Lend Academy Network Forum

Lending Club Discussion => Investors - LC => Topic started by: Lovinglifestyle on March 23, 2016, 05:44:38 PM

Title: Approved Loans' Delayed Release
Post by: Lovinglifestyle on March 23, 2016, 05:44:38 PM
Although I appreciate seeing so many approved loans in each note drop, I can't help but wonder what the effect is on the borrowers of waiting as much as 13 days to see their loans get offered for funding.  Unless you check the submit date under complete loan details you won't know the submit date, which btw doesn't always coincide with the "days" number.  By the time we see the loan appear, the borrower may not still want it, so being approved by LC doesn't mean we're as much more likely to see our notes issued as we think.  Any comments?
Title: Re: Approved Loans' Delayed Release
Post by: AnilG on March 23, 2016, 06:30:28 PM
You are assuming that borrowers are waiting 12 days for their loans to be funded, issued and funds sent to borrower. It is possible that LC already approved and issued the loan, and sent funds to the borrower. And, now offering the loan on its platform to retail and institutional investors. Think of the process as two distinct parts: first part - loan applied and funds issued to borrower, and second part - loan fractionalized and corresponding notes being issued to investors (fractionalization, reverse of securitization).

Although I appreciate seeing so many approved loans in each note drop, I can't help but wonder what the effect is on the borrowers of waiting as much as 13 days to see their loans get offered for funding.  Unless you check the submit date under complete loan details you won't know the submit date, which btw doesn't always coincide with the "days" number.  By the time we see the loan appear, the borrower may not still want it, so being approved by LC doesn't mean we're as much more likely to see our notes issued as we think.  Any comments?
Title: Re: Approved Loans' Delayed Release
Post by: Lovinglifestyle on March 23, 2016, 07:29:20 PM
Aha!  Thanks, Anil.  LC actually sending them the money first never occurred to me!
Title: Re: Approved Loans' Delayed Release
Post by: rawraw on March 23, 2016, 07:32:24 PM
Well, I'd technically think it would be Webbank
Title: Re: Approved Loans' Delayed Release
Post by: Lovinglifestyle on March 23, 2016, 08:16:15 PM
You're right of course.  Thanks, sorry!
Title: Re: Approved Loans' Delayed Release
Post by: yojoakak on March 23, 2016, 08:26:12 PM
Think of the process as two distinct parts: first part - loan applied and funds issued to borrower, and second part - loan fractionalized and corresponding notes being issued to investors (fractionalization, reverse of securitization).

So if LC pre-funds the loan, and then issues it on the site 12 days later, do the notes' payment dates correspond with the dates the borrower actually pays? Or does LC hold that money and pass it on 12 days later?

In which case, doesn't every "Payment Processing" become a charade? Because LC would already know if the borrower either made or didn't make that payment some number of days ago.
Title: Re: Approved Loans' Delayed Release
Post by: dompazz on March 23, 2016, 09:18:40 PM
Think of the process as two distinct parts: first part - loan applied and funds issued to borrower, and second part - loan fractionalized and corresponding notes being issued to investors (fractionalization, reverse of securitization).

So if LC pre-funds the loan, and then issues it on the site 12 days later, do the notes' payment dates correspond with the dates the borrower actually pays? Or does LC hold that money and pass it on 12 days later?

In which case, doesn't every "Payment Processing" become a charade? Because LC would already know if the borrower either made or didn't make that payment some number of days ago.
It's an interesting question.  Do the payments line up with when the note is issued to the investor or when the borrower gets the funds?  I've never paid that close attention to my issue date and date of next payment on newly issued notes.

Taking a step back, if the purpose is to book originations in the next quarter, then giving the borrowers the cash cannot happen until then.  Web Bank pays LC the origination fee.  That is booked when the loan is made -- i.e. when the borrow gets the money.  Borrower borrows X, LC receives 0.03*X and the borrower receives 0.97*X (or whatever the fee is).  That revenue has to be booked when it is realized, when the loan is made.  If it is not, my understanding of GAAP is flawed (well that's a given, but still).

My understanding of the process is
1. application
2. preliminary underwriting and approval
3. funding by investors
4. final approval / ability for borrower to back out
5. loan is made
6. note issued and $$$ transferred from lender to WebBank.

I, like the original questioner, thought the slow walk was happening in #4.  If it got to #5, then the origination fee would have to be recognized.

Given the low numbers of loans that are appearing, it is also possible that a slow walking it happening in #2 as well as reduced marketing spend leading to less #1's.
Title: Re: Approved Loans' Delayed Release
Post by: AnilG on March 23, 2016, 10:00:12 PM
Most payment dates to lenders are not same as note issue dates so I don't see any relationship between when notes are issued and when payments are received. IIRC, first two weeks of interest goes to Web bank any way. LC has wherewithal now to fill any gap temporarily between borrowing and lending.

With recent proposed changes in Web Bank having some ownership of the loan, I expect there will be more disjointed process between loan being issued to borrower and note being issued to lender. Supreme Court asked DOJ for opinion on Madden case so I expect more changes to come in the future. IMO, the lending and borrowing process is not as simple as it used to be few years ago.


So if LC pre-funds the loan, and then issues it on the site 12 days later, do the notes' payment dates correspond with the dates the borrower actually pays? Or does LC hold that money and pass it on 12 days later?

In which case, doesn't every "Payment Processing" become a charade? Because LC would already know if the borrower either made or didn't make that payment some number of days ago.
Title: Re: Approved Loans' Delayed Release
Post by: jennrod12 on March 24, 2016, 09:18:43 AM
It doesn't make sense to me that LC would fund the loans before investors have.  That has the potential to leave LC holding the bag on a lot of partial loans if investors don't pick them up fully.  Is there evidence that this is happening?

Jenn
Title: Re: Approved Loans' Delayed Release
Post by: nmay2k on April 07, 2016, 09:39:21 PM
I think it is the only explanation for LC being in the red.
Title: Re: Approved Loans' Delayed Release
Post by: dompazz on April 08, 2016, 02:25:18 PM
I think it is the only explanation for LC being in the red.
There are lots of reasons for LC to be in the red.  High customer acquisitions costs, cost of underwriting and collections staff, etc.  I doubt very highly that their negative EPS is related to holding loans that didn't get bought fully.
Title: Re: Approved Loans' Delayed Release
Post by: P2PFact on April 08, 2016, 08:52:56 PM
What happens when the loan is not fully funded? LC will just fund the loan? Then they become like a balance sheet lender. This certainly is not good for your stock valuation.
Title: Re: Approved Loans' Delayed Release
Post by: Fred93 on April 08, 2016, 08:54:32 PM
What happens when the loan is not fully funded? LC will just fund the loan? Then they become like a balance sheet lender. This certainly is not good for your stock valuation.

When a loan is not fully funded, it is not issued.
Title: Re: Approved Loans' Delayed Release
Post by: P2PFact on April 08, 2016, 09:04:00 PM
What happens when the loan is not fully funded? LC will just fund the loan? Then they become like a balance sheet lender. This certainly is not good for your stock valuation.

When a loan is not fully funded, it is not issued.

I thought earlier discussion indicates that LC prefund the loan and send money to borrower first before listing. Thus my statement above.
Title: Re: Approved Loans' Delayed Release
Post by: Fred93 on April 08, 2016, 09:25:54 PM
I thought earlier discussion indicates that LC prefund the loan and send money to borrower first before listing. Thus my statement above.

Somebody said that, but I believe it was just speculation and I don't think it is right.  If you can find evidence, such as anything an LC person said in an interview, or on their web site, or in SEC filings, please show it to us.
Title: Re: Approved Loans' Delayed Release
Post by: Fred93 on April 08, 2016, 09:42:36 PM
Here are words from the latest LC 10K SEC filing, which describe the sequence of events.
Quote
A borrower comes to our website and completes a simple application for a loan product. We then use proprietary risk algorithms to analyze an applicant’s risk profile based upon the issuing bank’s underwriting guidelines. Once a loan application is approved, we present the borrower with various loan options. After the applicant selects their personalized financing option and completes the application process, the loan is listed on our marketplace to attract investor commitments, while we simultaneously perform additional verifications on the borrower. Once the verifications are completed and sufficient investor commitments are received, the issuing bank originates and issues the loan to the borrower, net of the origination fee charged and retained by the issuing bank. After the loan is issued, we use the proceeds from these investors to purchase the loan. Investor cash balances (excluding payments in process) are held in a segregated bank or custodial accounts and are not commingled with our monies. We receive a transaction fee from the issuing bank for our marketplace’s role in originating the loan. We also earn a recurring servicing fee from investors and management fees from investment funds and other managed accounts.

This appears to say that the investor commitments come first, and then the loan issues. 

Sorry it isn't more specific.