Author Topic: Lending Club - Time to panic?  (Read 38314 times)

FLBiker

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Re: Lending Club - Time to panic?
« Reply #200 on: August 11, 2017, 11:28:34 AM »
I did a small experiment with Lending Club (just $2K) starting in Sept. 2012.  I had a good run for several years (8-10% return on D-G loans) and I started pulling the money out about a year ago.  I initially tried selling my loans, but I got no bites so I've just been transferring out cash every two weeks as they pay off.  Once the return started to dip into the 5-6% range, I felt like it wasn't worth it, especially since I was hand-selecting the loans.  I've still got over $900 in loans out there, and I'll just keep transferring out the cash.

chasesfish

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Re: Lending Club - Time to panic?
« Reply #201 on: August 13, 2017, 05:35:49 AM »
It was interesting this week, I got to hear from a respected regional bank CEO when asked about online lenders:

"Lending money is easy, anyone can do it.  What they haven't figured out is how to collect money.  That's the expensive infrastructure to build and they're decades behind the banks"

I thought that was interesting, he complimented their origination platforms, but the problem in banking/lending is nothing is proprietary/patentable and its heavily regulated.   If one institution figures out a new way to acquire customers, everyone else quickly follows and returns get back to the median.  I think we've seen that with Lending Club and the consumer banks like Capital One and Citi now offering unsecured loans.
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Capyy

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Re: Lending Club - Time to panic?
« Reply #202 on: August 19, 2017, 08:07:11 PM »
What are you guys using to liquidate? How do I do it? Would rather pull the cash out than wait for the loans to expire.

chasesfish

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Re: Lending Club - Time to panic?
« Reply #203 on: August 21, 2017, 05:51:59 AM »
I'm using their trading platform and listing all my notes at a 1% premium, which is enough to cover the sale fee and break-even.   I list all notes over $10 every week or two and a chunk sell.  There's more sellers than buyers, so its tough to liquidate the entire portfolio.  I figure the lower dollar ones are paying me more principal back and less of an issue.

Not easy to get your money out without a big haircut, just keep plugging away at it.
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chasesfish

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Re: Lending Club - Time to panic?
« Reply #204 on: September 03, 2017, 04:17:56 PM »
August - Net losses of $95.   8 straight months of losses.

Interesting, Lending Club still only wants to report annualized returns since I opened the account.  I emailed them and ask if lending club can provide performance statistics like any other mutual fund/brokerage account does:  YTD, 1, 3, and 5 year returns.  Here was their response:


"Good afternoon <name ommitted>

Thank you for reaching out to us.
 
We currently do not have the option to display returns for specific increments in time. Our Net Annualized Return calculation is only able to determine the rate you have received from the time you started investing until the present day.

However, we appreciate you taking the time to provide us with your suggestions. Your feedback is valuable, and some of the best updates to our site are largely based on the suggestions that we received from our members."

You can't tell me a publicly traded silicon valley fintech companies doesn't have the ability to do this.  They're intentionally keeping that from the investors. 

If I didn't think their origination platform had some value, I'd short this stock to zero.  I think some bank will eventually buy them for the portfolio they can't seem to collect and can't value that.
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Capyy

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Re: Lending Club - Time to panic?
« Reply #205 on: September 03, 2017, 05:01:43 PM »
What I am most confused by is the low defaults for years as the economy was picking back up. Now, the economy is really strong and defaults are through the roof.  It makes me think someone has systemically taken advantage and borrowed money fraudulently. The company sure isn't alleviating any fears. It wouldn't surprise me to see they've been sold shortly.

Slow2FIRE

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Re: Lending Club - Time to panic?
« Reply #206 on: September 03, 2017, 05:13:40 PM »
What I am most confused by is the low defaults for years as the economy was picking back up. Now, the economy is really strong and defaults are through the roof.  It makes me think someone has systemically taken advantage and borrowed money fraudulently. The company sure isn't alleviating any fears. It wouldn't surprise me to see they've been sold shortly.

Defaults are rising (slightly) for many loans over the last 18 months.  Sub-prime auto and revolving debt like credit cards.  I don't know if installment loans are facing the same thing, but we are back to a new "peak" level of debt and our savings rate (as a nation) in the USA has been dropping for several years now.  The debt mix is slightly different now (more non-dischargeable debt such as student loans and less mortgage debt, not sure if this means unsecured debt such as online peer to peer and personal loans are put a greater disadvantage in a bankruptcy due to this).

My personal take is to continue to slowly back away from debt instruments for investing at this time unless they are from the federal US govt.

chasesfish

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Re: Lending Club - Time to panic?
« Reply #207 on: September 03, 2017, 06:39:53 PM »
Do you have any sources on the default information?  Most of what I'm seeing in aggregate bank charge offs and classified loans are below historical averages.
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FireLane

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Re: Lending Club - Time to panic?
« Reply #208 on: September 03, 2017, 07:34:26 PM »
I keep track of my annual return, as reported by Lending Club, and it's been steadily decreasing for months. I'm at 4.68% now and it seems to be dropping by about 0.2% per month.

In an economic downturn, I'd understand, but it makes me uneasy that the default rate is ticking upwards even when nothing obvious is happening to cause it in the wider economy. If this continues much longer, I'll probably turn off automatic reinvestment, let my LC account drain to zero and put the repayments into Vanguard. This is making me think that LC has either loosened its standards or hasn't figured out how to properly calculate how risky its loans are.

Slow2FIRE

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Re: Lending Club - Time to panic?
« Reply #209 on: September 03, 2017, 11:02:05 PM »
Do you have any sources on the default information?  Most of what I'm seeing in aggregate bank charge offs and classified loans are below historical averages.

Mostly in the Wall Street Journal.  I don't have an online sub though and they have a paywall (even if you are a paper subscriber) so I'll try to scrape together some evidence:

https://www.benzinga.com/analyst-ratings/analyst-color/17/07/9784480/different-market-same-story-subprime-auto-loan-defaults-

Quote
This week, 90-day auto loan delinquency rates eclipsed 3.8 percent, their highest levels since the financial crisis, putting auto loan investors and shareholders of subprime auto lenders at risk.

Contrasted with CNBC:
https://www.cnbc.com/2017/06/12/auto-loan-delinquencies-rise-as-drivers-splurge-on-pricey-cars.html
Quote
Still, there is little reason for alarm, some experts say.

For starters, overall delinquency rates — including credit cards, auto loans and mortgages — are at very low levels by historical standards. "Even with recent increases, auto delinquencies have remained remarkably low for the last five years amid booming car sales," James Chessen, ABA's chief economist, said in a statement.

I take this to mean that in aggregate the overall loan delinquency isn't so bad [historically] and that we've had tons of auto sales so maybe the rising auto delinquencies aren't an issue.  However, I'd say that the boom in auto sales is intrinsically linked to the delinquency rate for this type of loan as companies allow people to rollover more and more debt to continue buying the latest vehicle in order to support those "booming car sales".

Now, the aggregate default rate is low, because the majority of loans are mortgages and student loans -> so the rising delinquency rates on debt that can be charged off can be hidden in the noise by the debt that can't be discharged (student loans) and the debt people are loathe to fail to repay [again]: mortgage debt. 

Forbes has this to say:

Quote
...According to Wells Fargo analyst John McElravey, borrowers are making fewer payments on loans bundled into bonds backed by sub-prime loans in 2015-16, compared with 2013 and 2014 bonds. Borrowers are also defaulting on a “record number” of auto debt, said McElravey.
Why the slower rate of pay down? One explanation is that sub-prime lenders are buying more car than they can afford and financing it over a longer period of time.

...The average loan amount for a new vehicle reached a record $30,621 in the fourth quarter of 2016, a 3.6 percent hike year over year. For used vehicles, the average loan escalated 2.5 percent to $19,329. The $11,292 gap between the average loan amount on a new and pre-owned vehicle is the widest in Experian’s records. 

...On the pre-owned side, loans lasting 73 to 84 months made up 18-percent of share, up from 16-percent in 2015. And both 30-day and 60-day delinquencies are on the rise.

...There was a greater number of bankruptcies in he first quarter than in than in the comparable quarter in 2009 when the economic meltdown was in full swing. And the U.S. is facing a problem with millions of student-loan borrowers over-extended and paying loans down over 20 years or more.

New York Fed data on debt composition is also informative:

https://www.newyorkfed.org/microeconomics/hhdc.html
« Last Edit: September 03, 2017, 11:04:10 PM by Slow2FIRE »

chasesfish

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Re: Lending Club - Time to panic?
« Reply #210 on: September 04, 2017, 06:50:27 AM »
Thanks for posting that.  It'll be interesting to see if that's isolated to auto lending or if it seeps into the economy.  I'm in the business side of banking and don't pay much attention to auto lending.  Also haven't had an auto loan in over 10 years

My guess is the delinquencies are driven by lenders not following Auto Lending 101 - Used cars no more than 3 years, new cars no more than 5 years.  If your loan terms are longer, you run the risk of your loan balance being more than the collateral is worth.  The only other thing I'm aware of is GM and a few of the other player having to really reduce the rates on "subprime" loans because of how expensive used cars got over the last few years.  Minimal production from 2009-2011 shortened the supply of used cars coming off lease.  That's probably calming by now.
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Capyy

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Re: Lending Club - Time to panic?
« Reply #211 on: September 04, 2017, 08:41:57 AM »
"LendingClub Doesn't Verify Income Data For 66% Of Transactions"

https://finance.yahoo.com/news/lendingclub-doesnt-verify-income-data-202142929.html

Slow2FIRE

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Re: Lending Club - Time to panic?
« Reply #212 on: September 04, 2017, 09:39:10 AM »
Yes, I find it difficult to immediately see how the auto-loan defaults poison the whole economy in a substantial way (such as how the mortgage backed securities did).  I have some of my own personal "feelings" on it -> but I don't want to clutter this thread too much with more off-topic discussion.

Just wanted people to be aware that if more individuals are letting car payments slip this year compared to last year and last year compared to the year before last, they may be more likely to fail to pay to some "nameless rich investor".  Perhaps the peer-to-peer model also needed the ability to let the borrowers know their lenders a bit more so they have more empathy for paying back the lenders as they may not be "multi-millionaires" but just regular people.

Planet Money on NPR touched on this a bit right after the Great Recession when they bought toxic assets and interviewed some of the homeowners who were not paying their mortgages that were inside of the toxic MBS that they had purchased a portion of.  The people said, if they had met the reporters earlier, they would have been more inclined to pay but they thought it was just some fat-cats on wall street that had screwed the economy so they weren't paying to screw the fat-cats right back.