20% each D thru G) and individual notes at $25. My reported return is 9.2%.

I am so loath to pay interest of any kind that I can't believe this works so well.

The down side is it takes a long time to get invested as My orders wait for the borrowers note to be sold out. I just put 50% more in and my yield dropped from 9.7% while the money got put to work.

I guess a large portion of the population don't agree with me and want it "NOW" whatever the cost. Anyway, the main downside risk would be if the default rate suddenly surged in a big way.

My IRA seems to earn 7% or so over time . It's mainly interest bearing stocks and funds with a bit of high yield bond funds., so the 9% is a welcome yield.

[BlueNote]

How do you know that the ratings you are getting are legit? mortgage backed securities were being rated as high grade debt in 2007 by S&P and Moody's. It could be that most of these people are using these lending club sites because they are so leveraged that they are basically living right at the tipping point and one or two missed payments would send huge numbers over the edge into bankruptcy. On the other hand US banks might be too stingy since the financial crisis forced them to increase their capital levels and thus decrease risky behaviour, thus leaving perfectly good loans on the table. I wouldn't rely on something like this for my cash reserves but would consider using it in a diversified portfolio of investments, maybe 5-10% of my total amount invested.

[Dragline]

I was the OP for this thread from a few months back. I still am investing in LC because I enjoy it as it is fun and simple to move moeny in. My return is climbing back out of the mud. Almost up to 5 percent from negative 15% at one point.. I really do think the longer you are in this the diversification makes the investment as a whole less risky. It still seems risky for the return you get even though I enjoy it. If you feel like you are rolling the dice at times, you most likely are. It seems like these days it takes longer for notes to get out of the review queue and issue. The other thing is there seem to be big investors that step in once a loan is funded to say 60 percent. I feel there is a lack of transparency regarding what happens though I have no proof of that. My company is in the process of being sold so I am/was considering moving some of my roth 401k to a LC roth. My gut tells me this is a mistake as with big banks moving in to this market. I try to listen to my gut.

I have incorporated filtering advice from Dragline and CMonkey and it seems to be working.

Make sure you are creating portfolios and assigning loans to them -- over time it makes it easy to see what is working and what isn't.

After seven years of investing in this (that's about 5000 loans over time), my returns are still steady in the 9-10% range. About 10% of the my loans have defaulted at some point, or looking at the converse, 90% are paid off in full. Higher income people consolidating credit card debt are the basic bread and butter of this.

[steelerfan]

[/quote]

Make sure you are creating portfolios and assigning loans to them -- over time it makes it easy to see what is working and what isn't.

After seven years of investing in this (that's about 5000 loans over time), my returns are still steady in the 9-10% range. About 10% of the my loans have defaulted at some point, or looking at the converse, 90% are paid off in full. Higher income people consolidating credit card debt are the basic bread and butter of this.[/quote]

Dragline: Thanks for the comment...

Questions:

1) How are you organizing your portfolios? Grade? Term? Acquistion Month? or some other metric? I am not utilizing portfolios yet... Do you dump your data into Access or MYSQL to analyze?

2) Do you prefer 36 or 60? In your experience do people commonly refi to a better grade?

My notes are about 60/40 60mo/36 month. I am starting to think the 36 month term may be better to turn over the most principal the quickest and increase the liklihood of collecting for the full term...

3) With LC now under the IPO price and rumors of a potential purchase do you think this concept will run it's course. Morgan Stanley is setting up a PTP platform and WFC has a big stake already in LC is the little guy relevant any more? In some ways I think a private lender can coexist as long as the bank gives equal access to invest before piling in.

[Dragline]

Questions:

1) How are you organizing your portfolios? Grade? Term? Acquistion Month? or some other metric? I am not utilizing portfolios yet... Do you dump your data into Access or MYSQL to analyze?

2) Do you prefer 36 or 60? In your experience do people commonly refi to a better grade?

My notes are about 60/40 60mo/36 month. I am starting to think the 36 month term may be better to turn over the most principal the quickest and increase the liklihood of collecting for the full term...

3) With LC now under the IPO price and rumors of a potential purchase do you think this concept will run it's course. Morgan Stanley is setting up a PTP platform and WFC has a big stake already in LC is the little guy relevant any more? In some ways I think a private lender can coexist as long as the bank gives equal access to invest before piling in.

1. By selection criteria -- I have a portfolio for each saved set of filters that I use. Also, I use the free analytics at www.nsrplatform.com. If you set up an account there, you can upload your LC data and apply a bunch of analytical tools to it.

2. I prefer a mixture, but 36s are harder to find, so I always take them over 60s when they are available. I have not tracked refis, but they don't seem too significant. Over time, the whole thing works like a kind of bond ladder where you have a variety of loans from 1-60 months in duration.

3. I'm not sure. I think as long as there is a a significant gap between credit card rates and LC rates, there will be a significant market for this.

[inchicago]

The criteria I have been using on my Lending Club account has been:
1. C and D notes (although I bought a few E, G and F notes-not a good idea)
2. Must have job for at least 3 years.
3. Only those using it for debt consolidation or credit card payoff.
4. No delinquencies or public records on file.
5. I also look at their individual gross income.
6. Those that have their own home vs. renting.

I have had my account open for about 1.5 years and have a return of 9.55%.

3 are in the grace period right now-a C and 2 Ds
2 have been charged off-1 D and 1 E
5 have been late 31-120 days-1 D, 1 E, 2F and 1G

So this tells me to stick with mainly the C notes which is a good return. I had stopped contributing to this account for the last 3 months as I wasn't sure I wanted to continue investing here. I'll see how it goes. Right now, I just reinvest the money from the return on the notes.

[Dragline]

I would expect those returns to be fairly stable at this point if you have over 100 notes.

But zero credit inquiries in the last six months is generally the most important criteria. I think its because if there is one, chances are the debtor applied for a loan somewhere else and was rejected.

[Ydobon]

I take it LC loans aren't secured against assets?

I got fairly involved with P2P loans in the UK over the last year (£££££ invested) and everything seemed great at first, but then a steady trickle of late payments/defaults from some of the unsecured cohort. The amounts involved werent horrendous (something like 1% loss of capital if they never pay a penny again), but it was quite irritating.

I've since worked hard to rebalance into platforms with some sort of asset security. The rates aren't quite as spectacular (say 12% vs. 18% (if you're lucky) for unsecured), but delinquencies seem to be unheard of when someone has skin in the game.

Are P2P sites with asset security a thing in the US? We'll be able to shelter some of our P2P money from tax this year, a very exciting development for the UK

[cmonkey]

They are unsecured so you lose pretty much everything if one charges off. I have had 2 that recovered about 4-5 of the 22-24 I lost originally.

I don't think the two big player (LC and Prosper) offer secured loans at this poing but it wouldn't surprise me if they do down the road. I think LC is widely believed to be introducing official auto loans this year so that might be a form of secured.

I think P2P investing is really a 'glass half empty/glass half full' type of thing and your view of it really depends on what your perspective is. Math/stats don't lie, its a great investment. However if you focus on the small numbers that charge off that's all you see. Focus on the people that make their payments.

[Dragline]

They are not secured -- at least not the two major players, Lending Club and Prosper. But there are more variations on p2p being developed all the time.

You need to go into these things eyes-wide-open and expect defaults, especially as the portfolio ages. And you can't really judge a portfolio until its 18-24 months old and contains a high number of loans (say 100+). A 1-2% loss is about the best you would do, even with the highest rated borrowers. Think of yourself as a bank running a credit card business.

12% is a fantastic return when you compare against alternatives. What platform do you use that offers secured investments?

[Ydobon]

There are a few in the UK. I use Saving Stream (property bridging finance etc.) and Money Thing (an odd mix of loans including car and mortgage finance and managed portfolios of what are basically collections of pawn shop tat). We also have a few providers with 'provision funds' (basically a self insurance buffer against defaults).

Some of the pawn shop tat loans are quite depressing - people being lent £15 against old mobile phones etc.

Property features quite heavily, but then again I'm already massively overexposed to that through my mortgage.

[inchicago]

I would expect those returns to be fairly stable at this point if you have over 100 notes.

But zero credit inquiries in the last six months is generally the most important criteria. I think its because if there is one, chances are the debtor applied for a loan somewhere else and was rejected.

I do have over 150 notes at this point and will continue watching out for this. My 9% is my best return on anything lately so I'm not really complaining.

[jennypenny]

How much do these loans (and write-offs) complicate tax returns? Mine are already painful. Is the trouble is worth the ROI?

[cmonkey]

Dragline posted a bit in my journal a while back. From what it sounds I'd say it's worth the ROI but I haven't had to deal with charge off until this year.

[jennypenny]

Dragline posted a bit in my journal a while back. From what it sounds I'd say it's worth the ROI but I haven't had to deal with charge off until this year.

Thanks cmonkey. I must have missed that discussion the first time around.

[jacob]

How much do these loans (and write-offs) complicate tax returns? Mine are already painful. Is the trouble is worth the ROI?

It seems that LC investors are doing quite a bit better than Prosper investors did during the Wild West years. Maybe it's a recession timing issue. Maybe it's because LC avoided the worst issues of Prosper.

If you have very few write-offs, your pain might not be large---especially not if you do your own taxes. If you pay someone else, know that they charge per form and write-offs generate a ton of forms!

Back then, charge-offs made tax returns supremely painful for me. My ROI was about 0% but that was around 2008.

Here's what I did ...
http://earlyretirementextreme.com/prosp ... tices.html
(That page got quite a bit of google search traffic back then.)

So me being well-diversified and having some 10% of 200 $50-loans defaulting, that's 20 separate statements+documentation to be filed. My tax return was 1/2" thick for a few years.

For junk-lending, I find it easier just to buy an ETF that specializes in such things. I figure that I'll forego some percentage point in the up-years in return for not dealing directly with the aftermath in the next recession.

[cmonkey]

I decided to plow through our taxes tonight and so I can update my experience about LC taxes. It is exactly as Dragline wrote out. However, if you use TurboTax they import everything for you. Everything! Right down to the ST and LT entries on Schedule D. It also imported all info for form 8949 and put descriptions in such as 'LC Corp Note ######' and included the date it was invested in and the date charged off. Very detailed, they did their APIs right.

So if you use TurboTax, its as simple as a few button clicks and entering your LC account information. It took 30 seconds.

[Dragline]

Yeah, I think that's a new feature they rolled out this year. I had not seen it before.

[jacob]

Damn! That could have saved me a lot of grief between years 2008 and 2011 or so.

[cmonkey]

Damn! That could have saved me a lot of grief between years 2008 and 2011 or so.

Well there ya go, no more barriers to jumping back in! Just 50-60K and add another notch to the bedpost of your expense covering income streams.