Author Topic: Change to Loan Issuing Process  (Read 10438 times)

BruiserB

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Change to Loan Issuing Process
« on: July 08, 2014, 09:52:13 PM »
Just received this in an email from Lending Club:

Changes to the way in which Notes are Issued
 
Lending Club works with WebBank, an FDIC insured Utah-chartered industrial bank,* that issues Borrower loans.  WebBank provides capital to fund the loans and, beginning in early August, will hold each newly issued loan for 2 business days (or up to 5 calendar days) after the date on which the loan is issued. During this period, WebBank will collect interest on the loan. Any Notes corresponding to the loan will be issued to investors after the holding period is complete. Accordingly, depending on the day of the week that the loan is issued by WebBank, there may be a 25 day gap between loan issuance and Note issuance.

As a result of the holding period and retention by WebBank of the interest earned over that period, investors in Notes will hold each Note for less than one month before the first payment is due, making the first payment due to investors slightly smaller than monthly payments due subsequently.  Please note that the holding period only affects the interest due in the first period; it does not affect the interest due in any subsequent period or the principal due in any period. This change is scheduled to go into effect on August 7, 2014 and will affect all Notes corresponding to Borrower loans issued on or after that date.

The change to the Note issuance process was made to ensure our business remains robust in a changing environment. 

* All loans issued by WebBank, an FDIC insured Utah-chartered industrial bank located in Salt Lake City, Utah, Equal Housing Lender.



This doesn't make sense to me......how is WebBank providing capital to fund the loans??  We investors are committing our money days before they fund.  Seems to me this is giving WebBank 2 days of our interest.


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Fred93

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Re: Change to Loan Issuing Process
« Reply #1 on: July 08, 2014, 10:27:06 PM »
Does this add 5 days to the already 45 days before first payment?

It used to be 30 days, but now they allow the borrower to set his 1st payment day plus or minus 15 days from the day-of-month of issue.  So it is often 45 days.  Now its 45+5 = 50 days?

Then they hold the payment for 4 business days (4 to 7 days)...

BruiserB

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Change to Loan Issuing Process
« Reply #2 on: July 08, 2014, 10:41:52 PM »
Same time to first payment from what I read....it just will be a smaller payment. 2 business days is 2-5 actual days of interest we will lose.  I see this as a price increase for service from WebBank that LendingClub is passing on to us with this made up justification.  I would rather just have it stated as a price increase with either a higher origination fee to borrowers or a slightly higher service fee to us.  But to say that it's being done to compensate WebBank because they are issuing "their" capital when LendingClub is sitting on our prereserved money for funding the loans doesn't sit right with me.

It's starting to feel like they are going to nickel and dime more fees out of us and hope we don't notice.  Maybe they need to make up the revenue lost due to fixing the rounding of the 1% fee charged per payment received.


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« Last Edit: July 08, 2014, 10:48:19 PM by BruiserB »

DanB

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Re: Change to Loan Issuing Process
« Reply #3 on: July 08, 2014, 11:06:04 PM »
I especially enjoyed the last line in the email notice............."The change to the Note issuance process was made to ensure our business remains robust in a changing environment".  Nicely worded & as usual, pointless.

But if you really want to be annoyed you can always click & read the highlighted "click here to learn more" text  in the email which, of course, will not bring you any closer to understanding why this change is being made...............other than the obvious reason which is that Web Bank wants a bigger fee for each transaction & LC doesn't want it to come out of their wallet. So guess who gets to pay for this? So how much money are we talking about anyway, you ask?
 
Based on current volume of $1 billion a quarter & increasing by 25+/-% per quarter, I'm estimating that this will remove around $4 to $5 million in interest out of our (i.e. Lenders) collective pockets, just in the first year (i.e. Aug 2014 thru Aug 2015)

BruiserB

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Change to Loan Issuing Process
« Reply #4 on: July 08, 2014, 11:16:17 PM »
Perhaps I will have to check into Prosper to ensure my returns remain robust in a changing environment.


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Fred93

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Re: Change to Loan Issuing Process
« Reply #5 on: July 08, 2014, 11:23:01 PM »
Same time to first payment from what I read....it just will be a smaller payment. 2 business days is 2-5 actual days of interest we will lose.  I see this as a price increase

Pardon me.  However,  a smaller 1st payment and a delay in 1st payment are equivalent to lenders.  We get a lower equivalent interest rate. 

BruiserB

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Change to Loan Issuing Process
« Reply #6 on: July 08, 2014, 11:50:19 PM »
Yes we do....but you specifically asked if it would add time to first payment.  It won't. But investors are definitely the losers in this.

This also bothers me in two additional ways.....

First, WebBank gets the additional reward up front on the first payment.  Where's the incentive to ensure that loans that will pay back more than one payment are issued?

Second, we've seen what appears to be manipulation of loan issue dates at ends of months.  Are we going to start to see the same thing with days of the week?  Loans issued on a Friday will give WebBank 4 days of our interest as the 2 business days will span a weekend.

Slightly modifying the fee charged to us to a little more than 1% per payment would remove both of these potential conflicts of interest in my opinion.  Not that I want higher fees at all, but if they're going to happen, keep them simple and straightforward.....not one fee here another one there, etc.


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« Last Edit: July 08, 2014, 11:55:47 PM by BruiserB »

brycemason

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Re: Change to Loan Issuing Process
« Reply #7 on: July 09, 2014, 12:41:50 AM »
I suspect this is a regulatory requirement and the OCC is irritated that WebBank was sort of involved in name only. I'm not sure why 2-5 days is substantive or what purpose it serves, though. If there's a first payment default, does WebBank eat 2/30 to 5/30 of the principal? I doubt it. All of the reward and none of the risk.



Fred93

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Re: Change to Loan Issuing Process
« Reply #8 on: July 09, 2014, 12:43:17 AM »
This is so strange that I suspect it is somebody's interpretation of a legal requirement.  Perhaps some bank regulator said "Hey, unless you hold these loans for a day or two, I don't think you really originated them, but just did a sleight of hand for somebody else".

If it is simply some guys at the bank thinking they can raise their fees, surely there are a lot of banks in the world who could perform this regulatory nicety of "originating" the loans, and that ought to make for competition.

It is sad that LC people have decided to be so opaque and lie about the reason for each change.  They're obviously hiring people of a lower grade than they did in the early days.

hoggy1

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Re: Change to Loan Issuing Process
« Reply #9 on: July 09, 2014, 06:41:28 AM »
The important role WebBank plays, as I understand it, is its ability to export Utah's interest rate usury limits (ie none) to out of state customers.
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BruiserB

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Change to Loan Issuing Process
« Reply #10 on: July 09, 2014, 06:59:17 AM »
If this is the case, then shouldn't the whole funding process be revamped?  Let WebBank actually use their own capital and originate the loans.  I have no issue with them collecting interest on money they are putting at risk.  Once the loan is fully approved and originated, then WebBank can use LendingClub to sell loan fractions to the investors.  We can then use available money in our accounts to buy already issued loans and we would begin receiving interest as soon as we commit to purchase and instantly transfer our money to WebBank.  Then yes, prorated interest for the first month would be fair, because then our money would not have been tied up during the loan approval and issue time as it is now.  But to continue to hold our funds in limbo while WebBank gets paid is wrong.


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rawraw

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Re: Re: Change to Loan Issuing Process
« Reply #11 on: July 09, 2014, 09:01:22 AM »
I suspect this is a regulatory requirement and the OCC is irritated that WebBank was sort of involved in name only. I'm not sure why 2-5 days is substantive or what purpose it serves, though. If there's a first payment default, does WebBank eat 2/30 to 5/30 of the principal? I doubt it. All of the reward and none of the risk.


Isn't Web Bank regulated by FDIC? At any rate, I think it has to do with the fee. The loans being issued could be inflating webbank's assets, making the profitability look bad. I'll have to check the UBPR

Peter

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Re: Change to Loan Issuing Process
« Reply #12 on: July 09, 2014, 02:04:34 PM »
I have heard some chatter from various people that the 24 hour hold of all Lending Club and Prosper loans that WebBank has had in place for several years might not be strong enough to pass regulatory scrutiny. I am guessing this has been put in place for that very reason. Lending Club is not taking any chances in advance of an IPO.

Now, reasonable people will wonder what the difference is between holding a loan for one day and 2-5 days. The whole thing is ludicrous.
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Fred

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Re: Change to Loan Issuing Process
« Reply #13 on: July 09, 2014, 02:37:36 PM »
With:
- $1B annual underwriting
- 12% average interest rates
- 3.5 days average holding period

WebBank will get more than $1M annually.

GS

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Re: Change to Loan Issuing Process
« Reply #14 on: July 09, 2014, 04:34:20 PM »
That is crazy.  Web Bank is risking no capital and shouldn't be collecting interest.