Author Topic: Changes to Lending Club?  (Read 5879 times)

FLBiker

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Changes to Lending Club?
« on: September 10, 2013, 07:47:20 AM »
Hi folks,

I'd been planning to get out of Lending Club (despite having great returns) because it had gotten so difficult to find a loan meeting my criteria.  In talking to people on the forum, it seemed like others were having the same experience.  However, in the last week or so, things seem to have changed.  I'm suddenly getting ample (6-10) DEF loans when I apply my filter.  Has anyone else experienced this?  I'm a little worried that Lending Club has loosened their requirements on borrowers.

I don't have a lot of money with them (I started with 2K) but my returns have been great for the past year (20%, based on the Lending Club calculation).

RaveOregon

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Re: Changes to Lending Club?
« Reply #1 on: September 10, 2013, 08:41:28 AM »
I am still having trouble finding loans that meet my criteria. I have had to modify what I look for when it comes time to reinvest which I am not a huge fan of. Maybe it is coincidental that this past week there are more available?

Rust

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Re: Changes to Lending Club?
« Reply #2 on: September 10, 2013, 09:59:44 AM »
I have a complaint I'm planning to lodge with Lending Club.

I'm of the opinion they are providing material misleading statements to retail investors due to the preferential treatment to institutional investors.

Below is a copy of the email I am going to send to them.  Going to stew on it until later tonight to see if I still feel this way before I send it to them. 
*********
To whom it may concern,

I've got a gripe that I started to chat about on twitter but wanted to take Lending Club directly.  I was venting a bit about a frustration I have but now as I think about it more Iíd like to give your company an opportunity to respond.

I feel that Lending Club is misleading retail investors with the advertising of the average returns on the website.

LC advertises returns based on overall performance of all the loans sold.  I do not feel this is an accurate representation of returns for retail investors because retail investors are not provided the opportunity to invest in all loans on the platform.

Iíve read online that 25% of all loans are funded by institutional investors prior to retail investors having an opportunity to invest in them. 
Iím ok with the corporate strategy that LC has taken to cater towards  Institutional investors (II).  The II are allowed to cherry pick the best loans.
Using the LoanStats3b accessed 9/10/13 and filtered for the last year (Column P accept_d to Oct í12 Ė Present) 26.19% of loans with initial_list_status of code W (which Iím lead to believe is whole loan) leaving 73.8% of loans first offered to retail.  Which is over the advertised rate of 25%.  This confirms my thoughts that Institutional investors get the opportunity to cherry pick the best loans and limits the population of loans available to all investors.

When loans are offered in the batch format for retail investors in invest in,  IIís have programmed high speed API's which snap up loans faster than a retail investor can apply the filters provided by LC.  Thatís also provided the LC website is responding because Iíve found several times Iím online at say 8:59 AM (EST) refreshing the site at 9:00 just to have the site not respond.  Iím assuming this is because the automated traders are overwhelming the website similar to a DDos attack.  Typically I can finally see notes 5 minutes after the batch has been uploaded.  I apply my filters (wait) and the loans Iíd like to invest in to provide the diversity I need and the returns Iíd like are gone.  What I'm left to do is to try to move as fast as I can and hopefully get one or two loans that the computers have not already fully funded.

Due to the preferred treatment of institutional investors and inherent disadvantages retail investors have compared to the institutional investors, this results in retail investors having significantly lower returns than the advertised historical returns.

My request to Lending Club is to stop misleading retail investors .  Iíd like fair disclosure of average returns for retail investors compared to average returns for institutional investors.  As it stands now Iím convinced your company is providing material misleading statements to retail investors about what they can expect to earn by making loans on the Lending club platform.

beltim

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Re: Changes to Lending Club?
« Reply #3 on: September 10, 2013, 11:19:02 AM »
Rust - Do you have any evidence that the loans institutional investors are getting provide a higher rate of return than what individuals get?  Without that, alleging "material misleading statements" will be nearly impossible.

Rust

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Re: Changes to Lending Club?
« Reply #4 on: September 10, 2013, 12:00:56 PM »
From their data, you can figure out which loans were offered to Institutional investors prior to retail.

I have not found a way to figure out which ones were not fully funded by the Institutional investors.

But they get 12 hours to pick through 25% of all the loans and buy the ones they want. 

*Hypothetical statements coming up but very logical. 
So maybe they only gobble up 15% of the 25% offered to them.  10% they don't consider the right risk return ratio.  So now as a retail investor I've got 85% of the total population of loans.  10% smart money is saying is sub par returns.  applying the same formula to the remaining population 60% of loans having a good risk return ratio (15%/25% =~60% of available loans to II) means that only 45% of loans with better risk return ratio's are available to the retail investors.

Now that 45% of loans which are good bets are placed on to the trading platform via a Batch job 4x a day.  The computer programs can run queries against the available loans and make purchases in less than a second.  There is no way a human can compete with that.

What is left are the loans which do not conform to the risk return profile the institutional investors are looking for.  Which means the average retail investor is making choices with much smaller expectations of return. 

I agree I don't have the hard data figured out, but I also don't think I've got access to the right information to substantiate my claims.

But I'm willing to bet in the past year since they went to 25% before retail gets a chance the returns for retail have gone down.  Also, many, many bloggers including MMM have commented on the lack of availability of loans which fit their investment criteria.  This anecdotal evidence I think further strengthens my claim.

I want to be clear, this is a hypothesis.

In order to parse the data to get accurate returns, I'd need to know which loans were fully funded by institutional investors prior to being offered to retail.  The data point they provide is where the loan was First offered.

If I knew which ones where thrown back, then I could calculate the % of loans the II do not invest in and I could also calculate the returns on the ones they do invest in.  (first offer only) 

I could then apply these same factors across the entire population (because 25% of the population is a representative sample). 


I have no way to know and will not unless Lending Club disclosed it, which loans are owned by retail and which ones are owned by II.  That would be the quick and dirty to know returns.


My feeling remains the same and I'm certain there is some math somewhere which would confirm this.  If you take 25% of the population, offer it to a select group then that group will perform better than the group who wasn't offered that same advantage.

Thus, I stand by my statement that advertising returns for the entire population when retail investors do not have access to the entire population is a material misstatement.

johnjm22

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Re: Changes to Lending Club?
« Reply #5 on: September 10, 2013, 01:03:15 PM »
However, in the last week or so, things seem to have changed.  I'm suddenly getting ample (6-10) DEF loans when I apply my filter.  Has anyone else experienced this?  I'm a little worried that Lending Club has loosened their requirements on borrowers.

Yes, I've noticed the exact same thing.  As recently as a few weeks ago it seemed that loans meeting my criteria were extremely scarce, now, just in the past few days, I've noticed much more availability of juicy high yield notes that adhere to my requirements.

Something has changed.

beltim

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Re: Changes to Lending Club?
« Reply #6 on: September 10, 2013, 02:23:33 PM »

My feeling remains the same and I'm certain there is some math somewhere which would confirm this.  If you take 25% of the population, offer it to a select group then that group will perform better than the group who wasn't offered that same advantage.

Thus, I stand by my statement that advertising returns for the entire population when retail investors do not have access to the entire population is a material misstatement.

Maybe I'm confused about what returns they are advertising that you do not have access to.  What specific claims are they making that you feel are material misstatements?

Rust

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Re: Changes to Lending Club?
« Reply #7 on: September 10, 2013, 05:50:45 PM »
Average returns by note after defaults.

If a retail investor cannot get access to the best risk/reward notes. It's not likely he retail investor can obtain average returns even when diversified.

beltim

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Re: Changes to Lending Club?
« Reply #8 on: September 10, 2013, 06:50:08 PM »
Can you provide a link to where Lending Club publishes average returns by note after defaults?

Rust

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« Last Edit: September 10, 2013, 08:20:32 PM by Rust »

Ryan_8099

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Re: Changes to Lending Club?
« Reply #10 on: September 10, 2013, 08:59:41 PM »
It sounds like there are changes coming for retail investors. Time will tell on what they will be, but it might be best to hold out. It looks like borrower availability is not the issue. Rest assured that many complaints from retail investors have been heard by the company. FWIW - I have had no problem staying invested with <5k and getting solid C-F notes.


Nords

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Re: Changes to Lending Club?
« Reply #12 on: September 11, 2013, 12:20:20 AM »
However, in the last week or so, things seem to have changed.  I'm suddenly getting ample (6-10) DEF loans when I apply my filter.  Has anyone else experienced this?  I'm a little worried that Lending Club has loosened their requirements on borrowers.
Yes, I've noticed the exact same thing.  As recently as a few weeks ago it seemed that loans meeting my criteria were extremely scarce, now, just in the past few days, I've noticed much more availability of juicy high yield notes that adhere to my requirements.
Something has changed.
They've been trying to:
- Hire more people
- Automate and speed up the screening/verification process
- Attract more borrowers.

Maybe they've also been tempted to spend less time on the screening/verification process.

http://the-military-guide.com/2013/06/06/more-problems-with-peer-to-peer-lending/

sulaco

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Re: Changes to Lending Club?
« Reply #13 on: September 11, 2013, 07:30:11 AM »
I've found that if you time your purchases to when new notes are released, the selection becomes reasonable (at least for my search criteria, and purchase size). MMM listed the loan release times in his last blog post. I keep my initial principal invested, so I need a few hundred dollars worth of loans every month. I'm picky, so it usually takes two or three days to find enough.

It's definitely more scarce than it had been in the past 6-9 months, but I feel like there were similar periods in the past where finding _good_ loans was hard to do.

I've also always thought of LC as a situation that may be too good to be true and probably a fleeting opportunity, as opposed to a long term investment strategy. I'll use it while the returns are good, but like high yield savings accounts, I don't expect it to be around forever.