Author Topic: Lending Club  (Read 11108 times)

drewfromutah

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Lending Club
« on: December 29, 2013, 06:54:14 PM »
Not sure if there's an "official" Lending Club thread yet, but I thought we could talk about it a bit here.

Personally, I've got $4k in my account, and about $1450 issued so far. The rest is In Funding or waiting to be invested (about 10-15 notes a day hit my parameters). My account is about a month old, and I'm expecting my first payment in a week.

My friend and I devised a system using the heaps of useful data from here: http://nickelsteamroller.com/lendingclub_return, along with http://nickelsteamroller.com/lendingclub_invest which shows EST ROI of each note, and the # of backtests he has run with that loan's specific credit criteria.

Because NSR's backtests don't include everything (such as state, length of employment, revolving line utilization), we tried to build our filter using the parameters that AREN'T included in them. We don't want to limit our note selection or reduce our risk TOO much, so we didn't get too strict. Here is our "filter" (not all of this stuff can be filtered on NSR, so a few things have to be checked manually)

D-G grade loans only.
All states are OK except NV, FL, and UT (everyone avoids CA, but it actually isn't that terrible when we look at only D-G loans historically)
Revolving Line Utilization - 0 - 90% (I am slightly more lenient on this, especially if loan purpose is Debt Consol or CC payoff)
>=1 year of employment. MMM and a lot of other LC investors filter to 4+ years (or other arbitrary number) of employment. The numbers say that for D-G grade loans, length of employment is fairly unimportant. In fact, 4 years of employment has historically shown the HIGHEST DEFAULT RATE [6.72% --258 loans] followed closely by <1 year employment [6.17% - 289 loans]. Since I feel that 4 years having the highest default rate is a coincidence, I've left it within my acceptable parameters.
14%+ EST ROI (must have 100+ backtests)
Can go down to 12% EST ROI if there are 1,000+ backtests.

If you check out the data linked above you'll see why we picked these things (remember to select only D-G loans on the left hand side or it will skew the numbers, since we're ONLY even looking at D-G). The 100/1000 backtests are arbitrary numbers - we think they are sufficient numbers.



Obviously we have seen no returns yet on these parameters, but I'll keep this thread up to date on how things go. I'd like to hear about your LC experience... How much have you invested? What's your criteria? Do you use Nickel Steamroller and do you have filters set up? How have your returns been?
« Last Edit: December 29, 2013, 06:58:13 PM by drewfromutah »

mxer54

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Re: Lending Club
« Reply #1 on: January 29, 2014, 08:03:43 AM »
Great post!  We've recently started to toss more cash here...Keep us updated on your progress!

astadt

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Re: Lending Club
« Reply #2 on: February 01, 2014, 12:10:45 AM »
So a new development that I took advantage of was the reduced minimal amount for Lending Club Prime. Im pretty impressed at the number of notes that get invested for me. It had gotten to the point where my filter was so strict that there were never notes, and if there were you had about 5 seconds to complete your order. With Prime you get access to notes before they go public so I end up getting notes and not working for it.

There is a fee on money coming in, but Im confident that Im getting access to better notes (with my super strict filter) and with way less work.


MissPeach

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Re: Lending Club
« Reply #3 on: February 03, 2014, 12:47:17 PM »
I've started investing with them recently too. They do have a lot of loans but for some reason a large amount of mine fall out before funding. So I have to keep going in and picking new ones. It took me weeks to load all my initial trial investment of $1,000.

Abe

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Re: Lending Club
« Reply #4 on: February 03, 2014, 08:08:53 PM »
I've invested $2000 with a little more than $200 in interest over 8 months. One of the notes has been charged off, one paid in full early, and the rest in good standing. My criteria are fairly strict, leaving only a handful of notes at a time to invest in, but have a low historic default rate. Overall I've had a good experience.

Supertaster

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Re: Lending Club
« Reply #5 on: February 03, 2014, 08:23:10 PM »
I would like to invest in some peer-to-peer loans. But the state of Kentucky has decided that I shouldn't.

Sigh.

lordrtype1

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Re: Lending Club
« Reply #6 on: February 05, 2014, 04:59:55 PM »
I'm in the same boat in KS.  Though, in a ironic twist, I CAN take out a loan through them, if I needed, but I DON'T QUALIFY!  So, I can't invest AND I can't borrow!  It doesn't get any better than this!

I do understand why I couldn't get a loan, though, reading this post.  I doubt I would meet the terms, at present, that were presented, but in another year it won't matter anyway.

FrontRanger

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Re: Lending Club
« Reply #7 on: February 08, 2014, 07:57:18 AM »
I have close to $21k in account with LC now. Over the last 3 years net return is close to 9%. I think the market is over valued so I'm looking to pile more money into LC. I already max out 401k, roth backdoor conversion etc. What percentof investable assets are people limiting LC to?

I see little risk in LC going belly up. They have deep pocket investors, one being google, and should do an IPO this year.

FuckRx

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Re: Lending Club
« Reply #8 on: February 08, 2014, 09:23:51 AM »
I have close to $21k in account with LC now. Over the last 3 years net return is close to 9%. I think the market is over valued so I'm looking to pile more money into LC. I already max out 401k, roth backdoor conversion etc. What percentof investable assets are people limiting LC to?

I see little risk in LC going belly up. They have deep pocket investors, one being google, and should do an IPO this year.

how much tax would you have to pay on that 9% profit do you figure?

FrontRanger

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Re: Lending Club
« Reply #9 on: February 08, 2014, 10:15:51 AM »
I'm in the 25% federal and state income here in iowa is graduated with top rate of 8.98%. Conservatively I estimate 33% to taxes. I've debated whether buying some rental property versus LC, but like the convenience of LC better.

Nords

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Re: Lending Club
« Reply #10 on: February 09, 2014, 09:10:49 AM »
... and should do an IPO this year.
Do you have any links to support that claim?  I'm curious to see why they'd want to do that.

FIPurpose

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Re: Lending Club
« Reply #11 on: February 09, 2014, 12:29:08 PM »
Does LC have an index type solution, with a general fund to give to spread out to all loans, and if so has anyone had any success in that?

FrontRanger

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Re: Lending Club
« Reply #12 on: February 11, 2014, 08:31:14 PM »
... and should do an IPO this year.
Do you have any links to support that claim?  I'm curious to see why they'd want to do that.

Buzz in SF indicates they should do an IPO this year. Don't know when. See this link: http://blogs.wsj.com/venturecapital/2014/01/27/lendingclub-checks-off-items-on-ipo-readiness-list/

Nords

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Re: Lending Club
« Reply #13 on: February 11, 2014, 10:28:35 PM »
... and should do an IPO this year.
Do you have any links to support that claim?  I'm curious to see why they'd want to do that.
Buzz in SF indicates they should do an IPO this year. Don't know when. See this link: http://blogs.wsj.com/venturecapital/2014/01/27/lendingclub-checks-off-items-on-ipo-readiness-list/
Interesting.  Thanks.


Bigote

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Re: Lending Club
« Reply #14 on: February 19, 2014, 11:04:52 AM »
A former LC bull on Bogleheads is now changing his tune.

http://www.bogleheads.org/forum/viewtopic.php?f=10&t=133307

Nords

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Re: Lending Club
« Reply #15 on: February 19, 2014, 10:38:16 PM »
A former LC bull on Bogleheads is now changing his tune.
http://www.bogleheads.org/forum/viewtopic.php?f=10&t=133307
I still don't understand how people decide that they're being adequately compensated for their risks... when they haven't even been through an entire term of the loan, let alone an economic cycle.

FuckRx

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Re: Lending Club
« Reply #16 on: February 20, 2014, 11:41:56 AM »
A former LC bull on Bogleheads is now changing his tune.
http://www.bogleheads.org/forum/viewtopic.php?f=10&t=133307
I still don't understand how people decide that they're being adequately compensated for their risks... when they haven't even been through an entire term of the loan, let alone an economic cycle.

hey Nords, can you expand on this further? i think it's interesting what you are saying...

beltim

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Re: Lending Club
« Reply #17 on: February 20, 2014, 12:34:51 PM »
A former LC bull on Bogleheads is now changing his tune.
http://www.bogleheads.org/forum/viewtopic.php?f=10&t=133307
I still don't understand how people decide that they're being adequately compensated for their risks... when they haven't even been through an entire term of the loan, let alone an economic cycle.

Are you talking about that particular case or in general?

MissPeach

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Re: Lending Club
« Reply #18 on: February 20, 2014, 05:45:09 PM »
A former LC bull on Bogleheads is now changing his tune.
http://www.bogleheads.org/forum/viewtopic.php?f=10&t=133307
I still don't understand how people decide that they're being adequately compensated for their risks... when they haven't even been through an entire term of the loan, let alone an economic cycle.

I was wondering the same. I've invested not very large amounts in case something happens. I've also not invested much money and am trying to spread the risk over more loans with small $ amounts. I was reading on another blog that during some downturn people had a large increase in defaults so I think there is a real risk.

FrontRanger

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Re: Lending Club
« Reply #19 on: February 20, 2014, 07:41:34 PM »
I have had my account since jan 2010 and really did not see a big impact with how lousy the economic situation was that year. I'm still running a 8.2 return and most of my investments are B grade.

Nords

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Re: Lending Club
« Reply #20 on: February 20, 2014, 11:00:34 PM »
A former LC bull on Bogleheads is now changing his tune.
http://www.bogleheads.org/forum/viewtopic.php?f=10&t=133307
I still don't understand how people decide that they're being adequately compensated for their risks... when they haven't even been through an entire term of the loan, let alone an economic cycle.
hey Nords, can you expand on this further? i think it's interesting what you are saying...
Are you talking about that particular case or in general?
I was wondering the same. I've invested not very large amounts in case something happens. I've also not invested much money and am trying to spread the risk over more loans with small $ amounts. I was reading on another blog that during some downturn people had a large increase in defaults so I think there is a real risk.
First there's the issue of liquidity.  The equity & bond markets trade billions of dollars each day, and generally the buyers & sellers have a pretty good idea of what something is worth.  It's not 100% accurate all the time, but there's a large crowd at work.

It's a similar system with the credit-card companies.  They're pretty proficient at judging the risks, and they charge accordingly.  Thousands of employees and hundreds of billions of dollars have decades of experience at figuring out how much to charge in interest and fees... and we all know that credit-card companies make a significant percentage of their revenue from fees as well as interest rates.

Now we have a couple of microcap companies (let's call them "Lending Club" and "Prosper") who claim to know better.  With only a few dozen employees and a few billions of dollars of loans, they're somehow able to undercut the credit-card companies while paying more than the stock market.  Either the credit-card companies are horribly bloated in their business model and expenses, or the stock markets are providing abysmally low returns or... we're being fooled.  Apply Occam's Razor for your own particular opinion of this assessment.

My main concerns are (1) nobody knows what default rates will be during the next credit crunch, and (2) nobody knows what default rates will be if either of these companies go bankrupt and a third-party processor takes over. 

The companies do not always have our lender's interests aligned with theirs:  they're motivated to cut corners on their due diligence (to approve more loans) and they get paid more (in fees) if the loans go delinquent.  Now the institutional lenders are passively coercing the companies to cough out even more loans and under even more pressure to pay less interest.  If a borrower's application is being scarfed up in microseconds at 15% APY then clearly it's too good a deal (for the lender), and the borrower's interest rate should drop until fewer bidders are competing to fund it.

Finally, there's a huge amount of behavioral psychology at work here.  All of the fascinating parameters give us all sorts of spreadsheets and analyses and heuristics to engage our brains and give us the illusion of control.
http://the-military-guide.com/2013/05/30/the-problems-with-peer-to-peer-lending/
http://the-military-guide.com/2013/06/06/more-problems-with-peer-to-peer-lending/
http://financialmentor.com/investment-advice/investment-due-diligence/peer-to-peer-lending-review/9777 (my guest post for Todd)

Jason Hull has also shown that it takes a huge $$ commitment to distinguish skill from luck.  Essentially if you're investing less than $200K then you're just flipping switches and turning knobs on a very intricate machine that's controlling a dart-throwing monkey.
http://www.hullfinancialplanning.com/should-i-invest-in-lendingclub-or-prosper/

Since those posts were written, Lending Club has hired more applications processors.  They've finally rebooted their "Prime" service (for a fee) to enable retail investors to have a better chance of putting their money to work.  But every other answer to the issues raised above remains:  "So far so good!"
« Last Edit: February 20, 2014, 11:03:53 PM by Nords »

Kriegsspiel

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Re: Lending Club
« Reply #21 on: February 21, 2014, 05:43:56 PM »
Nords, thanks for the post, you definitely gave us something to ponder. Jason Hull also seemed like a smart and honest guy on his Bigger Pockets podcast interview.

Nords

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Re: Lending Club
« Reply #22 on: February 22, 2014, 08:02:41 PM »
Nords, thanks for the post, you definitely gave us something to ponder. Jason Hull also seemed like a smart and honest guy on his Bigger Pockets podcast interview.
You're welcome!  No matter how many ways I try to make the numbers work, I can't justify choosing P2P lending over angel investing.  However it's a great way to fill in the 5%-10% of your asset allocation dedicated to testosterone-poisoned investing.

Jason's a West Point graduate and a tanker, which apparently means that even the other West Point graduates tease him.  Speaking as an Annapolis graduate, we're good friends.  He's every bit as smart and honest in person as he is on that podcast, and I've seen him travel hundreds of miles just to help out another entrepreneur.  We have a good time hanging out at the FinCon blogger conference, although we tend to start yakking and miss presentations.

He's financially independent and uses a flat-fee model for his CFP business.  He does a lot of pro bono work for military servicemembers.  Unlike most CFPs, he has a deep understanding of the behavioral psychology behind bad financial decisions and shows how to overcome our ingrained heuristics.

DarioEM

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Re: Lending Club
« Reply #23 on: February 28, 2014, 05:51:29 AM »
Lending Club is wonderful and is paying my group of investors at minimum 23.7% at the moment.
My absolute favorite part about Lending Club is this (and it's in their commercial video):

All Lending Club members who have invested in 800 or more borrowers have been 100% profitable since 2007.

Can you say No Brainer? :D

Here's a link to that video:
http://www.youtube.com/watch?v=Yidzb8VdNLo

foobar

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Re: Lending Club
« Reply #24 on: February 28, 2014, 06:45:42 AM »
If your earning 23.7%, that means you pretty much haven't had a charge off yet. Once 5-10% of your loans default your return will drop to the 10-12% range.  It is unclear what will happen over 5 years and in periods with higher than normal defaults.

Personally I found it too much work to keep going there and trying to get notes I wanted funded.

Lending Club is wonderful and is paying my group of investors at minimum 23.7% at the moment.
My absolute favorite part about Lending Club is this (and it's in their commercial video):

All Lending Club members who have invested in 800 or more borrowers have been 100% profitable since 2007.

Can you say No Brainer? :D

Here's a link to that video:
http://www.youtube.com/watch?v=Yidzb8VdNLo