Author Topic: Lending Club - Time to panic?  (Read 41388 times)

chesebert

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Re: Lending Club - Time to panic?
« Reply #50 on: May 23, 2016, 10:22:12 AM »
For the folks doing LC loans, can someone tell me why you decided to investment in LC loans and not junk bonds. Presumably junk bonds have good yield, greater transparency and offer the protection of the securities laws and there is a bond trustee to enforce the terms of the bond. What makes LC loans superior to well diversified and diligenced portfolio of junk bonds?

On the surface, these asset classes may seem similar because they're both high risk, high yield fixed income instruments.  However, there's one huge difference - LC note interest rates aren't tied to any underlying rate curve.  In the middle of the credit crisis when everything was going to shit in the bond markets, LC rates barely quivered.

Also, LC notes are higher risk as you note, but have higher return as well, and the markets are not efficient so there is plenty of opportunity.  I've been getting ~12% returns net of defaults every year since 2008 in LC by creating my own credit risk model that appears to be working.

the LC notes are not marked to market, should be subject to liquidity discount and are not pegged to underlying interest rate. Given that we are in a low interest environment, any upward movement on market base interest rate should in theory decrease the market value of your LC notes - but you won't see that because you are only shown the historical book value of the notes.

Your 12% return does not take into account any liquidity discount when you sell the notes and your notes are not marked to market, which if they were could very well reduce your 12% return.

TheStachery

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Re: Lending Club - Time to panic?
« Reply #51 on: May 23, 2016, 11:51:20 AM »
Why in the world did anyone think putting their money into Lending Club was a good way to invest?  I'm not particularly risk-averse, but good lord!  How can people not see how risky this is?  "Regular banks won't lend money to these people, so I will!"  WTF?

Who says regular banks won't lend money to them?  There are people on LC with great credit.  Are you saying this because the loans are unsecured loans?   Most good intentioned people will pay back these loans, because if they do not, it will hit there credit score.  There is risk, but there is risk with many investments, the more risk, the great the return.

TheStachery

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Re: Lending Club - Time to panic?
« Reply #52 on: May 23, 2016, 03:40:22 PM »
I just saw that the LC referral bonus is now $75.  I think it was only $25.


chasesfish

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Re: Lending Club - Time to panic?
« Reply #53 on: June 04, 2016, 07:01:37 AM »
I just got an offer that's $100 for a new $10,000 deposited.
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Vagabond76

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Re: Lending Club - Time to panic?
« Reply #54 on: June 04, 2016, 07:29:36 AM »
I just got an offer that's $100 for a new $10,000 deposited.

Where is that bonus money coming from, ponzi scheme?  This ship is going down like a torpedoed submarine.

Fudge102

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Re: Lending Club - Time to panic?
« Reply #55 on: June 04, 2016, 06:06:40 PM »
I just got an offer that's $100 for a new $10,000 deposited.

Where is that bonus money coming from, ponzi scheme?  This ship is going down like a torpedoed submarine.

That's a horrible statement.  How many banks do the same thing every time you open a card, an account, or refer a friend?  They are trying to incentivize people to start reinvesting.  Their product is based off of people investing.  Many have held or sold.  It's about getting money back in.

Paul der Krake

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Re: Lending Club - Time to panic?
« Reply #56 on: June 04, 2016, 06:40:17 PM »
I just got an offer that's $100 for a new $10,000 deposited.

Where is that bonus money coming from, ponzi scheme?  This ship is going down like a torpedoed submarine.

That's a horrible statement.  How many banks do the same thing every time you open a card, an account, or refer a friend?  They are trying to incentivize people to start reinvesting.  Their product is based off of people investing.  Many have held or sold.  It's about getting money back in.
Banks that offer card bonuses have hugely profitable consumer lending operations. LC is operating at a moderate loss.

Vagabond76

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Re: Lending Club - Time to panic?
« Reply #57 on: June 04, 2016, 10:06:40 PM »
With several big boys no longer fronting money, LC is desperate for cash to lend out. If no cash comes in than there are no new loans or revenue, and LC goes under.

Stache-O-Lantern

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Re: Lending Club - Time to panic?
« Reply #58 on: June 05, 2016, 09:38:25 AM »
For the folks doing LC loans, can someone tell me why you decided to investment in LC loans and not junk bonds. Presumably junk bonds have good yield, greater transparency and offer the protection of the securities laws and there is a bond trustee to enforce the terms of the bond. What makes LC loans superior to well diversified and diligenced portfolio of junk bonds?

On the surface, these asset classes may seem similar because they're both high risk, high yield fixed income instruments.  However, there's one huge difference - LC note interest rates aren't tied to any underlying rate curve.  In the middle of the credit crisis when everything was going to shit in the bond markets, LC rates barely quivered.

Also, LC notes are higher risk as you note, but have higher return as well, and the markets are not efficient so there is plenty of opportunity.  I've been getting ~12% returns net of defaults every year since 2008 in LC by creating my own credit risk model that appears to be working.

the LC notes are not marked to market, should be subject to liquidity discount and are not pegged to underlying interest rate. Given that we are in a low interest environment, any upward movement on market base interest rate should in theory decrease the market value of your LC notes - but you won't see that because you are only shown the historical book value of the notes.

Your 12% return does not take into account any liquidity discount when you sell the notes and your notes are not marked to market, which if they were could very well reduce your 12% return.

My LC loan portfolio has an aggregate interest rate of roughly 15%.  The fed increasing interest rates by a percent or two over the next couple years, if they even did that, just doesn't affect it much.  LC notes are of either 3 or 5 yr durations, so they are not as sensitive to interest rates as longer term loans.  True, the secondary loan market for performing loans is particularly thin.  Who wants to sell a performing loan earning 15% interest!  The mark to market price doesn't matter that much for a performing loan that the holder intends to hold to maturity, as presumably most LC investors do.  If the loan performs, they earn the interest rate, regardless of what they could have sold it for on the secondary market.

My 12.5% return so far takes into account all loans that are non-performing because i have sold all of those except 1 on the secondary market.  That 1 loan declared bankruptcy, which prevents its sale on the secondary market under the platform rules.  That 1 loan is counted as a total loss in the calculation of that return.

Stache-O-Lantern

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Re: Lending Club - Time to panic?
« Reply #59 on: June 05, 2016, 09:50:06 AM »
With several big boys no longer fronting money, LC is desperate for cash to lend out. If no cash comes in than there are no new loans or revenue, and LC goes under.

Yeah, maybe.  But things usually don't work out that poorly.  I look at the current bad news for LC as practice for the emotional discipline  of staying in the market when there is a big drop.  You can't panic at every bump in the road.  I added a small amount to my LC account last week.  There's still performing loans listed on the secondary market with good payment histories, at better than usual discounts.

The secondary market is still reverting to normal, the week after the bad news there were 571,000 listed.  A couple days ago there were 466,000 listed.  Normal before all the bad news was about 300,000.

chesebert

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Re: Lending Club - Time to panic?
« Reply #60 on: June 05, 2016, 10:21:20 AM »
With several big boys no longer fronting money, LC is desperate for cash to lend out. If no cash comes in than there are no new loans or revenue, and LC goes under.

Yeah, maybe.  But things usually don't work out that poorly.  I look at the current bad news for LC as practice for the emotional discipline  of staying in the market when there is a big drop.  You can't panic at every bump in the road.  I added a small amount to my LC account last week.  There's still performing loans listed on the secondary market with good payment histories, at better than usual discounts.

The secondary market is still reverting to normal, the week after the bad news there were 571,000 listed.  A couple days ago there were 466,000 listed.  Normal before all the bad news was about 300,000.
Notes might be okay assuming no bankruptcy risk but the stock is pure rubish for buy and hold. You might make some decent money trading volatility but that's for professionals.

Stache-O-Lantern

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Re: Lending Club - Time to panic?
« Reply #61 on: June 05, 2016, 11:26:44 AM »
With several big boys no longer fronting money, LC is desperate for cash to lend out. If no cash comes in than there are no new loans or revenue, and LC goes under.

Yeah, maybe.  But things usually don't work out that poorly.  I look at the current bad news for LC as practice for the emotional discipline  of staying in the market when there is a big drop.  You can't panic at every bump in the road.  I added a small amount to my LC account last week.  There's still performing loans listed on the secondary market with good payment histories, at better than usual discounts.

The secondary market is still reverting to normal, the week after the bad news there were 571,000 listed.  A couple days ago there were 466,000 listed.  Normal before all the bad news was about 300,000.
Notes might be okay assuming no bankruptcy risk but the stock is pure rubish for buy and hold. You might make some decent money trading volatility but that's for professionals.

Sure.  I guess I've derailed talking about the notes themselves.  I don't own any of the stock, and have no intent or desire to buy any.

FarmerPete

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Re: Lending Club - Time to panic?
« Reply #62 on: June 06, 2016, 06:58:14 AM »
I just got an offer that's $100 for a new $10,000 deposited.

Where is that bonus money coming from, ponzi scheme?  This ship is going down like a torpedoed submarine.

Chase regularly gives me $150 to put $1350 into a checking account for 6 months.  Is Chase a Ponzi Scheme?  Should we stay away from their stock/accounts?  Now I'm worried...If Chase is going to collapse in a ball of flame, who is safe?  Maybe I should take all my money out of my accounts and stuff it in my fireproof safe, conveniently hidden in my mattress that no one knows about...CRAP!!!!!

Vagabond76

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Re: Lending Club - Time to panic?
« Reply #63 on: June 06, 2016, 04:48:02 PM »
If Chase had this deal in the midst of the financial crisis when it was losing money and in freefall, then yes, Chase was a Ponzi scheme. The stock dropped over 95% and the company needed a bailout to keep from going under.

LC suffers from the same issues. If there aren't new borrowers AND investors, then the going concern collapses. Only this time, LC is too small for the government to care.  If people willingly walked away from their houses to avoid paying the mortgage, what do you expect them to do when LC is no longer around to service their loans? A number of them will tell the backup servicer to go fuck itself.

tonysemail

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Re: Lending Club - Time to panic?
« Reply #64 on: June 06, 2016, 06:00:07 PM »
ironically, the note from LC CEO made me feel more anxious, not less.

my main thought is that my FIRE plan is safe enough with stock market returns.
There's no need for me to go chasing yield and take on extra risk.

retiringearly

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Re: Lending Club - Time to panic?
« Reply #65 on: June 28, 2016, 07:16:46 AM »
Interesting article:
 https://techcrunch.com/2016/06/28/troubled-p2p-lender-lendingclub-names-scott-sanborn-ceo-cuts-179-jobs-amid-lower-loan-volume/

Yet more changes afoot for LendingClub — a peer-to-peer loans marketplace whose stock tanked May after its founder, CEO and chairman Renauld Laplanche resigned amid an accounting scandal. Ahead of an annual meeting being held later today, the company announced Scott Sanborn as its permanent CEO and Hans Morris as independent chairman of the board as it seeks to repair its image and business. But it also said that it would cut 179 jobs “in light of lower loan volumes in the second quarter and recognizing that fully restoring investor confidence may take time.”

Sanborn had been in the CEO role on an interim basis before today.

Currently, LendingClub’s stock is up nearly 6% in pre-market trading. But at $4.55, it is still hovering very close to its 52-week low.

The company also gave an update today about its Q2 business, and it’s not pretty. It expects loan originations in Q2 to be one-third lower compared to Q1 amid the fall in business after the scandal first came to light, or “since pausing in early May” in the company’s more euphemistic terms.

Among other charges, LendingClub said it also expects to report “investor incentives of roughly $9 million”; along with $15 million – $20 million of additional expenses “related to employee retention, employee severance, advisory relationships, board review, remediation and due diligence activities.”

Biggest of all will be a goodwill write-down of between $20 million and $40 million related to “slower growth expectations for Springstone,” the credit marketplace it acquired in 2014 for $140 million. All in all, these charges will total between $44 million and $69 million.

LendingClub was once the darling of the very crowded P2P lending space competing against the likes of Prosper, FundingCircle, Kabbage and many more with a model that disrupted the traditional banking world by connecting people looking to borrow money with those willing to lend it. Operating only in the U.S., LendingClub’s sweeteners were rates lower than institutional incumbents, and a process that appeared to work far more seamlessly and quickly. The company raised nearly $400 million when still in startup mode and then nearly $1 billion in its IPO at the end of 2014.

But it appears that what LendingClub was presenting to the world was indeed too good to be true: behind the scenes there were loan applications that were being altered, and the CEO had not disclosed his role in a fund that LendingClub was investing in essentially to provide loans on the platform. These problems led to both the Justice Department and the SEC investigating the company. But putting to one side LendingClub’s own internal mess, there is the fact that the Consumer Financial Protection Bureau is now accepting complaints about sites like Lending Club, which could lead to further fines and lawsuits.

All of this has led to a big decline in LendingClub confidence the amount of loans being made through the platform, and that is what LendingClub is now trying to tackle head-on to stave off the freefall.

Sanborn has been with the company since 2010, most recently as president and COO before stepping up to the CEO role. “We have demonstrated the power of the Lending Club marketplace model to generate attractive, risk adjusted returns to investors,” he said in a statement. “We are working closely with investors to rebuild confidence and are encouraged to see them returning to the platform.”

As part of today’s news, LendingClub also said that it had concluded its own internal review of some of the problems. It has adjusted the valuation of six private funds managed by LC Advisors (the fund that did not disclose Laplanche’s involvement originally), and it has “made several changes to improve governance of the funds, including establishing a majority independent Governing Board.” It also was investigating loans made in December 2009 to Laplance and three members of his family.

The company will be reconvenig a shareholder meeting later today and we’ll update this post as and when we learn more.

 

Malaysia41

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Re: Lending Club - Time to panic?
« Reply #66 on: July 06, 2016, 02:59:26 AM »
For what it's worth, here's a recap of my 2 year experience with LC as an investor in the lending platform.

This write up is independent of the shenanigans of the back end business. Long story short - while returns were reported as 12% annualized, between fees, write offs, recovery fees, collection fees, etc, I'm looking at an annualized return of 2-3%. I began divesting in earnest when I realized that LC had every incentive to write off loans and then recover them for an 18% fee.

Luckily, I sold most of my notes prior to the revelations about how the business was being managed. Now it's tough to sell more than one or two notes a day, even at steep discounts. But I've recovered more than I put in, and there's only about $1500 worth of notes left to sell.

It's back to Vanguard ETFs for this kid.
Last one to panic wins!

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retiringearly

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Re: Lending Club - Time to panic?
« Reply #67 on: July 06, 2016, 07:23:56 AM »
For what it's worth, here's a recap of my 2 year experience with LC as an investor in the lending platform.

This write up is independent of the shenanigans of the back end business. Long story short - while returns were reported as 12% annualized, between fees, write offs, recovery fees, collection fees, etc, I'm looking at an annualized return of 2-3%. I began divesting in earnest when I realized that LC had every incentive to write off loans and then recover them for an 18% fee.

Luckily, I sold most of my notes prior to the revelations about how the business was being managed. Now it's tough to sell more than one or two notes a day, even at steep discounts. But I've recovered more than I put in, and there's only about $1500 worth of notes left to sell.

It's back to Vanguard ETFs for this kid.
Thanks!  That was a great write up.  One question, those written off loans seem really high, were you investing in the riskiest batch of loans?

Malaysia41

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Re: Lending Club - Time to panic?
« Reply #68 on: July 06, 2016, 07:32:02 AM »
The majority were A,B and C grade. Here it is:

15% A, 30%B, 28%C, 14%D, 8%E, 4%F, 1%G. 

It seems heavier on C, D and E than I remembered - close to what they put as the 'platform mix'.  So, I didn't have the most conservative allocation going. But, it also wasn't terribly risky either - kind of mid to low-risk if I compare to their canned portfolios.
« Last Edit: July 06, 2016, 07:40:37 AM by Malaysia41 »
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Re: Lending Club - Time to panic?
« Reply #69 on: July 06, 2016, 09:20:53 AM »
Thanks again for the write up.  I never invested through Lending Tree, but it is a fascinating concept.

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Re: Lending Club - Time to panic?
« Reply #70 on: July 06, 2016, 12:20:34 PM »
For what it's worth, here's a recap of my 2 year experience with LC as an investor in the lending platform.

This write up is independent of the shenanigans of the back end business. Long story short - while returns were reported as 12% annualized, between fees, write offs, recovery fees, collection fees, etc, I'm looking at an annualized return of 2-3%. I began divesting in earnest when I realized that LC had every incentive to write off loans and then recover them for an 18% fee.

Luckily, I sold most of my notes prior to the revelations about how the business was being managed. Now it's tough to sell more than one or two notes a day, even at steep discounts. But I've recovered more than I put in, and there's only about $1500 worth of notes left to sell.

It's back to Vanguard ETFs for this kid.

Lending Club has absolutely no motivation to send more loans into charge-off status. They charge an upfront 5% origination fee to the borrowers and a 1% fee to investors. If this does not make up 100% of their profits, it is at least 95%. I doubt the 18% fee they charge for collections even breaks even for them. Collections is a very expensive process and there is no conspiracy. A run of bad notes is not something done because Lending Club wants to screw investors and collect their fee.
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tonysemail

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Re: Lending Club - Time to panic?
« Reply #71 on: July 06, 2016, 12:46:39 PM »
Lending Club has absolutely no motivation to send more loans into charge-off status. They charge an upfront 5% origination fee to the borrowers and a 1% fee to investors. If this does not make up 100% of their profits, it is at least 95%. I doubt the 18% fee they charge for collections even breaks even for them. Collections is a very expensive process and there is no conspiracy. A run of bad notes is not something done because Lending Club wants to screw investors and collect their fee.

agreed.  My first thought is the 18% fee comes from the 3rd party they contract with.
I read they outsource collections after a loan is 30 days past due.

zombiehunter

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Re: Lending Club - Time to panic?
« Reply #72 on: July 06, 2016, 02:31:38 PM »
I don't think that Lending Club is in any way a solid investment when done through a regular, taxable account.  The risk is high, the returns are capped at fixed rates without the chance to out-perform as in equities, and the taxes are terrible at regular income tax rates. 

The only way that it could be worthwhile is in a tax-advantaged account, where it can grow tax-free.  As a result, I'm also in the process of liquidating a taxable account, and set up an IRA earlier this spring ear marked as 2015.  I think it's also critical to lean towards the riskier notes and avoid the A-B-C grades.  Per Nickle Steam Roller, the most profitable class is E.  You have to seek out higher returns with riskier loans to offset the risk (which, ok, is supposed to be reflected in the class and interest rate, but it's not yet a 100% efficient system) as well as the fees (which are not adjusted based on risk/interest rate/Note class).  You pay a 1% service fee on every note, whether it's a 7% A-grade or a 25% G-grade note. 

In regards to the "sneaky" practices of Lending Club regarding their fees, I've noticed something apart from the above discussion on recovery fees:  Lending Club is supposed to charge a 1% servicing fee.  In fact, they charge more than this.  Consider the following example, picked randomly out of my pool of notes:

  • F-Grade, 24.5% interest rate note, on a loan of $35,000.  The borrower makes payments of $1017 per month, so far, all on time since issuance in May 2015 (so relatively young). 
  • My $25 Note of this loan is entitled to $0.73 monthly payments on this $25 note, which is divided between P&I.
  • "1%" Servicer Fees, however, are taken out at my Note level, and note at the loan level.  That is, LC could charge 1% of the $1017 monthly payment and pocket $10.17 per month for administration, which is not a bad deal for them considering they have no skin in the game and have already taken an origination fee.  What they do instead is charge 1% of my $0.73 portion, which of course rounds up to just $0.01.  This is in fact 1.369%.  So they increase their fees in this example almost 40% with this.  If you browse through my notes, you will find many examples of monthly payments for less than $1, which means LC almost always gets more than 1% servicing fee.  You will very rarely find a note that pays, say, $1.10 per month, which would mean a less than 1% fee.
  • Assuming every note for this loan was at $25 (which is not the case, surely some notes are $50 or more), there are 1400 notes, meaning their collected servicing fees are $14 rather than $10.17.
  • The problem could be avoided by investing $50 per note rather than $25.  However, this means less diversification as I could only hold half as many notes.  Not a big deal for accounts over $10k, but not ideal for an account around $5k.  And this would only work for notes that are between $.50 and $.75 in monthly payments per $25 note - many are between $.75 and $.99, for example an $.81 per month payment on a $25 note would mean a $50 note would yield $1.62 per month and incur a $.02 fee (rounded up from $.0162). 



MustacheAndaHalf

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Re: Lending Club - Time to panic?
« Reply #73 on: July 06, 2016, 02:52:58 PM »
In looking back at past lending club notes, I calculated default rates for different risk of notes:
A1-A5: 5% defaulted
B1-B5: 6% defaulted
C1-C5: 27% defaulted

Roughly speaking, in the average default I lost half my principal (and 100% of interest).  Overall it cost me roughly 1/3rd of my total return.  I haven't completely wound down my Lending Club notes, but it's almost there.

To calculate the total return, I grouped all my notes which were paid off into one group and viewed the cost and payments.  I did the same with another group of notes where each note had defaulted.  That let me see the performance of non-defaulting notes, defaulting notes, and how they added up together.

Note I stopped buying new lending club notes several years back when they started allowing large investors to buy every note in sight (I think they allowed one or more hedge funds to invest).  Hopefully they've cleared up the supply problem by now... I highly recommend studying historical data on notes to try and lower risk.

tonysemail

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Re: Lending Club - Time to panic?
« Reply #74 on: July 06, 2016, 03:00:37 PM »
In regards to the "sneaky" practices of Lending Club regarding their fees, I've noticed something apart from the above discussion on recovery fees:  Lending Club is supposed to charge a 1% servicing fee.  In fact, they charge more than this. 

This does not seem to be true.
http://kb.lendingclub.com/investor/articles/Investor/What-fees-does-Lending-Club-charge-investors/

"All fees are calculated to the tenth decimal place and will appear rounded to the nearest whole cent in your account.  To see the full amount of the fees calculated to the tenth decimal place, you can hover your cursor over the dotted line below the rounded number."

Malaysia41

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Re: Lending Club - Time to panic?
« Reply #75 on: July 06, 2016, 06:43:02 PM »

Lending Club has absolutely no motivation to send more loans into charge-off status. They charge an upfront 5% origination fee to the borrowers and a 1% fee to investors. If this does not make up 100% of their profits, it is at least 95%. I doubt the 18% fee they charge for collections even breaks even for them. Collections is a very expensive process and there is no conspiracy. A run of bad notes is not something done because Lending Club wants to screw investors and collect their fee.

Maybe so. On the statement, there are two different fees called out. There are collection fees, which typically ran around a few dollars a month, and, my impression was that they were the fees for the initial pestering that might be done when a note gets to be more than 30 days late.

Later, the loans would get charged off.

Then, for all charged off notes, if they somehow managed to collect, there was a recovery fee, which, was 18%. Which of course, is still a part of the collections process. I'm sure it is a lot of work. Have you seen Highston on Amazon prime? Good example there. Okay, not really a good example, but that show made me laugh. 

That said, it is, as you say, entirely possible that there was a string of bad notes. At first, 1% of my account balance was being charged off per month. But then it went as high as 10% since I first turned off automatic reinvestment and began taking income from notes off the table. The charge offs just seemed extraordinarily large, and it made me suspicious. I'm not saying they were charging notes off early for profit. I'm just saying they were charging off an awful lot of notes and then recovering an awful lot of notes.

Here's some data:

MonthInterestCharged OffRecovered
5/2015$709$334$1
6/2015$683$329$22
7/2015$694$422$33
8/2015$613$332$46
9/2015$593$424$37
10/2015$580$443$22
11/2015$520$563$94
12/2015$531$574$93


Regardless, the returns and risks were not worth the investment. I'll admit, I did not go through and hand select notes as so many investors did. If I had, I may not have seen so many notes get charged off.

Lastly, as zombiehunter noted, the investment really needs to be in a tax-advantaged account. It was silly for me to set this up in an after-tax account when I was still working. Now that we're FIREd, it's not too bad. But paying 33%+ on the profits a couple years ago was a big 'whoopsies'.
« Last Edit: July 06, 2016, 06:45:04 PM by Malaysia41 »
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zombiehunter

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Re: Lending Club - Time to panic?
« Reply #76 on: July 07, 2016, 05:41:21 AM »
In regards to the "sneaky" practices of Lending Club regarding their fees, I've noticed something apart from the above discussion on recovery fees:  Lending Club is supposed to charge a 1% servicing fee.  In fact, they charge more than this. 

This does not seem to be true.
http://kb.lendingclub.com/investor/articles/Investor/What-fees-does-Lending-Club-charge-investors/

"All fees are calculated to the tenth decimal place and will appear rounded to the nearest whole cent in your account.  To see the full amount of the fees calculated to the tenth decimal place, you can hover your cursor over the dotted line below the rounded number."
wow, this is true - thanks for telling me!

AM43

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Re: Lending Club - Time to panic?
« Reply #77 on: July 07, 2016, 07:11:02 AM »

Lending Club has absolutely no motivation to send more loans into charge-off status. They charge an upfront 5% origination fee to the borrowers and a 1% fee to investors. If this does not make up 100% of their profits, it is at least 95%. I doubt the 18% fee they charge for collections even breaks even for them. Collections is a very expensive process and there is no conspiracy. A run of bad notes is not something done because Lending Club wants to screw investors and collect their fee.

I'll admit, I did not go through and hand select notes as so many investors did. If I had, I may not have seen so many notes get charged off.



I've been investing with LC since 2009 and all my notes have been hand picked and I only recently(1-2 years) started using automated option to invest in notes and I can tell you that I did not like what automated system picked out for me so I switched it off.
I can honestly tell you that hand picked notes have less charged off rates, but yes it takes time to go thru every note and pick one you like. I don't mind though, as I find it fun activity.

robartsd

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Re: Lending Club - Time to panic?
« Reply #78 on: July 07, 2016, 08:32:04 AM »
I can honestly tell you that hand picked notes have less charged off rates, but yes it takes time to go thru every note and pick one you like. I don't mind though, as I find it fun activity.
Isn't that part of the idea of peer-to-peer lending - individuals deciding who to lend to. Glad to hear that extra work pays off.

JZinCO

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Re: Lending Club - Time to panic?
« Reply #79 on: July 07, 2016, 09:09:02 AM »
With several big boys no longer fronting money, LC is desperate for cash to lend out. If no cash comes in than there are no new loans or revenue, and LC goes under.

Yeah, maybe.  But things usually don't work out that poorly.  I look at the current bad news for LC as practice for the emotional discipline  of staying in the market when there is a big drop.  You can't panic at every bump in the road.  I added a small amount to my LC account last week.  There's still performing loans listed on the secondary market with good payment histories, at better than usual discounts.

The secondary market is still reverting to normal, the week after the bad news there were 571,000 listed.  A couple days ago there were 466,000 listed.  Normal before all the bad news was about 300,000.

I thought about how I should react and I'm still not sure. My IPS says 5% in alternative platforms. Do I stay the course? Did I do wrong in selecting the course?
I don't know; I did turn off contributions to m LC account but I'm still reinvesting pay-backs and interest...

I'm fairly concerned about platform risk. I might even redirect my LC money into other crowdfunding platforms. At least I'd be more hedged against platform risk...
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AM43

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Re: Lending Club - Time to panic?
« Reply #80 on: July 07, 2016, 09:14:29 AM »
I can honestly tell you that hand picked notes have less charged off rates, but yes it takes time to go thru every note and pick one you like. I don't mind though, as I find it fun activity.
Isn't that part of the idea of peer-to-peer lending - individuals deciding who to lend to. Glad to hear that extra work pays off.

Majority of LC investors use automated option to purchase notes.
Even with filters in place, I find that automated system picks some questionable notes that I would never pick on my own.

robartsd

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Re: Lending Club - Time to panic?
« Reply #81 on: July 07, 2016, 09:31:10 AM »
I can honestly tell you that hand picked notes have less charged off rates, but yes it takes time to go thru every note and pick one you like. I don't mind though, as I find it fun activity.
Isn't that part of the idea of peer-to-peer lending - individuals deciding who to lend to. Glad to hear that extra work pays off.

Majority of LC investors use automated option to purchase notes.
Even with filters in place, I find that automated system picks some questionable notes that I would never pick on my own.
I understand that a majority of LC investors use automated options; however, that's not the idea behind peer-to-peer lending. One should not expect to get great returns as a small time investor using automated tools that someone else developed and owns.

tonysemail

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Re: Lending Club - Time to panic?
« Reply #82 on: August 26, 2016, 03:26:58 PM »
and it gets worse
http://www.bloomberg.com/news/features/2016-08-18/how-lending-club-s-biggest-fanboy-uncovered-shady-loans

In Portland, over coffee, Sims said he’d found thousands of instances from 2009 through 2011 in which Lending Club seemed to allow borrowers to split their loans in two if their first attempt to get a loan didn’t find any takers. For instance, in June 2011, a user from the Phoenix area requested $25,000 for debt consolidation. The user was relatively risky, with a FICO score in the low 700s. Lending Club rated the loan “E2”—one of its riskier categories—offering it at an interest rate of about 18 percent. But investors were skeptical, and only $20,525 worth of the loan’s notes were sold. Later that month the same person, according to Sims, borrowed the difference, $4,475, at an interest rate of just 7.5 percent. (Sims guessed that Lending Club’s algorithms gave the second loan a higher rating because it was smaller and thus less risky.) To the outside, it looks like one reliable loan and one risky loan; in fact they were both risky. “


I hope for their sake they close this loophole quickly.
there's always someone trying to game the system.

Kwill

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Re: Lending Club - Time to panic?
« Reply #83 on: August 26, 2016, 03:55:41 PM »
It's too bad. It's such a good idea in principle.

I've had pretty good luck with my Lending Club account for the past two years. I kept it small, never much more than $300 at the highest point, but it's showing over 10% for the "adjusted net annualized return." It was over 12% until the other day when one of the loans went into a grace period. Nothing charged off yet. Four or five loans got paid off early, one I sold, and I'll have to wait and see what this one does. I listed it on the trading platform as soon as it went into the grace period, but I might need to offer more of a discount. This was just a trial run with the idea of putting more in once I saw that this was solid, but with all the news about the company, maybe I'll just let the trial wind down and keep transferring out money from repayments.

FireLane

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Re: Lending Club - Time to panic?
« Reply #84 on: August 27, 2016, 06:28:24 PM »
I saw this too. The story also presents evidence that employees of Lending Club applied for multiple loans and then paid them back immediately to make the site appear artificially busier than it was, so they'd look good to investors.

The other story wasn't as much of a big deal to me, but this one is. If you can't trust that their ratings reflect the true risk, you can't have confidence in your returns. I may let the proceeds from my LC account automatically reinvest, but I think I'm going to stop adding new money and focus on Vanguard instead for the time being.

uwp

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Re: Lending Club - Time to panic?
« Reply #85 on: August 31, 2016, 12:34:34 PM »
MMM did an update to the LC Experiment post.  http://www.mrmoneymustache.com/the-lending-club-experiment/
I'm not too well-versed in P2P lending but the YOY comparisons don't look great... $6,000ish increase in late/default/charged off and $7,000ish in interest.

Is everyone else still holding steady?

Seppia

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Re: Lending Club - Time to panic?
« Reply #86 on: August 31, 2016, 01:48:56 PM »
I am, but i have about 1% of my NW in LendingClub.
The worrysome thing about it is that i tried to sell the notes on the secondary market more than once and they are basically untradeable.
It was a valuable lesson because you learn from your mistakes, but with hindsight I would definitely have stayed out

Fudge102

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Re: Lending Club - Time to panic?
« Reply #87 on: September 01, 2016, 08:15:19 AM »
I am but that's because it will take forever to get the money out from loan payments anyhow.  And as Seppia said, the secondary market is more like selling at a loss.  I've never put any new money in, just holding steady with what I've got and letting it work.

robartsd

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Re: Lending Club - Time to panic?
« Reply #88 on: September 01, 2016, 08:45:12 AM »
And as Seppia said, the secondary market is more like selling at a loss.
If everything selling on the secondary market is selling at a loss, then there may be good opportunities to buy there.

FIPurpose

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Re: Lending Club - Time to panic?
« Reply #89 on: September 01, 2016, 09:41:12 AM »
And as Seppia said, the secondary market is more like selling at a loss.
If everything selling on the secondary market is selling at a loss, then there may be good opportunities to buy there.

Yep, I make good money there.
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Kwill

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Re: Lending Club - Time to panic?
« Reply #90 on: September 02, 2016, 04:00:18 PM »
And as Seppia said, the secondary market is more like selling at a loss.
If everything selling on the secondary market is selling at a loss, then there may be good opportunities to buy there.

Yep, I make good money there.

I've only ever bought notes from the secondary market. It's nice to be get a discount and be able to see a steady payment history for a few months. My one in-grace note came back, so now I'm feeling more positive about the site again. I don't know if I could handle having a large investment in Lending Club when I worry about one or two people being a few days late now and then.

chasesfish

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Re: Lending Club - Time to panic?
« Reply #91 on: September 08, 2016, 09:24:31 AM »
How is everyone feeling now that the LC story had calmed down?  I've taken a little money from payments in the last month, but turned back on automatic investing this week.  I'm still disappointed that the returns keep dropping.  I'm concerned the early numbers were inflated by insider loans that were repaid after 2-3 months. 

Almost 11% of the notes I've issued have gone bad (265 defaulted notes out of 2412) in a 5 year period.
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tonysemail

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Re: Lending Club - Time to panic?
« Reply #92 on: September 08, 2016, 10:17:24 AM »
i continue to draw down my account and transfer cash out.
it's slow and steady and the bad news hasn't caused me to cash out any faster.

Fudge102

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Re: Lending Club - Time to panic?
« Reply #93 on: September 08, 2016, 10:23:04 AM »
I'm still leaving cash in and letting it reinvest because even though the rate is lower (~9.5% now), it still beats the returns I've been getting from the stock market.  I'm not adding any new cash in, just letting it work its magic.  I've yet to go with the secondary market and to be honest, I do wonder exactly what people are using the money for.  As someone who sits with good credit and follows this board, I just wonder what could really be doing and how safe an investment it is.  But out of about 1000 loans, I'm only sitting at a ~4% default rate right now.  That includes just the late notes and charged off.  Even if you include the grace, it's only about 4.6%.  I guess the real question is do you get more out in interest than what's charged off at a loss.  Not gonna lie, for August I have seen very little increase in my adjusted account value.  Overall sure, but the charged off numbers just started adding into the mix finally.  We'll see how September goes.

chasesfish

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Re: Lending Club - Time to panic?
« Reply #94 on: September 08, 2016, 11:00:27 AM »
Fudge - How long have you been invested in LC?  I didn't start seeing my returns drop until most of my notes got 12-18 months old.

I think most people used LC to consolidate credit card debt, but those habits are tough to break and the cards get run up again causing defaults/BKs.  Early on, I think there were more people with better credit using it for RE investing and home renovation.  Prime financing has gotten easier for that stuff now.
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Fudge102

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Re: Lending Club - Time to panic?
« Reply #95 on: September 08, 2016, 08:02:47 PM »
I started in February.  So it's only been about 7 months for me now.  But still, compared to when MMM started, the numbers are sure different.  DOn't know if that's good or bad.

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Re: Lending Club - Time to panic?
« Reply #96 on: November 02, 2016, 02:50:56 PM »
I am, but i have about 1% of my NW in LendingClub.
The worrysome thing about it is that i tried to sell the notes on the secondary market more than once and they are basically untradeable.
It was a valuable lesson because you learn from your mistakes, but with hindsight I would definitely have stayed out

For those it may help (and at the risk of creating a run on the bank), I'll share that I'm using LENDINGROBOT to help liquidate my LC assets. It's an automated way to liquidate your LC assets. They charge a fee if you use their site to PURCHASE notes (but only after you have over $5000 managed by them in this way). However, they don't charge for selling (beyond the 1% already charged by LC for selling). I've been able to fairly quickly (couple months) sell a fair portion of my current notes for 1-3% above remaining principal and interest -- enough to ensure I don't take a loss after the 1% fee.  I haven't had a lot of success selling even Grace Period notes using the discount rates indicated by LC's loss rates -- suggesting that buyers believe the real loss rate to be higher too.  This only confirms my concerns about LC's falling returns.

I plan to liquidate all my LC notes as quickly as I can (while minimizing losses). My returns had been fairly steady, but I have made just about no money in 2016 there. My concern is that this may be an early indicator of rising defaults -- or even that we're headed for a recession soon. Either way, my comfort with this unsecured debt is shaken.
« Last Edit: November 05, 2016, 09:13:32 PM by coloradojoe »

chasesfish

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Re: Lending Club - Time to panic?
« Reply #97 on: December 31, 2016, 06:28:38 AM »
I wanted to bump this thread and see what others are experiencing in their total return/lifetime return:

My "Adjusted Annualized Net Return" is now running 5.22%.   If I don't adjust for doubtful loans, its 7.06%.   I've been pretty vanilla on this, automated investing with minimal filters.  I probably have a few more 36 month loans in it compared to the average investor.
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zazpowered

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Re: Lending Club - Time to panic?
« Reply #98 on: January 01, 2017, 07:41:10 PM »
I have a Adjusted Net Annualized Return of 4.01% over the last few years on mostly A and B loans. I recently started buying riskier notes using LendingRobot so I have yet to see how those will perform.

Kwill

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Re: Lending Club - Time to panic?
« Reply #99 on: January 02, 2017, 06:14:36 AM »
I'm at 12.25%. I bought one risky loan but sold it back within a few days because I'm a chicken. Other than that, I've only bought A, B, C, and one D note on the trading platform that already had several months of perfect payment record but that were being sold at a discount. I've also been reading their information to see if they sounded like reliable people. I've had several people pay off loans early but nobody has gone into a grace period for more than a few weeks.

I don't know if this would scale up, though. I have a tiny little account with 14 current loans, and I transfer money out to my bank account regularly.