Post: #1

An update on Lending Club -

I've got about 15k in the program. So far, I have no defaults. Anyone looking into it should understand that they severely misrepresent defaults, and thus overall returns, on the front pages of their site.

The company is growing at a fast pace; at any given time, the majority of loans used for their calculations are new loans. In general, their loans tend to go bad in the second year or later, so inherently default rates are always going to be understated when calculated against all loans, active and inactive.

However, they do provide the raw data on their site, here:

https://www.lendingclub.com/info/download-data.action

I set up a database for myself w/ this data; limiting a query to just completed loans, the overall default rate is about 35% (i.e. when considering only default & fully paid loans). "A" rated loans default at a rate of around 8%, "B" at 18%, etc. The risk is severely underestimated. Having a loan default in the 3rd year, when most of the principal is paid, is a hell of a lot better than defaulting immediately - I haven't drilled down to see what percentage of principal is paid, to figure out actual returns. I do know, however, that LC is underestimating risk, and overestimating ROI, by a pretty wide margin.

Another thing that should be pointed out is that your interest is going to be taxed at your marginal rates; IMO "A" grade loans, considering that fact, are not worth it compared to investing in something like verizon or at&t, which pay solid ~5% dividends at favorable tax rates.

Finally, for the p2p loan investor, you should realize that as far as you're concerned, the loans are unsecured; once loans go bad, there's nothing you can do to recoup.

Post: #2

Thanks for the tips. I know WestCoast was big on this site, so I wonder whether his take has changed.

Post: #3

I have 2 defaults on 110 notes. I am a more risky investor though. I have alot of C's and D rated loans.

Post: #4

(09-07-2012 12:41 PM)MikeCF Wrote:  Thanks for the tips. I know WestCoast was big on this site, so I wonder whether his take has changed.

My take is still the same and it should remain as a piece of a diversified portfolio because you're acting as a lender instead of investing in say a bank. His post is accurate and I mentioned previously that the numbers were "wall streeted out" ie, inflated. I'd recommend buying a ton of notes in $25 increments. Ex: @ Texas made, I would reinvest my interest received say "$50" monthly and ALWAYS buy 2 notes instead of 1. If I got $250 I would buy 10 notes etc. I do not recommend trying to read all those filings, what you are doing on the site is "becoming a bank". Banks make $$$ by borrowing short and lending long, you want to diversify out long.

Lending club is a hedge against two things, one change in dividend taxes (if they change it to be the same, you're in a safer asset). And two, interest rates, unlike a regular bond with call provisions it's a consumer note.

You're not getting rich with lending club but you're not getting raped by owning 1.6% bond yields (also taxed @ same rate as lending club). Part of investing is being able to take risk and secondly asking "what is my other options". In terms of Interest its not bad.

If you want high beta go buy medical stocks!

You should have tiers of cash

"unwilling to lose" = checking account
"okay sitting on it" = bonds and divys
"long-term" = equities
"Stripper and blow" = medical stocks and high beta equities

I recommend tiers for everyone because even millionaires can go broke sitting in cash, easy to spend when you see the 0's there. So by forcing yourself with a slight nudge to lock up you're doing yourself a psychological favor. The second extreme is idiots trying to get 100% returns... All the time... You'll be burned in both cases.

Post: #5

Any of you guys invest in private mortgages ? Equity loans based on the value of a house ? I do 2nd mortgages and I can achieve rates well above 40% sometimes up to 80% once you factor in the fees.

The great thing about doing these loans is in Canada they are RRSP and TFSA eligible. The TFSA account is awesome. I take the fees I earn on loans and I blow the money on whatever I want. It is a good source of my travel fund every year. Then I just roll the interest over I receive and keep building the nest egg in the TFSA.

Post: #6

Oh and the of course the best thing is the principle is pretty much guaranteed. The laws in this country are such that you have just as much power as a bank to forclose on the property. So if someone defaults you just take the house and pay off the 1st position( usually a bank ) pay yourself off plus the interest you are owed and any fees and then whatever is left over goes back to the original home owner. In several years of doing this I have only had to foreclose twice. When you are a smaller lender the process is way quicker than if you were a big bank. So your money isn't in limbo very long. 2 months usually at most.

Post: #7

(09-07-2012 02:03 PM)WestCoast Wrote:  My take is still the same and it should remain as a piece of a diversified portfolio because you're acting as a lender instead of investing in say a bank. His post is accurate and I mentioned previously that the numbers were "wall streeted out" ie, inflated. I'd recommend buying a ton of notes in $25 increments.

I'm not pulling out of lending club. With the defaults I'd guess things will settle at around 4-6%, minus (unfavorable) taxes. WC is right that that it's a diversification tool, and in that context you need to be buying $25 notes and spreading your investment out in as many notes as possible, in order to get as close to that 15% (or whatever your target) default rate as possible.

I am signed up to trade notes on LC as well, but I haven't started doing it yet. A year down the line, a possible strategy would be to sell off existing notes, to minimize defaults (assumption: notes in 2nd/3rd year more likely to default). The idea would be to lock in 10%+ gains for a year, then sell the note off, and start all over again.

Post: #8

(09-07-2012 02:45 PM)BIGINJAPAN Wrote:  Oh and the of course the best thing is the principle is pretty much guaranteed. The laws in this country are such that you have just as much power as a bank to forclose on the property. So if someone defaults you just take the house and pay off the 1st position( usually a bank ) pay yourself off plus the interest you are owed and any fees and then whatever is left over goes back to the original home owner. In several years of doing this I have only had to foreclose twice. When you are a smaller lender the process is way quicker than if you were a big bank. So your money isn't in limbo very long. 2 months usually at most.

Can you do a data sheet on this?

Post: #9

(09-07-2012 04:20 PM)portofmanteau Wrote:  

(09-07-2012 02:45 PM)BIGINJAPAN Wrote:  Oh and the of course the best thing is the principle is pretty much guaranteed. The laws in this country are such that you have just as much power as a bank to forclose on the property. So if someone defaults you just take the house and pay off the 1st position( usually a bank ) pay yourself off plus the interest you are owed and any fees and then whatever is left over goes back to the original home owner. In several years of doing this I have only had to foreclose twice. When you are a smaller lender the process is way quicker than if you were a big bank. So your money isn't in limbo very long. 2 months usually at most.

Sure. I will do a quick search around to make sure there isn't something similar to it. Also for the record, I fully expect our criminal government to rescind the TFSA's in the coming years. They will blame it on guys like me making huge tax free gains. But in reality the whole thing was brought in during the financial crisis to recapitlize our banks with fresh deposits. In another couple years after running deficits (going on 4 years now ) they will be looking to tax anything and everything. Think carbon taxes and Ipod taxes, both suggested in past election cycles. So keep that in mind if you do have a TFSA. That is why I spend as much of the profit as possible. They will tax it eventually

Can you do a data sheet on this?

Post: #10

(09-07-2012 04:20 PM)portofmanteau Wrote:  

(09-07-2012 02:45 PM)BIGINJAPAN Wrote:  Oh and the of course the best thing is the principle is pretty much guaranteed. The laws in this country are such that you have just as much power as a bank to forclose on the property. So if someone defaults you just take the house and pay off the 1st position( usually a bank ) pay yourself off plus the interest you are owed and any fees and then whatever is left over goes back to the original home owner. In several years of doing this I have only had to foreclose twice. When you are a smaller lender the process is way quicker than if you were a big bank. So your money isn't in limbo very long. 2 months usually at most.

Can you do a data sheet on this?

Posted data sheet under new thread

Post: #11

How is lendingclub for everyone? I noticed Prime went from 25k to 10k to 5k to 4k to now 2.5k. Any reason why they are making such a push to have people switch to prime account?

Post: #12

Anyone still in this? I'm waiting to see my 2014 return to see if its worth investing $200 a month

Post: #13

Intro
I wanted to revive this thread - I'm very interested in the peer-to-peer lending space, but for whatever reason I haven't looked at it seriously. I'm looking at it now seriously. I just opened my account, but have not yet funded.

After reviewing some other threads and blog posts, I think I'm going to start off with about $1000 just to learn the system and figure out how everything works. It seems that they have an auto filter program, but Im going to be hand-picking my notes for now just to figure out how all of this works.

I see that the site lists fundamentals for your investments: the FICO score, debt to income ratio, the reported income, etc. Lending Club has a proprietary formula to divide loans based on risk and they letter them A-G. They further stratify the loans into subgrades 1-5. The letter/number/length of loan combo determines the interest rate paid.

I also see that LC charges 1% of the loan amount. It is a bit annoying that I am being charged, rather than the borrower, but whatever.

According to the stats, about 1% of investors with 100 notes have lost money since inception but no investors with >800 notes have. 87% of people with 100 notes made more than 6% and 93+% of people with more than 800 notes made more than 6% returns.

Heres where you can look at the stats in further detail:
https://www.lendingclub.com/info/statist...nce.action

Strategy
I'm going to primarily be looking at C and D notes, with some B & E notes here and there. I'm initially had the thought that I should avoid debt consolidation and CC pay-offs, and rather focus on vacations / rec activities / business - my thinking was that people who need debt consolidation had bad habbits which got them into CC debt in the first place - however, I'm seeing a lot of this debt could be accumulated to outside issues like medical problems etc, so I guess I'm just going to invest in a bit of everything to diversify as much as I can for now. I may change this strategy later on.

RE diversification, I like this comment:
"The minimum amount allowed to invest in a loan is $25 which is generally all I ever invest in a single loan. So I don’t fret for hours over whether I’m making a good pick. One last lesson learned… it’s all in the numbers for me. The borrowers’ detailed descriptions and stories of why they’re borrowing the money are interesting at best, but not a research tool for me. I can’t remember last time I read one and let it affect my decision to lend. I even remember reading somewhere that there is actually an inverse relationship of verbose-descriptions to likelihood of a loan paying off. In other words, the wordier the description the more likely the person won’t pay their loan in full. That’s hearsay, so don’t hold me to that one."

For those with LC experience - What are your returns like? Do you have any tips for me?

Post: #14

Also, if anyone knows of other P2P lending sites that they recommend over LC - let me know. I'm also interested in exploring the option of funding my account by CC.

Also, I am now reading that there are referral codes to get $100 for signup after meeting a min spend req. I should have done my research before I signed up - now they have my SS so I'm not sure if I can just try creating a new account.

Post: #15

(04-17-2015 09:09 PM)se7en Wrote:  For those with LC experience - What are your returns like? Do you have any tips for me?

I'm still in. It can be difficult keeping your portfolio filled, even with automated investing, if you are picky about your notes.

Unadjusted annualized return is at 9.23% after 3 years, adjusted (where LC makes predictions of your default rate, etc. based on your portfolio's delinquent notes) 8.37%. The unadjusted return only discounts "charged off" notes.

I have 1200 notes, no larger than $25 each, and mostly run via automated investing based on the following filter:

No delinquencies in the past 2 years

Max loan amount: $25k

Max DTI: 20%

Home ownership: Mortgage/own

36 month loans only

Minimum length of employment: 4 years

Location: All except California

Loan purchase: Refinance, Consolidate, Wedding, Car, Major Purchase

Earliest Credit Line: 10 years or more

***


I'm only investing in C,D,E,F,G loans, heavily weighted toward D. These filters I originally set up after looking at LC's stats to try to minimize defaults - California had a higher default rate than any other state, so did the other loan categories (Consolidate/Refinance are best), and I restrict to people with home ownership and long credit histories as these people seemed least likely to simply fuck off.

I "browse notes" once a week and add a few notes through my filter to help automated investing out. Notes are now added continuously - it used to be at specific times on specific days per week, and I had a python script set up with my filters to buy notes at 20 second intervals w/in 30 minutes of those specific times, but LC wrote me to ask me to stop, and improved their automated investing performance (it still isn't great). That was mid-2014 I believe.

Interest income counts toward your general income, so this isn't a very tax-efficient way to make money, and it also isn't that liquid - selling all your notes you'll take a haircut (around 1% I'd guess), and it'll take a while, or take (3 years) to let all the notes cycle through. But it's an experiment and it looks like it'll be around for a while, based on the Citi partnership. I didn't buy in the IPO.

Post: #16

Are these loans unsecured? What happens to the borrower if he defaults? Does his credit score drop? Does anybody try to collect the debt?

Post: #17

Yields have been dropping across LC and prosper. Prosper had better spec yields (C,D and E range). I never buy A or F/H.

I was routinely getting 16-18% interest on debt re-payment based notes (saving them compared to 20-28% for CC).

I would buy small and medium sized notes with people w/high salaries (no self-employments) and debt-income ratio of no more than 30% for renters and 40% for homeowners (w/80k+ salaries). I assume that homeowners won't default as easy because its so easy to do a HELOC and consolidate debt. I also try to stay away from CA and NY because fixed cost of living (rent, food care, parking, tickets, taxes) is so high compared to adjusted relative income in other states.

I am about 9 months in and am about 14% interest after 1 note defaulted (out of 55). I had 5 principal paydowns (so my selection process seems decent).

What I have noticed is that yields are dropping 3-4% across the board especially for the high-yield stuff. I'd stick to the 3 yr loans, because 5 year loans are in my opinion more prone for default. 3 year loans have momentum. They pay off 1.25 years and say wow Im 40% done. 1.25 years into a 5 year loan is 25%. Its psychologically way different

Post: #18

While peer to peer lending is a great idea, I would be careful using Lending Club to diversify my portfolio. In good times, equities (e.g. S&P500) provide similar or better returns and are much easier to manage - just buy one index fund and hold.

In bad times, what are these peer to peer borrowers going to do? I think a lot more of them will default. Currently, the expected return is around 8% if I remember correctly (e.g. 13% paid by borrowers - 1% taken by Lending Club - 4% are expected to default). When a new recession hits, the increased defaults could make the expected return negative.

This is not to say one shouldn't diversify, because the S&P could drop 30% or more if the recession is severe, but I don't know if peer to peer lending is the best way to diversify. The people who borrow via Lending Club seem to be the current equivalent of subprime borrowers in the mid 2000s. They are doing ok and mostly paying on time when times are good and unemployment is low, but if banks aren't lending them money on good terms even now it may be for a reason.

Post: #19

(04-17-2015 09:11 PM)se7en Wrote:  Also, if anyone knows of other P2P lending sites that they recommend over LC - let me know.

Another popular site is: https://www.prosper.com/

I can't say I personally recommend LC or Prosper because I live in Texas; "lending" money to people through these sources is not aloud for whatever reason.

Post: #20

I just put a grand into lending club a few weeks ago to play around. I just had my first loan payment come due on the 21st and they paid, I made 21 cents lol.

I really havn't had a chance to really dig into it. I hear some people claiming they are making 14% to 18%.

Post: #21

Just a heads up, you can now use Lending Club in Texas.

Here's the email I received:

"Welcome Texas! What's next?
Dear XXXXX,

We are thrilled to welcome investors in Texas to the Lending Club platform."

Post: #22

Now Kansas needs to be added.

Post: #23

Has anyone tried borrowing from Lending Club? If so, how would you compare it to conventional loan sources?

Post: #24

Just a bump. Wondering how some of you guys are still doing with it.

Time to start gathering a bit more passive income.

Post: #25

Lending club legal in Kansas, just got the e-mail.