Author Topic: LendingClub IRA Liquidation Strategy (Minimize Cost)  (Read 1595 times)

Outside the Box

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LendingClub IRA Liquidation Strategy (Minimize Cost)
« on: July 14, 2017, 04:49:43 PM »
Back in 2010, I had a small-ish 401k at a previous company that I rolled into a Roth IRA with LendingClub. I was making much less then, so I figured it was a good time to pay the taxes, since the IRS let you carry the rollover for 2 years at the time, which I did.

I have been getting help from you all on my total portfolio, and part of that plan is to reduce my LendingClub balance to zero.

I had a little over $550 in available cash which I transferred to my IRA custodian, CamaPlan, today. I looked at the fee disclosures on CamaPlan to figure out how to get my money for free rolled into Vanguard. They charge $75 to do any rollover. There is no free option, like check vs Wire.

If I did this on this small balance, I'd be taking a 14% haircut. If I wait to build up a balance where the fee might make more sense, I'm missing out on the market by being in cash. This is absolutely nuts!

I explored doing a distribution and then putting it in Vanguard Roth IRA within 60 days, but this can only be done once per 12-month period, not per calendar year. Plus it's a limitation across all IRAs (I'm not sure if this applies to 401k distributions as well).

So, here's my idea/plan, which I am submitting for peer review:
  • Sign up for the FolioFN trading platform. (Application submitted)
  • List 100% of my Issued & Current notes using LendingRobot once I am approved. 97% of my notes are Issued & Current.
  • List the Grace Period/late notes using percents [urlhttps://forum.mrmoneymustache.com/investor-alley/lending-club-time-to-panic/msg1587934/#msg1587934]similar to coloradojoe[/url].
  • Once the account is 100% liquidated, transfer cash to CamaPlan.
  • Do ACH distribution, which costs $5 from CamaPlan to my bank account.
  • Immediately deposit as a rollover/transfer to Vanguard (I'm not sure on their forms for this) within 60 days.
That's it! Does anyone spot any problems with this?

I definitely don't want to pay $75 for the privilege of getting my money out, and certainly not each time. The $5 one time should be good, as long as I don't need any tIRA distributions within 12 months.

Outside the Box

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Re: LendingClub IRA Liquidation Strategy (Minimize Cost)
« Reply #1 on: July 18, 2017, 10:23:44 AM »
Follow up points I've found out, since I got no replies initially:
  • LendingRobot disabled peer-to-peer lending sales with no ETA for restoration.
  • I started shopping on Folio like a buyer, and there are good notes on there at a significant discount.
  • There are a lot of bad notes for a REALLY significant discount, as in close to giving them away.
  • I have begun liquidating, and it's painful and slow to adjust those basis points to get the notes sold.
  • You get flooded with emails from Folio daily when the notes sell and they settle at the same time.
  • Notes you have up for sale will get yanked down when a payment starts processing by the original borrower, I'm guessing because that may invalidate the criteria you used for sale (days since payment, outstanding principal, outstanding accrued interest, etc).
  • I have at least one that is unavailable for listing due to pending bankruptcy. Does this mean I can't close my IRA with CamaPlan until that person's bankruptcy is over?

Long story short, I regret ever investing in Lending Club. I think I turned $12k (mainly $10k plus $2k several years later) into $17k over 7 years. Not a great return, but I was risk averse on the platform. I mainly invested in only people in stable jobs (or those who lied about it) only for debt consolidation and home improvement.

The $17k is optimistic on their part since they play fast and loose with "31-120 days late". 120 days? Really? It should be charged off after 60 IMO. Perhaps sooner.

I'm losing 1% on each sale plus the discount on the notes themselves. I'm hoping I don't lose too much principal. I'm guessing I'll end up losing a few hundred in principal to liquidate, but I'm glad I found this out now, rather than later.

I didn't realize how illiquid my IRA with them was and the exit fees their custodians charge. I talked to LC about this and they didn't gaf at all. "That's their fees, not ours." - "But I signed up for them through you." - "That's their fees."

I guess this is why I diversify, but I'm willing to take a haircut to get out ASAP at this point. LC seems like it would be mostly fine in a taxable account if that's what you want (but the dividends screw you on yearly reportable income, unless you want that, in ER). The way I had it though, it was pretty much impossible to rebalance except by contributions.

I'm glad it is/was only 4.7% of my portfolio. The sooner I'm out, the better.

zombiehunter

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Re: LendingClub IRA Liquidation Strategy (Minimize Cost)
« Reply #2 on: July 18, 2017, 03:36:59 PM »
I am going through a similar process, albeit with one key difference.  I didn't want the cash to sit in the LC account while I slowly sell the notes, so I transfer cash as it becomes available from the LC account to a TD Ameritrade account, which is another product that is offered by this crappy IRA custodian (SD IRA).  From there, it can be invested in commission Free ETFs including Vanguard funds.

The plan is that once the process is complete there will be a zero balance in the LC account with all funds held in TDA.  Then it's a simple transfer to Vanguard directly, albeit with SD IRA's $150 termination fee.

This process is slightly more of a pain than just selling LC notes and withdrawing, but hopefully worth it -- in fact, if VTI goes down over the next 6 months, it might actually have been preferable to liquidate the notes to cash to transfer to Vanguard, rather than sitting it in VTI for the interim.  I began this process around June 1, and so far approx $2000 of my total $6000 LC balance is moved over to TDA.

However, LendingRobot disabling the Sell feature has really slowed down the process.  Notes can be liquidated fairly painlessly with their app, but doing so manually really sucks. 

Outside the Box

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Re: LendingClub IRA Liquidation Strategy (Minimize Cost)
« Reply #3 on: July 19, 2017, 11:25:56 AM »
What do I do about notes that can't be sold due to "Sorry, this note cannot be sold at this time due to pending bankruptcy." messages?

Will I not be able to close my IRA because some borrowers are in bankruptcy? I have to wait for their court proceedings to complete before I can completely close my IRA?

Again, I wish I'd never done this in retrospect.

zombiehunter

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Re: LendingClub IRA Liquidation Strategy (Minimize Cost)
« Reply #4 on: July 19, 2017, 01:04:42 PM »
Dunno, have you called LC to ask?

Outside the Box

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Re: LendingClub IRA Liquidation Strategy (Minimize Cost)
« Reply #5 on: July 19, 2017, 02:03:27 PM »
Folio handles secondary market sales, not LC. I won't be worrying about it that much until I've finished liquidating non-bankrupt notes.

I would hope I can just release/abandon those notes at that point. If they're in bankruptcy, it's likely those notes are worth $0 to anyone, since they're going to get charged off 100% most likely (unsecured creditors).

Outside the Box

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Re: LendingClub IRA Liquidation Strategy (Minimize Cost)
« Reply #6 on: July 25, 2017, 08:29:16 AM »
Update: So far I've materially lost $768.10 (difference between "Total outstanding principal at time of sale" and "Total proceeds from sales less fees"). That doesn't include accrued interest.

I've sold 875 (some are still in pending, 848 have settled). 52 on sale. 46 unsellable currently, due to pending payments, bankruptcy, or default.

Given that I started 11 days ago, I don't view it as being too bad, but the more I look into how LC works right now, I'm glad I chose to get out, even if it's costing me a bit of money. It's an expensive lesson learned, but I'm happy I'll be able to dump that money into Vanguard, soonish.

I'm going to lose at least $150 more closing/transferring the IRA, and my account anniversary date is coming up soon, so if LC doesn't pay the IRA fees (less than $10k invested currently after the sales), I'll lose $150 more there. I'm bleeding money like an SUV clown car driver.

If I'd realized when my anniversary date was, I would have started this a month later, probably. Money lessons are the most painful to learn.

zombiehunter

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Re: LendingClub IRA Liquidation Strategy (Minimize Cost)
« Reply #7 on: July 25, 2017, 09:18:02 AM »
What does your expected loss from sales discounts plus the $150 work out to as a percentage of your pre-liquidation LC account value?

Outside the Box

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Re: LendingClub IRA Liquidation Strategy (Minimize Cost)
« Reply #8 on: July 25, 2017, 09:43:51 AM »
What does your expected loss from sales discounts plus the $150 work out to as a percentage of your pre-liquidation LC account value?

Hard to calculate right now, but when it's all said and done, I'll know. Some of the notes are currently unsellable and i don't want to run the numbers knowing it's not final.

Edit: It's going to be at least 6% though.

Outside the Box

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Re: LendingClub IRA Liquidation Strategy (Minimize Cost)
« Reply #9 on: July 26, 2017, 11:15:53 AM »
Another update: I spoke with investor services yesterday because of what turns out to be a bug. You currently can't see all the notes available on the secondary market using the website. Only the API can see the full list. If you download the full CSV you can see them all, but you can't see them all when using "Browse Notes".

I was using "Browse Notes" trying to figure out why some of my heavily discounted notes weren't selling, even though they're priced well compared to their peers. I found that I couldn't even find my own notes. They know about the bug, apparently, but they don't have an ETA and didn't seem too concerned at all, since the API can see the notes.

I mentioned LendingRobot disabling secondary market sales and how I'd like to make sure all my notes are seen everywhere for the widest audience, but again, they didn't seem to care too much, since the API can see them (they say).

Also, I asked about what happens when I want to close my account and I have notes pending bankruptcy/default and asked if I'd have to wait for those to resolve. He said they have a form that I will sign abandoning claim to those notes and any future payments they may recover. This would allow me to close the account at that time.

Outside the Box

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Re: LendingClub IRA Liquidation Strategy (Minimize Cost)
« Reply #10 on: August 09, 2017, 12:01:47 PM »
Another update. I have about 20 notes that are impossible to sell. Most are Current with discounts currently at about 23%. I keep decreasing the price by 25 basis points multiple times per day. I started these discounted at 8%.

Most seem to be credit rating down but current, but they have been late (either just grace period or actual late) in the past. I don't know what it's going to take to get rid of these, but I'm going to lose substantial money on those, if I ever get them sold.

WonderfulLife43

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Re: LendingClub IRA Liquidation Strategy (Minimize Cost)
« Reply #11 on: August 09, 2017, 01:58:24 PM »
OTB,  I used the same strategy to sell all my notes in June, reducing them by 0.25% morning and evening, until all were sold. 
However,  notes that were overdue had to be significantly discounted in order to sell them.

I just heard from LC Services today ..... my LC IRA is now officially CLOSED!    :-) 

Outside the Box

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Re: LendingClub IRA Liquidation Strategy (Minimize Cost)
« Reply #12 on: August 09, 2017, 02:28:23 PM »
I just heard from LC Services today ..... my LC IRA is now officially CLOSED!    :-)

I can't wait. I want a much more passive investment at Vanguard. I'm going to lose quite a bit of money on this, but honestly it's less than I'm investing each month. I view it as a short-term cost to not lose much more opportunity cost later.

It looks like I'm going to have to abandon 3 notes at least (pending bankruptcy).

Outside the Box

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Re: LendingClub IRA Liquidation Strategy (Minimize Cost)
« Reply #13 on: September 19, 2017, 12:52:40 PM »
It's (mostly) finished. Only the remaining money transfers/account closures remain. It is completely liquidated.

What began as $17,043.60 in "account value" at Lending Club has finally concluded as $16,429.08 of actual cash. I will then have to pay $250 to close/transfer the IRA, resulting in a final $16,179.08.

5% hit to the asset. 0.2% hit to the portfolio. I will be moving that into Vanguard which will line up with my strategies going forward in a more coherent manner.