Author Topic: New to LC  (Read 6005 times)

DutchNurse

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New to LC
« on: September 04, 2013, 10:12:08 PM »
Ok guys, looking forward to gaining as much knowledge as I can! I made a thread in the introductions forum, but nows the question time :)

I'm first and foremost a stock market guy, so I have alot of ins and outs to learn here both about the platform and about the underlying mechanics, so I apologize for what could be in the future a large number of posts. I'm all about education offsetting risk, and if your kind enough to reply - THANK YOU in advance!

So coming to LC is an alternative to my money market account, so my initial idea was to invest in all A class loans for safety (matching somewhat close to a money market idea) - until I found 6.62% was significantly less after fees were taken out. Still 5% beats the hell out of any money market account I've seen in the past...Well I'm 27 so I have a short history on earth and its the best return with some modicum of safety I've ever seen. Looks like on Page 39 of the latest 10Q LC put out the default rate average for A class was somewhere around 3.5% of loans given over the past number of years. I can live with that. Still 6.02% isn't 6.02% at 'checkout'.

So, my first question is in regard to transparency - or lack thereof as above depicted. Is there a way I can see the 'rest of the numbers' here? What is the borrower paying? Simply put - he sure aint paying 6.03% - wheres the my margin. I could do the math (monthly payment, number of months etc...) but this is going to add some time to my due diligence. Does LC present this information in quick and easy 'at a glance' way? I mean sure, the credit card companies are charging 29.99%, but what is LC giving the money out at? Just would give me a nice idea of payback feasibility.

My next question is in regards to "Review Status". Seems to me there are a fair few number of applicants even in the A range making a nice round 10,000 a month working at Office Depot. Sure, thats possible I guess, this person obviously isnt just a sales clerk at that income level and I'm not sure what the compensation structure at Company X is, but it's just ever so slightly questionable to me without income verification.

It seems to me that with the volume of loans given out, verifying income for everyone is something of a...calculational and time consuming impasse. Can I trust some of these numbers? And to what degree? Is it possible that Joe Smith working at Office Depot with 10,000 of capital incoming each month is stating his combined income with his wife?

Next I'm a little interested in the rate of growth of LC itself. I spent a fair amount of time on the phone talking to LC, and it sounds like the their accelerating growth at a respectable clip since first hanging up their shingle. Leads me to wonder just how this is happening. Eventually I would think a 'push' to increase number of loans issued would me quality of borrower would drop. Does LC do all its borrower marketing online? Have the requirements to meet A, B, or C changed over the years and how would I find this out? (Still driving through the 10Q and 10K's so I apologize if the information is in there yet).

Thats all for now!

SeattleSun

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Re: New to LC
« Reply #1 on: September 04, 2013, 10:37:43 PM »


Perhaps a few videos from the Lend It Conference a few months back to provide some general overview information.

http://www.youtube.com/lenditconference

Perhaps you start with this one.
LendIt 2013: Intro & Keynote, Renaud Laplanche CEO of Lending Club
http://www.youtube.com/watch?v=FKoMS_MHfng

"I spent a fair amount of time on the phone talking to LC"
I am suprised they would spend a "fair amount of time" talking to you since there is a glut of lenders.


DutchNurse

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Re: New to LC
« Reply #2 on: September 04, 2013, 10:40:38 PM »
Thanks Seattle.

It's true, thats one of the things that impressed me. Sometimes I've not even gotten responses from investor relations of big name companies with an inquiry, so far LC has been easily accessible to me.

Joleran

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Re: New to LC
« Reply #3 on: September 04, 2013, 11:12:53 PM »
One point I would raise is that while A rated loans are safer from default risk on an individual level, lower rated loans will statistically give you better overall returns due to the large diversification allowed with $25 pieces of loans.  Volatility on returns will not be substantial with a large enough volume of loans in your portfolio.

The borrow simply pays what you see on the note's info page under "Interest Rate", plus an origination fee.  LC fees are taken out of their payments, not rolled into the loan rate or anything tricky.

LC verifies a large number of loans, >50%, and they have some internal mechanism for determining who to review.  Historically and statistically, you are apparently safe either way as I recently found out.



DutchNurse

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Re: New to LC
« Reply #4 on: September 04, 2013, 11:26:05 PM »
One point I would raise is that while A rated loans are safer from default risk on an individual level, lower rated loans will statistically give you better overall returns due to the large diversification allowed with $25 pieces of loans.  Volatility on returns will not be substantial with a large enough volume of loans in your portfolio.

The borrow simply pays what you see on the note's info page under "Interest Rate", plus an origination fee.  LC fees are taken out of their payments, not rolled into the loan rate or anything tricky.

LC verifies a large number of loans, >50%, and they have some internal mechanism for determining who to review.  Historically and statistically, you are apparently safe either way as I recently found out.

Now that's what I'm talking about. I'm going to spend my night running numbers on this stuff  :P

storm

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Re: New to LC
« Reply #5 on: September 05, 2013, 01:52:54 AM »
I'll add that the borrowers for A grade loans are slightly more likely to pay off the loan early.  Then you'll have to wait a few days for the funds to settle, find another loan to invest in, and wait a bit for the loan to be issued and start accruing interest on your investment again; thereby, slightly lessening returns.

rawraw

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Re: New to LC
« Reply #6 on: September 05, 2013, 08:06:08 AM »
I think Peercube calculates the true cost and other things you want.

cfb

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Re: New to LC
« Reply #7 on: September 05, 2013, 07:48:34 PM »
When buying the lower interest rate loans, do note that on average, about 2% of the borrowers will die before the loan is fully paid.  That's average.  People with financial issues tend to have shorter lives and more health issues.  When someone dies, unsecured loans are paid last from the estate, and most estates are peanuts in the first place.

When you factor in job loss/unemployment, divorce (financial death), accidents and illnesses, a 3-4% unavoidable and unforeseeable default rate is pretty likely.  So taking less than 10% before taxes are considered is a bad idea.

About half of my defaults are loans I wouldn't write today.  The other half would have passed my current stringent filtering and generally are death and bankruptcy.  Loan grade doesn't seem to correlate with defaults in my case.

DutchNurse

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Re: New to LC
« Reply #8 on: September 06, 2013, 12:48:16 AM »
When buying the lower interest rate loans, do note that on average, about 2% of the borrowers will die before the loan is fully paid.  That's average.  People with financial issues tend to have shorter lives and more health issues.  When someone dies, unsecured loans are paid last from the estate, and most estates are peanuts in the first place.

When you factor in job loss/unemployment, divorce (financial death), accidents and illnesses, a 3-4% unavoidable and unforeseeable default rate is pretty likely.  So taking less than 10% before taxes are considered is a bad idea.

About half of my defaults are loans I wouldn't write today.  The other half would have passed my current stringent filtering and generally are death and bankruptcy.  Loan grade doesn't seem to correlate with defaults in my case.

Wow... Interesting insight. Do you receive notification of some sort when a loan is being repaid by an estate due to a borrows death? I hadn't quite had time to those things factoring into the loans yet - the health issues etc... sound like a paragraph out of a Steven Levitt book, but it is no doubt true. I'm a nurse and I can preach to health issues and financial status going hand in hand.

Fred

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Re: New to LC
« Reply #9 on: September 06, 2013, 01:00:41 AM »
When buying the lower interest rate loans, do note that on average, about 2% of the borrowers will die before the loan is fully paid.  That's average. 

Wow, is this really true?  Source?

That's awfully higher than the U.S. total mortality rate of 0.8% (799.5 deaths per 100,000 population) -- http://www.cdc.gov/nchs/fastats/deaths.htm.

core

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Re: New to LC
« Reply #10 on: September 06, 2013, 01:08:32 AM »
That's awfully higher than the U.S. total mortality rate of 0.8% (799.5 deaths per 100,000 population) -- http://www.cdc.gov/nchs/fastats/deaths.htm.

Yes but the borrowers have 3 or 5 years in which to die, and the death rate you quoted is for a single year, no?

DutchNurse

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Re: New to LC
« Reply #11 on: September 06, 2013, 01:09:26 AM »
Fred I had a couple hairs raise on my neck too with that - but he's right.

In the medical field its WELL known that lower socioeconomic status leads to worse outcomes. Its true that with wealth comes health generally speaking, and if all of these people were wealthy, would they be here?

I'm not saying I doubt that number...but I'm not saying I agree either. If someones first credit line was opened in 01' he's a young guy or gal and nothing healthwise really starts to go wrong with people until their late 50's these days. Again...generally speaking but...


DutchNurse

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Re: New to LC
« Reply #12 on: September 06, 2013, 01:10:10 AM »
That's awfully higher than the U.S. total mortality rate of 0.8% (799.5 deaths per 100,000 population) -- http://www.cdc.gov/nchs/fastats/deaths.htm.

Yes but the borrowers have 3 or 5 years in which to die, and the death rate you quoted is for a single year, no?

Hm. Excellent point. Certainly lends more credence to the 2% claim...

DutchNurse

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Re: New to LC
« Reply #13 on: September 06, 2013, 01:12:41 AM »
Let's hope they worked for a place with a good company life insurance policy?


core

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Re: New to LC
« Reply #14 on: September 06, 2013, 01:21:19 AM »
Let's hope they worked for a place with a good company life insurance policy?

You mean like WMT's practice of taking life insurance out on employees and hoping that they die so the company can cash in?  Payable to employer doesn't help.  :)

Even if it were a truly legit policy, assuming the deceased named a beneficiary other than their estate, then the beneficiary would receive the payout and the debt would still remain unpaid.

I'm still waiting to hear a source for the 2% claim.  Hell maybe the number is even higher than that.   That would sure be an interesting tidbit LC could use for its marketing:  "Take out a Lending Club loan and die faster"  Now that's what I'm talking about!  Get the borrowers lining right up.