n00b here. Hello

[Lucky Loser]

Hi I found this site searching for more information on Lending Club.

I'm a complete noob to p2p lending. I am hoping to gain knowledge to help me Reduce some mistakes in what seems a simple system.

Eric

From Texas

[rawraw]

Greetings!

Sorry that you can only do FolioFN though

[Peter]

Welcome as well. But as rawraw says, Texas is a trading platform-only state which means you cannot invest in new loans, you have to buy existing loans on the trading platform.

But fear not, many people here such as SarahV and New Jersey Guy are trading platform only investors as well.

Here are a couple of articles to help you get started:
http://www.lendacademy.com/an-introduction-to-the-lending-club-trading-platform/
http://www.lendacademy.com/a-guide-to-investing-on-lending-club-with-foliofn/

[New Jersey Guy]

"But fear not, many people here such as SarahV and New Jersey Guy are trading platform only investors as well."

Peter is right, and purchasing off of Folio isn't as bad as many people may lead you to believe.  It maybe cumbersome if you're planning on funding a large amount to start with.  Since sellers have to charge a small percentage over par on a freshly issued note, you want to avoid paying too much of a markup.  This will certainly reduce the number of available quality notes that meet your critera

However, if you have a chunk you need to invest, you may want to pull up "Current" notes that are only a few months old.  Nothing wrong with those.  I've picked up some good performing notes at small discounts.

[Lucky Loser]

Thank you folks for the welcome and about foliofn. I've been reviewing it for the past week or two and reading some of the published info that was in lend academy. I really appreciate you taking the time to post that info

I am finding it annoying that I can't get in on new loans.

NJG that you for that advice. I'll continue looking at that as a basic strategy as I become a bit more knowledgable of this.

[core]

However, if you have a chunk you need to invest, you may want to pull up "Current" notes that are only a few months old.  Nothing wrong with those.

Indeed, nothing wrong with them at all.  And I submit that they are even better than newly issued notes.  If you can get them at 0% markup or even a discount, then that's all the better.

It kills me to hear people talk about these notes as if they were toiletries.  "I don't want that note, it's used! *face of disgust*  I want a fresh one."

You're past the first month so you know they're not a hit-and-run scammer.  You've also now got many months of FICO history, which is not only beneficial in itself, but can also confirm that the individual used the proceeds for stated purpose in the case of credit card consolidation. 

Notes with payment history are more valuable, not less.  The fact that they can command a ~3% markup relative to "fresh" ones would indicate the market seems to agree.

Which would you rather have:  A little baby chick who might have hidden birth defects and may even turn out to be a man, or a fine hen who's been proven herself by laying eggs for several months?

[New Jersey Guy]

"It kills me to hear people talk about these notes as if they were toiletries. "

Core....thanks for bringing out those points!  I was going to, but didn't feel like doing all that typing!

Another thing.  I've bought notes older than that 12-month "Danger-of-Default" period and have never had to sell a single one.  Granted, I've lost the big interest payments associated with the first few months, but buying the note at a small discount makes up for some of that and I still get a good YTM.  In addition, I invested less in the note to begin with, and I have a note that will mature quicker.

[Rob L]

Wecome and good luck. You'll learn a lot from the folks here.

[core]

I've bought notes older than that 12-month "Danger-of-Default" period and have never had to sell a single one. 

In my opinion there is no such thing as a "danger of default" period.  This is the gambler's fallacy that I was referring to in another thread.  If half a sample defaults at 1 month and half at 25 months, the average is 13 months but that doesn't mean there's anything special about 13 months.  Each month may not be a totally independent event like a coin toss, but a long streak of successful payments does not increase the odds of one missed one because "it's due".

Granted, I've lost the big interest payments associated with the first few months

This is another one I hear quite often and I'm not sure what people are hinting at.  The interest is lower because the principal is lower; nothing magic.  The interest as a percentage is exactly the same as day 1; the borrower's paying interest on what they have outstanding and nothing is date-dependent.   (I can't tell you how often I've had to tell people in 'real' life that mortgages do not have any sinister "front loaded" interest.)  But yes, because of the 1% servicing fee your yield will be somewhat lower as it matures.

[New Jersey Guy]

"In my opinion there is no such thing as a "danger of default" period."

AnilG did a fairly comprehensive study on this.  I think the majority of the regulars on this board agree with his findings.  I do, anyway!

http://andirog.blogspot.com/2013/02/lending-club-loans-months-of-payment.html

[core]

I quickly scanned his post.  I see nowhere that he says a loan at xx months has a higher probability of defaulting than one at 0 months.  One paragraph in there that I think sums up his conclusions:

Put another way, we can expect half of our default loans to occur before a borrower makes ten complete monthly payments. Assuming Lending Club takes on average four months (120 days) after payments stop to charge off loan, we can expect half of our defaults to occur by 14th month after issue date.

This does not mean there is any higher probability once the loan has already gotten this far, and he didn't say so.  That would be an error in logic.  I could be wrong though.  I don't have one of those finance or engineering degrees you speak poorly of.  I have no degree whatsoever because I'm a college dropout.

[New Jersey Guy]

"This does not mean there is any higher probability once the loan has already gotten this far, and he didn't say so. "

Core, no loan is exempt from default probability.  But, we do know that default rates begin to decline after this 10-13 month period.

Right or wrong, I won't bet against the odds.  Even if you're looking to trim off the tiniest chance of a default, investing in notes past this period might be the slight edge you need.

[core]

You could do a similar analysis with a pretty chart on red/black winning streaks on a roulette table.  It's hit on black for the last 22 times.  Your pretty chart says virtually all streaks end before 20 times.  Does this mean you back away from a black bet and switch to red?  Of course not.  They have nothing to do with each other. 

I'd like to get AnilG's take on it since it's his data and we may be putting words in his mouth.

[New Jersey Guy]

"I'd like to get AnilG's take on it since it's his data and we may be putting words in his mouth."

Well, we're way, way off topic on this post!  This isn't the place for it.

Open up a new topic and request AnilG's presence.  I'm sure he'd be happy to elaborate.

[AnilG]

If you have 100 loans in your portfolio and your expectation is that 10 of them will default over the life of the portfolio of 100 loans, 5 loans most likely will default within receiving10 payments from borrower. Basically, if borrowers were going to make 36 payments to pay-off loans, half of your defaults will be within about first 1/3rd of the life of loan, other half in last 2/3rd of the life. So the loan defaults are tilted toward early portions of the life of the loan.

I prefer to use non-seasoned vs seasoned loans. Once a borrower has track record of payments (seasoned loans), s/he is likely to continue paying unless a catastrophic event happens. As a point of reference, Prosper doesn't report seasoned returns until I believe certain number of months have passed. Hopefully, it clarifies my position.

Personally, I don't trade on secondary market but I put higher default rate probability on loans that have made fewer than 10 payments. Also remember, you have higher negative impact on your return when borrower defaults early. With latest stats, the average ROI on defaulted loan is -46%, i.e. total payments (including interest) on these loan was about half of the original principal. The average number of payments made on defaulted loans is 11 months.

BTW, I think Bryce or someone else on the forum posted payment history Excel file that you can use to judge after how many payments loans went into default.