Author Topic: The paucity of good D & E loans  (Read 7869 times)

investforfreedom

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The paucity of good D & E loans
« on: July 04, 2013, 09:09:16 PM »
I am not sure if this is just me.  I have found it increasingly difficult in the past couple of weeks to put money into D & E loans that meet my criteria--let alone HR loans.  They have certainly generated a lot of loan volume in the past few months, but the paucity of good quality higher risk loans is frustrating.  Some good loans just disappeared within the first couple of minutes in front of my screen, with presumably one big institutional investor taking 50% of the bite and a couple of other investors taking the rest.  I am not even going for 16-17% return investing predominantly in higher risk loans: my portfolio is fairly well diversified.  But I doubt if I can maintain my current level of return (13-14%) if the drought of good D & E loans persists.  What's more, the rates of both Prosper and LC have been dropping.  Bigger doesn't mean better (for the retail investors).  That's what I pointed out last year, and that seems to be the direction this industry is heading. 

Dennis

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Re: The paucity of good D & E loans
« Reply #1 on: July 04, 2013, 11:22:48 PM »
Well said and you speak my sentiments (concerns) perfectly.  My annualized return at Prosper on all notes is now 14.84% (seasoned notes is 14.36%) but that has been slowly and steadily declining over this past year.  July marks the 23rd month I've been with Prosper and I've never seen a worse availability in note offerings, particularly in the C - HR grades.  I use to load up on the HRs as I could find many that met my criteria.  At one point I had over 100 of them.  Even with the higher default rates on HRs, at 30% interest you can take a lot of hits but still maintain a very good return.  Now I won't touch a single new HR as the borrower profiles are so bad.  I don't see how most of them won't default (of course that's just my opinion).  Even the D's and E's in most cases have very poor financial profiles, very unlike in the past when I could find notes in abundance that met my criteria in those grades.  But, to be fair, the new management team is doing what they need to do to get Prosper where it needs to be.  It does seem that overall Prosper is heading in the right direction, loan volume is impressive (still can't figure that out when there never seems to be any notes on the platform).  The way I look at it, for now it pretty much sucks for us retail investors, but I'm willing to sacrifice a little in the name of Prosper becoming profitable as soon as possible.  I want Prosper to be here for a long time to come.

Dennis

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Re: The paucity of good D & E loans
« Reply #2 on: July 04, 2013, 11:52:37 PM »
BTW, I like your use of the word paucity.  I never heard it spoken before, I had to look it up in the dictionary.  It's been a long long time since that's happened.  Rare to see a display of linguistic art anymore.  Or if I ever do it's from someone purposefully showing off, like they have a list of big words on piece a paper and then force them into a discussion.  It's so obvious and so painful to see. 

I learned a new word today.............   

investforfreedom

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Re: The paucity of good D & E loans
« Reply #3 on: July 06, 2013, 02:07:46 PM »
BTW, I like your use of the word paucity.  I never heard it spoken before, I had to look it up in the dictionary.  It's been a long long time since that's happened.  Rare to see a display of linguistic art anymore.  Or if I ever do it's from someone purposefully showing off, like they have a list of big words on piece a paper and then force them into a discussion.  It's so obvious and so painful to see. 

I learned a new word today.............   

I can't exactly recall where I learned that word or its cognates from, perhaps from Charles Dickens, whom I read when I was in junior high.  He wrote about the plight of pauperized children in England.  Pauper, paucity, pauperize, etc.  :)
« Last Edit: July 06, 2013, 02:13:05 PM by investforfreedom »

Simon

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Re: The paucity of good D & E loans
« Reply #4 on: July 11, 2013, 02:15:22 PM »
I haven't had an automated quick invest loan happen since June 26. Grrrr
Writes at the peer to peer lending site LendingMemo.

neals384

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Re: The paucity of good D & E loans
« Reply #5 on: July 11, 2013, 07:56:41 PM »
Seems to me the availability of D & E loans has been ok this month, but they go very quickly.  I currently have 2 Ds and 1E pending, plus 5 Ds and 1 E originated since July 1 (very few of the D/E listings will pass my screens). 

The most frustrtating thing for me is a "Charlie Brown".   If you're old enough you know that Lucy always pulled the football away just as Charlie was going to kick it.  So a Prosper Charlie Brown is:  open a note, take a minute or two to review, decide to invest, enter an amount, and Prosper comes back with "Enter $0.00 to invest in this listing."

I've only had one Charlie Brown this month, a big improvmeent!

investforfreedom

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Re: The paucity of good D & E loans
« Reply #6 on: July 12, 2013, 01:47:53 PM »
Seems to me the availability of D & E loans has been ok this month, but they go very quickly.  I currently have 2 Ds and 1E pending, plus 5 Ds and 1 E originated since July 1 (very few of the D/E listings will pass my screens). 

The most frustrtating thing for me is a "Charlie Brown".   If you're old enough you know that Lucy always pulled the football away just as Charlie was going to kick it.  So a Prosper Charlie Brown is:  open a note, take a minute or two to review, decide to invest, enter an amount, and Prosper comes back with "Enter $0.00 to invest in this listing."

I've only had one Charlie Brown this month, a big improvmeent!

Many of these "Charlie Brown" moments happen in the first 30 seconds.  I just caught one today. It came out with 50% invested already, and then I clicked to view it for about 10 seconds, hit the back button to return to the loan listings, and then 10 seconds later when I returned to that loan, it was fully invested.   What drives me really mad is that these "flash-in-the-pan" loans fit my criteria!   >:(

They already have the whole loan program for the big guys.  Why can't they just put a time lock on these other loans--say, no investor is allowed to invest in 50% of the loans during the first 10 minutes? 


« Last Edit: July 12, 2013, 01:55:50 PM by investforfreedom »

Peter

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Re: The paucity of good D & E loans
« Reply #7 on: July 12, 2013, 11:21:55 PM »
My last successful Automated Quick Invest for a D or E loan happened on July 1st and they are really happening at a rate of about one per week.

Here is the deal: there are in fact plenty of good D and E loans available on Prosper but as is pointed out above they are snapped up in the first 30-60 seconds. These are almost all investors using the Prosper API which has been widely available to all investors for some time now. I am using the API (via Nickel Steamroller's NSR Premium product) and I am finding good D/E loans pretty much every day.
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investforfreedom

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Re: The paucity of good D & E loans
« Reply #8 on: July 13, 2013, 01:03:18 AM »
Peter,

Thanks for your response.  I certainly understand that there is a place for APIs, since not all investors have the time to scan the loans on their own, or even if they have, they might not want to do it. 

The issue I am bringing up--which I raised before--has to do with front-running, especially using API to front-run everybody else by the large investors.  I know that third-party developers are scrambling to develop ever faster and more efficient APIs.  You might be able to successfully use NSR for now to get some good D and E loans, but who knows if somebody else might come up with a better "mousetrap" in the future, say, beating NSR by 1 second or fraction of a second?  You would be just like those of us now holding the bag.  Chances are those with deep pockets are in the best position to develop the best APIs.  99% of small investors would have no access to them or simply can't afford to subscribe to them.  This is likened to high-frequency trading in the stock market, where these institutions try to exploit inefficiencies in the prices for microseconds. (I used to do some stock trading.)  And only the big banks or those with lots of money and resources can come out on the top with this kind of trading practice.

Again, don't take me wrong.  I am not opposed to people using APIs.  I am just saying that when they are used by the big investors, it's going to shut out retail investors very quickly.  What I propose with the time lock of 10-15 minutes is that it would at least give small investors a chance to get the better loans.  But if two or three big boys scoop up the best loans within seconds, then even most small investors using APIs can't get in.  After all, the big investors already have their "whole loans" to play with.

Peter, I would really appreciate it if you could bring this issue to the attention of Prosper and LC.  It might not affect those of you using APIs just for now, but this issue is expected to loom large in the future as p2p continues its rapid growth.  It is not just a question of fairness.  The underlying idea of p2p is lending by common folks to other common folks, but if it ends up being dominated by big investors and institutions, then it ceases to be p2p.


My last successful Automated Quick Invest for a D or E loan happened on July 1st and they are really happening at a rate of about one per week.

Here is the deal: there are in fact plenty of good D and E loans available on Prosper but as is pointed out above they are snapped up in the first 30-60 seconds. These are almost all investors using the Prosper API which has been widely available to all investors for some time now. I am using the API (via Nickel Steamroller's NSR Premium product) and I am finding good D/E loans pretty much every day.
« Last Edit: July 13, 2013, 06:05:39 PM by investforfreedom »

hippo387

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Re: The paucity of good D & E loans
« Reply #9 on: July 13, 2013, 10:32:52 AM »
In my opinion Prosper has already responded to retail investors by limiting institutions to 50% of a fractional loan. It's a significant concession considering that they could probably be more profitable and grow faster without catering to retail. The reality is if you log in at the time the loans hit the platform, you have enough time to invest in these loans if you've filtered for them. If you can't log in at those times, it might frustrate you but it's still quite fair.

Of course the other point, which has been mentioned many times, is that D & E loans are not necessarily the best -- we don't know how they will play out over 3-5 years and historical performance is of limited value. What is certain is that they have a higher default rate than B & C loans (which still carry rates of 13-18%). Just anecdotal but in my portfolio A, B, and C notes have all outperformed D notes after 2+ years in terms of absolute returns, with C notes being the best by far at least according to my criteria.

I do concede we all have different strategies, but I'm just saying the continual focus on the lowest rated notes (on this forum) carries a lot of assumptions that are not proved. 

berniemadeoff

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Re: The paucity of good D & E loans
« Reply #10 on: July 13, 2013, 01:17:16 PM »
The problem gets worse imo until LC and Prosper lower loan rates, overall rates rise and/or defaults climb such that the returns are no longer attractive to institutional investors, then retail investors can buy all the loans they want.

rajuabju

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Re: The paucity of good D & E loans
« Reply #11 on: July 13, 2013, 02:54:20 PM »
The problem gets worse imo until LC and Prosper lower loan rates, overall rates rise and/or defaults climb such that the returns are no longer attractive to institutional investors, then retail investors can buy all the loans they want.

Except that many institutional guys will still be happy with returns that are 50% lower than what they are currently achieving. I dont see them ever getting out of the P2P game unless defaults rise to a point that it becomes too risky for them (which I think is unlikely).

I'm not surprised this is happening. (a) word is clearly getting out about P2P lending. More and more big guys, and little guys, are putting money thats been sitting on the sidelines doing nothing into this asset class. Supply of Lenders will (IMO) continue to outpace supply of Borrowers, even with the platforms lowering the interest rates they offer to borrowers.

I think a few things could help stem the changes, such as: longer terms (7 or even 10 years). Many retail investors wont like to lock in that long-term, but I think institutions would. Second, larger loan amounts, perhaps up to $50k or even $75k, if a Borrower meets certain additional criteria. Third, loans that are somehow backed by an asset or other security. Of course, these would offer lower yields, but again, certain institutions (and maybe retail investors) would favor this trade off.




berniemadeoff

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Re: The paucity of good D & E loans
« Reply #12 on: July 14, 2013, 01:30:15 AM »

Except that many institutional guys will still be happy with returns that are 50% lower than what they are currently achieving. I dont see them ever getting out of the P2P game unless defaults rise to a point that it becomes too risky for them (which I think is unlikely).


You might be right.  Which is why I think the window for retail in this game may be closing.  I'm loaded up because I think the returns are too good and won't last.  Let's hope they will...

investforfreedom

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Re: The paucity of good D & E loans
« Reply #13 on: July 14, 2013, 02:23:19 PM »

Except that many institutional guys will still be happy with returns that are 50% lower than what they are currently achieving. I dont see them ever getting out of the P2P game unless defaults rise to a point that it becomes too risky for them (which I think is unlikely).


You might be right.  Which is why I think the window for retail in this game may be closing.  I'm loaded up because I think the returns are too good and won't last.  Let's hope they will...

One potential development that might work in the favor of retail investors is that financial institutions will offer p2p type of mutual funds or ETFs that compete with one another.  Retail investors can then select the best performing p2p funds.  I am not surprised if some p2p fund manager will make it to the Morningstar Fund Manager of the Year, and so on.  Where retail investors lack the tools (fast APIs) to compete, they can piggyback on institutions that can do that on their behalf. But when that happens, p2p might cease to be what we have come to recognize today.


« Last Edit: July 14, 2013, 02:25:23 PM by investforfreedom »