Author Topic: Pulling out of Lending Club and Prosper  (Read 4142 times)

lendingprosper23

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Pulling out of Lending Club and Prosper
« on: October 26, 2017, 11:01:24 AM »
Hey everyone,

Ive checked the forum over the past year quite often, but never posted before. I have decided to pull all my money out of private lending. For Prosper its a combination of returns and the lack of secondary market. Imagine needing a lump sum of money in the future whether its for personal reasons or another investment? Its impossible and your money is locked for 3+ years. Truly terrible imo.

For lending club the returns have been horrendous. I make more money in a simple combo of sp500 fund and bond fund than I do here. Additionally, loans take FOREVER to sell on the secondary market. Even when put up at 4-5% discount for current loans more than half paid, they dont sell (I did it as a test on a few loans to see how big of a discount it would take to actually sell). Again the lack of liquidity is really disturbing.

So im out. Im selling my loans, stopped reinvestments, and will need to wait a very long time for Prosper to finish up. But its just not worth it anymore at this point. If my money is so locked into place then I really expect greater returns than the endless charge offs and dwindling returns year over year.

As an aside I did put money into Bitcoin and Crypto six months ago and doubled my net interest from private lending with less than 10% of the overall investment, but thats not going to happen every day. So my future will be strictly the market and crypto, but just wanted to share with you guys. Have loved this forum, it really helped me learn how to do private lending the right way.

Best of luck to everyone!

rawraw

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Re: Pulling out of Lending Club and Prosper
« Reply #1 on: October 27, 2017, 12:06:43 AM »
Oh my, I can't wrap my head around how most people approach investing. But good luck!

lendingprosper23

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Re: Pulling out of Lending Club and Prosper
« Reply #2 on: October 27, 2017, 01:19:03 AM »
Pretty simply actually. I have an IRA I max out and previously was splitting my investment funds 50-50 in the market and p2p lending. Now I am doing 75% market and 25% crypto.

I also dont count my real estate investments in the above as I stopped investing new capital years ago and simply use one building to purchase the next, so on and so forth. If I counted real estate than it would be something like 98% real estate, 1.5% market, .5% crypto.

Reginald

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Re: Pulling out of Lending Club and Prosper
« Reply #3 on: October 31, 2017, 11:49:05 AM »
Over on the blog portion of lendacademy there is an interesting article. LC itself is wrestling with its abysmal loan portfolio. If they were and are still liquidating those assets, the overall secondary market for loans must be plunging. Given this, it might be best to simply stop reinvesting and let early payments and interest accumulate until the market conditions improve. Or conversely, shoot the moon and go for it. Performing loans should be worth more, not less as overall return rates go down. When Lending Club raises their rates to borrowers, it acts like the Fed. Suddenly secondary loans dont look as good, and new loans look better to investors.  They can do this so long as there are borrowers who want loans at the rates they are offering. But if there is too much competition from other lenders, fewer borrowers will re-fi through LC. 

Either way, it doesn't look good if LC itself is closing down funds that invest in their own asset class.

https://www.lendacademy.com/lending-club-closes-five-investment-funds-rebrands-lc-advisors/
« Last Edit: October 31, 2017, 11:53:23 AM by Reginald »

jd

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Re: Pulling out of Lending Club and Prosper
« Reply #4 on: October 31, 2017, 02:23:56 PM »
Quote
Either way, it doesn't look good if LC itself is closing down funds that invest in their own asset class.

Overall do you think what they are doing is good or bad for the (A) the company (B) the people who invest in loans?

Thanks


janef

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Re: Pulling out of Lending Club and Prosper
« Reply #5 on: October 31, 2017, 06:12:40 PM »
I have stopped reinvesting since three months ago, and have been withdrawing the money in my account every few weeks. I have lost confident in LC completely everything about the company and its stock price is depressing.

I lost over two thousands on LC stocks (still holding though). Still have over 1000 notes, and I haven't lost any money on this yet, but the increasing default rate is annoying. I figure would take 5 years for me to get back all my money, hopefully the default aren't as bad as I have experienced in the past 18 months and I hope by then I don't lose the money I have invested.

I use all the money I withdrew investing in Cryptocurrencies since two months ago. This risk is a lot higher, so is the reward. So far I am good with my investment. I use part of it for long terms, and part of it short. Psychologically I feel that if I lost money on crypto investing, I will still feel better because it is within my control. Yet with LC lending, I find the increasing default rate is aggravating, something which I can't control.

Fred93

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Re: Pulling out of Lending Club and Prosper
« Reply #6 on: October 31, 2017, 08:48:56 PM »
Over on the blog portion of lendacademy there is an interesting article. LC itself is wrestling with its abysmal loan portfolio.

To stop this progression of incorrect interpretation, I will attempt to correct & clarify what is going on.  For example the word "wrestling" probably sends the wrong impression. 

Starting mid 2016, following the scandal, a significant fraction of investors in the fund asked for withdrawals.  I was one of them.  Now withdrawals take a long time.  Their policy was that if there are enough new investors putting money into the fund they would give withdrawing investors money quickly, but if there were more withdrawals than new money coming in then they would let loans run their normal course, which of course pays back money which could then be given to the withdrawing investors.  There were some new investors, but there were more withdrawals, so the withdrawing investors have been getting a chunk back every month.  So every month for over a year now, I've been getting money from the fund.

Quote
If they were and are still liquidating those assets, the overall secondary market for loans must be plunging.

Again, I think this is a misinterpretation.  During most of this time, they were never "liquidating" loans.  They never used the secondary market.  They were letting the loans run their normal course.  This had no effect on the secondary market.  It is wrong to interpret these events as LC having trouble selling loans, because for most of this time period they were not selling loans from the funds AT ALL.

Some investors expressed desire to get their money sooner.  Recently, this last month, LCA got quotes from buyers for the entire portfolio, and is carrying out a sale, which will get investors their money back more quickly than continuing the runoff.


Quote
Either way, it doesn't look good if LC itself is closing down funds that invest in their own asset class.

It isn't actually "LC itself".  These are funds managed by a subsidiary of LC known as LCA.  The investors in these funds are people like you and me.  The triggering event was that a significant # of investors withdrew a year and a half ago.  The recent "news" is just that LCA is now liquidating the portfolio rather than letting it continue to run off.  The liquidation means selling the entire portfolio, in one chunk, which is apparently now done.  This is completely different than your "still liquidating those assets" statement, which makes it sound like selling was so difficult that it took a long time.  The opposite of the truth.

When you say "doesn't look good", I think you're reacting to news that doesn't mean what you think it means.  It is good news that LC is liquidating the remaining funds rather than continuing to let them run off, because a majority of the investors want their money back, and this gets them their money back quickly. 

What was NOT good was the scandal last year, and the fact that 2015 loans performed poorly.  These things led to a significant # of fund investors withdrawing.  These are bad things, but they are in the rear view mirror.  LC's actions recently to clean this thing up don't tell us anything at all about the future.

Meanwhile, as often happens in the fund business, LC has rebranded and opened new funds with different names.  This means that LC believes there is still a market for this form of investing (ie funds that invest in LC loans).

I have chosen not to invest in the new funds, because I do better investing in LC loans when I choose them according to my own filter criteria.  The funds invest across all grades etc, like an index fund.

Reginald

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Re: Pulling out of Lending Club and Prosper
« Reply #7 on: October 31, 2017, 09:35:46 PM »
Thanks for an interesting reply, and for me a new perspective! I dont mean to sound so negative on LC, but I do think that its in the past, but only now being revealed, therefore questionable.

What I think about the latest article is that there are a lot more sub-markets out there for unsecured loans (and notes) than I thought.  And also, I find their "solid returns", ANAR, NAR etc., to be very misleading to investors. Additionally I find that the overall rate of return to be dropping monthly, due to socio-economic factors beyond their control or imagination. (income inequality and fraud are bad problems, and just the tip of the iceberg if interest rates rise, or employment and wage rate fall even slightly).

Personally, I think Lending Club has invented an incredible market tool, but their software (or algorithm) for grading loans and more importantly predicting and weeding out non-performing loans is not working as well as they (or we) would like. 

I am an investor, so I am not interested in anything other than helping Lending Club fix its own problems. Their problems are my problems.

Having spent a lot of time on the phone with them, I am concerned that they are less than forthcoming. I feel that they seem to think that us Lenders are the low hanging fruit, and are happy getting less than 3.3%* with risk of going lower. As long as they get sufficient new borrowers, they can let existing loans charge off, until they get their vetting algorithms fixed (or start doing it the old fashioned way, using human intelligence).

* current median 15 week rate all grades  as shown at : https://www.lendingclub.com/info/statistics-performance.action



jd

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Re: Pulling out of Lending Club and Prosper
« Reply #8 on: October 31, 2017, 10:03:48 PM »
Thanks to everyone who is taking the time to share their well thought out views in this thread. 

lendingprosper23

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Re: Pulling out of Lending Club and Prosper
« Reply #9 on: November 01, 2017, 10:45:45 AM »
Thank you for the replies everyone. My biggest issue is not the return, its the fact that it is SO illiquid. And the secondary market is dead. I literally put loans that have perfect payments, great FICO, in the C range at a 6% discount and they still expire without selling. I did that as a test to see how easy it is to liquidate a portfolio.

The s&p 500 has averaged a return of 7% since inception accounting for inflation (10% if not accounted for). If im going to go into an alternative investment without liquidity I either need it to be incredibly safe or have high potential upside if money is going to be tied up for 3-5 years. Prosper doesn't even give you a prayer of selling on the secondary market so that is really shocking and makes it flat out unusable to me. But LC is so illiquid its almost a wash. And again with returns not beating a simple index fund, I can't keep investing.

But I do wish investors best of luck that are sticking with it. The market is soaring, returns are dropping, defaults are skyrocketing, so im not waiting to see what happens when the next crash comes in regards to defaults.

Fred93

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Re: Pulling out of Lending Club and Prosper
« Reply #10 on: November 01, 2017, 11:30:15 AM »
My biggest issue is not the return, its the fact that it is SO illiquid.

Can't argue with that.


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The s&p 500 has averaged a return of 7% since inception accounting for inflation (10% if not accounted for).

But its not gonna do that starting here, at a quite high valuation, over the next few years.  S&P500 return is not a fixed number. 


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money is going to be tied up for 3-5 years.

Not true.  On the average, your money is tied up about 1.5 years.  (The technical term for this is "duration".)  Loans give you back a set of (36 or 60) EQUAL payments.  Therefore the average time your money is tied up is half the length of the loan, which would be 1.5 or 2.5 years.  However, a large number of loans on LC pay back early, reducing the duration of loans to 1 or 2 years, so you could say average 1.5 years presuming you have a mix of 3 and 5 year loans.


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And again with returns not beating a simple index fund, I can't keep investing.

No one can say what a simple index fund will do next year or the year after.  It may not beat LC or Prosper.  The main reason one invests in bonds, loans, or other non-stock assets is to have something not correlated to stock market returns. 


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The market is soaring, returns are dropping, defaults are skyrocketing

Defaults for LC and Prosper loans issued in 2015 and 2016 were much worse than prior years, but things have leveled off.  If you look at the stats for consumer loan defaults overall (from St Louis Fed), they're nearly flat, so the consumer in general is doing ok.  I don't see defaults skyrocketing at this time.

As for the market, sure it has gone up a hell of a lot recently, which only means it has less room to go up next year and the year after.   We're all playing stock market momentum right now, which is great fun, but that will end.  Whether it ends with stocks just staying level for the next five years, or going down to half their current value, I cannot predict.  In this situation one must have some investments outside of the stock market.

Half Right

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Re: Pulling out of Lending Club and Prosper
« Reply #11 on: November 01, 2017, 01:25:32 PM »
I found it unbelievable that over 40 bidders were interested in buying the entire portfolio of loans from the fund. This is a tidy sum of over $300
million and it was supposedly sold at face value.
As for Lending Club i believe the entry of Marcus into the lending game (without charging a fee) and with a seemingly bottomless source of funds at a rate of 1.3% enables them to grind down the competition in time.
Goldman Sachs bank is now paying 1.3% on deposits in direct response to Capital One, however they are restricting account balances to a
maximum of $1 million. IMHO this is a direct result of Marcus's inability to deploy all the deposits as loans in a timely manner.

Skeptical

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Re: Pulling out of Lending Club and Prosper
« Reply #12 on: November 01, 2017, 05:59:46 PM »
@lendingprosper23

There is no shame to come to the conclusion that P2P investing is not for you. I started in April to invest in notes and found out very quickly that this is not for me. I am letting my notes wind down naturally. Another note I bought with a FICO score of 810-814 is in the 31-120 day late period. This makes me pull my hair out. I researched FICO scores thoroughly and only bought notes with scores above the median of 723. I don't have confidence in what I am doing in P2P investing. So I would rather concentrate on areas where I do have confidence.

Yes. The stock market will go down again. But I have numerous DRIPs that pay rising dividends and I will use market weakness to my advantage. I do not know how to do this with notes. I also have a rental property and the rent is nice to collect each month. Wealth is created in the stock market and real estate. A recession will affect notes like it will affect the stock market. When economics conditions go south, sometimes you have to ride it out or take advantage of it if you can. Good luck.

Edward Reid

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Re: Pulling out of Lending Club and Prosper
« Reply #13 on: November 01, 2017, 09:13:58 PM »
I continue to be quite happy with LC. At my chosen level of risk, I'm getting a far better return than I could anywhere else. (I can't say whether the same would be true for a different risk level.)

I consider LC to be more liquid than a stock fund. I hold a chunk of Vanguard Total Stock Market Index, VTSAX. If I'd had an emergency forcing me to sell my VTSAX holdings in early 2009, I might have lost as much as 45% of my value. I don't know how much I'd have to discount my LC holdings to liquidate quickly, but I imagine a 20% discount would do it, especially since it's a pretty solid portfolio. That's far smaller than the potential loss from forced liquidation of stocks.

This is why financial advisors -- at least the ones who know what they're talking about -- tell you that any money you might (might!) need in the next five years should not be in stocks. If you can wait five years, the stock market will almost certainly have recovered, and your LC holdings will have aged out.

Of course you CAN liquidate your holdings in either a stock fund or LC loans at any time. The question is how much you might have to lose to do so. As I see it, you might have to lose more to liquidate a broad-based stock fund holding (VTSAX, S&P500, or similar) than to liquidate a solid LC holding. And the time to exit safely is about three times as long for stocks as for LC holdings if you consider average investment (as Fred explained).

Skeptical wrote "A recession will affect notes like it will affect the stock market". Stats on LC.com say this is not true for ABC loans, which held up just fine in 2008-2009. D and below tanked. D investments went briefly negative, but nothing like the 45% the stock market dropped. (I never looked at anything riskier than D.)

I'm retired. A little over half my investments are bonds. The rest is stocks and LC, with the LC part growing slowly. When it looks like I'm going to need the non-bond part in the next five years (and at the moment, it looks like that may never happen), then I'll sell the stocks at an opportune time and stop reinvesting LC payments.

Edward

Skeptical

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Re: Pulling out of Lending Club and Prosper
« Reply #14 on: November 02, 2017, 01:37:12 AM »
@ Edward Reid

Risk is always a part of investing. Different asset classes carry different levels of risk. There may have been some notes that held up during the 2008-2009 recession. But they may not be the case when the next recession arrives because no one knows the duration or the severity of a future recession. What notes may or may not be affected adversely is anyone's guess.

There is always the possibility of an investor being over-diversified and well as being under-diversified. Every investor has to find his sweet spot. The secret to being successful is not to get shaken out when the market goes down. I can quantify this better with stocks, bonds and real estate than I can with notes. Other people may have superior skills and tactics when they invest in notes. I don't. I applaud your tenacity when investing in notes. There are other places where I can take a reasonable amount of risk (for me) and possibly get better returns.

You have a comfort level with notes and that adds to your confidence. You appear to have a plan that works for you. That is half the battle.