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Lending Club Discussion => Investors - LC => Topic started by: Fred93 on October 14, 2016, 05:16:17 PM

Title: LC raises rates 10/2016 and updates loss forecast #s
Post by: Fred93 on October 14, 2016, 05:16:17 PM
The short version
https://lcsiteupdates.zendesk.com/hc/en-us/articles/229520527

The long version
http://ir.lendingclub.com/Cache/36252226.pdf?IID=4213397&FID=36252226&O=3&OSID=9
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: nonattender on October 14, 2016, 05:38:59 PM
It's a big, imprecise-looking cut - gonna impact volume - but at least they're acting.  Hopefully will optimize cut to better target ONLY the problem population, not cut off an entire arm because one finger gangrenous...  In general, a step in the right direction, but just a start.

ETA:  Unless it *was* a very precise cut and that much origination volume was actually affected/properly in scope for these changes. :o
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: Fred93 on October 14, 2016, 06:46:22 PM
It's a big, imprecise-looking cut - gonna impact volume - but at least they're acting.

Whoa ... I think my normally skeptical friend nonattender accidentally had his skeptical circuits turned off when he read the 8K.  Today's 8K first rehashes changes made many months ago, and only THEN tells you what changes were made today, and today's changes seem very small.  Were you reading about the old changes and thinking they were the new changes?

Quote
1. Increasing Interest Rates. As disclosed in the Form 8-K we filed today, effective October 14, 2016, interest rates on the Lending Club platform will increase by a weighted average of 26 bps. Rate increases are concentrated in Grades F and G with marginal changes in other grades. Increased interest rates enable Lending Club to continue to provide borrowers with competitive interest rates and investors with solid risk-adjusted returns. (See further detail in the Form 8-K and below.)

A 26 bps increase ain't gonna fix what is wrong.  Even this little change is concentrated in F & G, which I do not invest in, so these changes aren't going to help me at all.

Quote
2. Tightening Credit. In line with actions taken throughout 2016, the thresholds on borrower leverage were tightened on October 12, 2016. The platform will no longer approve loans for certain sub-segments of borrowers who meet a combination of several risk factors such as high revolving debt, multiple recently opened installment loans, and higher risk scores on our proprietary scorecard. Accordingly, approximately 1% of borrowers who previously would have been able to obtain a loan under prior underwriting criteria will no longer be approved.

Credit filtering changes that remove 1% of borrowers ain't gonna fix what is going wrong.

Quote
3. Supplementing Collections Efforts. Lending Club utilizes a multifaceted servicing strategy and makes enhancements regularly. Over the past several months, we have invested in additional tools to drive collections effectiveness, added new recovery strategies, added a new agency partner and expanded our internal collections team capacity. The early signs of all of these changes are positive and are allowing us to help our borrowers be more successful while driving better recovery rates.

This may help.  We know we've got bad stuff in the portfolio, and about the only way they can improve performance of loans already issued is by intensifying collections.  Sadly, the news here is completely nonspecific.  I'm glad they "use a multifaceted servicing strategy", but those words mean nothing.  "adding new recovery strategies" sounds good, but what does did they actually do?  Are the new strategies "call in the afternoon, instead of morning", or are they substantive?  Frankly, I don't care for such generalities masquerading as information.
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: SeanMCA on October 14, 2016, 07:10:10 PM
Am I reading this right?

Projected investor returns on G-grade loans have dropped 313 basis points between April and today...
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: Fred93 on October 14, 2016, 07:20:34 PM
Am I reading this right?

Projected investor returns on G-grade loans have dropped 313 basis points between April and today...

Yea, I think so, and that's for NEW loans, at the new interest rates. 

G-grade loans you bought a few months ago at lower interest rates will have even lower returns.
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: SeanMCA on October 14, 2016, 07:21:22 PM
that's terrible! that's a huge shift.
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: Fred93 on October 14, 2016, 11:03:17 PM
The 8-K that LC published today, contains a letter to investors, signed by LC's Chief Investment Officer Siddhartha Jajodin.  I was pretty disappointed by this announcement.  The letter is heavy on spin.  Unfortunately, it doesn't contain anything that would reassure us that he actually knows what is going on.

It does make two serious admissions tho.  At least that's progress.

He writes
Quote
Consistent with observations earlier this year, we have continued to observe higher delinquencies in populations characterized by high indebtedness, an increased propensity to accumulate debt, and lower credit scores.

Bah, that's all stuff they've told us before.

Quote
Although the trend can now be observed across grades,

This is an important admission.  You will recall that earlier they had dismissed credit deterioration by saying it was "pockets of underperformance".  Them's fancy words for "not widespread", ie "contained" so "don't panic". 

Now they have admitted what you and I already knew, that the problem is widespread.  Admitting you have a problem is an important step, which it appears we have finally taken.

Quote
it is less notable in lower risk grade and more notable in higher risk grades...

A true statement.  See the delinquency curves by grade in the other thread about recent credit quality.
http://www.lendacademy.com/forum/index.php?topic=4113.msg37921#msg37921

Quote
Higher delinquencies are more evident in 2015 and early 2016 vintages, which coincides with an uptick in consumer indebtedness in the U.S.

Here he's trying to make excuses for LC's bad credit performance, based on the notion that things are bad for the consumer.  This is completely wrong.  Yes, consumers are taking on more debt.  However, every measure of consumer loan PERFORMANCE you can find shows that overall performance of consumer loans, credit cards, etc is continuing to get better month by month.  I show Federal Reserve and American Bankers Association data in the other thread.
http://www.lendacademy.com/forum/index.php?topic=4113.msg37947#msg37947
http://www.lendacademy.com/forum/index.php?topic=4113.msg37948#msg37948

Quote
[Fed of NY] reported that the median respondent to its monthly survey reported an increase in the probability of missing a minimum debt payment over the next three months to be the highest level since February 2014.

Its interesting data, so I plotted it.  For those looking for credit stats, I had previously been using Fed Reserve of St Louis (FRED system), but Fed Reserve of NY has consumer credit data that looks at loans different ways, all of which is interesting.
(https://forum.lendacademy.com/proxy.php?request=http%3A%2F%2Ffred93.com%2Ffbi%2FFed-debt-survey-2016-10.png&hash=b239a7cbad43774cf153d235ebcd335f)

“Source: Survey of Consumer Expectations, © 2013-2015 Federal Reserve Bank of New York (FRBNY). The SCE data are available without charge at /microeconomics/sceIndex and may be used subject to license terms posted below. FRBNY disclaims any responsibility or legal liability for this analysis and interpretation of Survey of Consumer Expectations data.”

That's interesting, but note that this survey reports how people are thinking about the future, ie their feelings, and these feelings apply to the borrowers at banks as well as LC.  At the banks, payment delinquency is going down.  At LC delinquency is going up.  Bzzt.  The excuse doesn't fit the data.

Also, if the consumer is getting stressed now, that would result in decreasing performance for payments due now for loans of all vintages.  That's not what we see.  Its the recent vintages that are performing poorly.  Bzzt.  The excuse doesn't fit the data. 

And, the timing doesn't really fit.  Sure there is an uptrend in that curve at the right end, but it begins in 2016, and the bad vintages started in early 2015.  Bzzt.  The excuse doesn't fit the data.

More likely something went wrong with LC's underwriting, eh?

Finally, they have updated their estimated credit loss numbers, admitting that loans are performing worse than previous models. 

C loan annual loss went from 4.76% in Nov2015 to 6.49% now, a 1.73% increase. 

E loan annual loss went from 8.94% in Nov2015 to 13.35% now, a 4.41% increase. 

From watching them adjust these numbers over a few years, I believe they have a model which averages over many past years, so does not adapt to rapid change.  Something changed rapidly in 2015, and the model is slowly seeing it.  I expect another adjustment (up) a month or two from now.

So what do they say they're doing about it?  The letter begins by talking about the changes they made 6 months ago.  Don't be dazzled by this.  That's not news!  Read past it to the news in the section titled "additional enhancements", which describes the changes actually made today...

They are...
1. Increasing rates today an average of 0.26%

2. Tightening credit filters, which will exclude 1% of previously eligible borrowers.

3. Supplementing Collections Efforts.  Sadly on this item they give us only generalities, such as "Lending Club utilizes a multifaceted servicing strategy".  Ho hum.  What did they actually change?  We don't know.  "we have invested in additional tools".  Like what?  "added new recovery strategies"  Like what exactly?  More phone calls?  I applaud improved collections efforts, if they actually have substance.  No way to tell.

Did he convince you that he understands the problem and has implemented the solution and we're done?

We now know that loans issued from early-2015 forward perform significantly worse than loans prior to that time, and we know that each quarter since then, delinquency performance is worse than the quarter before.  Something broke at LC, and needs to get fixed.  Slowly jacking up rates and tightening the DTI filter just don't seem to be likely attacks on the fundamental cause. 

What is the fundamental cause?  We don't know.

After reading the announcement, I don't think Mr Jajodin views us investors as members of the team.  I vote for less spin and generalities,  more openness and transparency.

Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: SLCPaladin on October 15, 2016, 12:33:49 AM
Okay Fred93, I buy, and follow, every bit of your analysis. I think you're correct on all fronts, which is worrying for me as an investor. I expect another rate bump up in a couple of months, either due to the Fed increasing interest rates or higher-than-predicted delinquencies, possibly both.

But I suppose what I'm most interested in is what you plan to do? Are you on the sidelines, are you continuing to reinvest, or are you liquidating your portfolio? This question, of course, is open to anyone really. As for myself, I started reinvesting about 2 months ago. But I'm now thinking I need to hit the pause button and wait to see how much rot is in the system.
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: SeanMCA on October 15, 2016, 12:38:32 AM
I hate to say this but the first time I ever saw Scott Sanborn speak in person was a few weeks ago at a conference and my impression was that he is in way over his head. Compared to the confidence that Laplanche used to exude, I don't think Sanborn has what it takes to even pretend that there is a bright future. I walked away thinking the company's best days were well behind it.
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: SeanMCA on October 15, 2016, 12:47:27 AM
After reading the announcement, I don't think Mr Jajodin views us investors as members of the team.  I vote for less spin and generalities,  more openness and transparency.

My gut tells me that they want to phase out individual retail investing altogether and that they've been thinking about it for awhile.
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: Fred93 on October 15, 2016, 02:09:06 AM
Okay Fred93, I buy, and follow, every bit of your analysis. I think you're correct on all fronts, which is worrying for me as an investor.

I'm in shock that somebody read that all the way thru!


Quote
But I suppose what I'm most interested in is what you plan to do? Are you on the sidelines, are you continuing to reinvest, or are you liquidating your portfolio? This question, of course, is open to anyone really. As for myself, I started reinvesting about 2 months ago. But I'm now thinking I need to hit the pause button...

My software is reinvesting every day.  However, I have changed my filters several times during 2016.  Some of these changes were adaptations which changed which variables were most important, as I observed 2015 loans behave differently.  Less emphasis on income, more on credit variables.  Some of the changes were simply shifts in my range of subgrades toward the safer end.  I used to be [b5..e3] then [b4..e1], etc, and today [b3...d3].

I'm searching for clarity.  If LC has indeed let the underwriting go to crap, that seems a much worse sin than the little stuff Laplanche was accused of. 
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: storm on October 15, 2016, 03:01:58 AM
I will say I am impressed LC sent an e-mail to both my taxed and IRA account e-mail addresses pointing out that platform investors ought to read this.  I hope they continue doing this as well as separating the shareholder information from the platform data.  They could have just made another SEC filing and hope nobody noticed.

Thanks, as always, Fred93.  I'm not much of a numbers guy (or letters for that matter), but your charts speak volumes.
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: DLIFVOIP on October 15, 2016, 09:32:32 AM
I know there are others posting in this topic that have been investing for years, so I am not the only one who has noticed the below.  I started investing on LC in Dec 2009. 

Everyone is correct and LC is finally starting to admit that defaults/charge offs are increasing across all grades.  While this is not a good thing, back in the "good ole days" say 2010-2011 (maybe even thru 2012), it was not as big a deal as it is today, because the interest rates were so much higher than they are today. 

2010 - A1 - 6.03%
2016 - A1 - 5.32% (and that is the new updated rate)  That is a 12% decrease and again that is the updated 5.32%.

2011 - B1 - 9.91%
2016 - B1 - 8.24% (again this is the new updated rate) 17% decrease

I am not saying those were the rates for the entire year, but just examples.  I used to make my bread and butter returns in the A and B grade loans because defaults were so low and interest rates were decent.  I am also not saying other grades have not seen increases, but as someone who preferred high quality loans, I have seen my net return decrease from low 10% to low 8%.

I have also noticed the "quality" of borrower who received these lower interest rates over the years has deteriorated.  So overall LC has decreased interest rates and lowered the quality of borrower who gets the lower rate loans.  As investors we have been forced to take more risk for less return. 



 
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: rawraw on October 15, 2016, 12:12:24 PM
Fred93, I think you are asking the right questions but may be making a simple mistake.  You are right to compare LC to the industry, but unfortunately those industry data sets are not vintages.  I'm sure you understand the difference, so not so sure why you are alarmed they are diverging.  The vintages will show weakness way before an aggregate level will show weakness. 

Also, not so sure if lower grade LC notes are comparable to the industry metrics you are choosing.  The subprime ABS market is experiencing increases in delinquencies.  Surely LC falls in between the two, with the high grades being closer to subprime than bank credit IMO. 

And like I've posted about ad nasuem, consumer credit can't get much better.  These things go in cycles and everything isn't always the underwriters fault.  I follow these markets pretty closely given my job and there is a lot of concern about near-term trends in consumer credit, especially low FICO.  Which seems consistent with LC

Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: SLCPaladin on October 15, 2016, 04:40:54 PM
Quote

I'm in shock that somebody read that all the way thru!


I always read your stuff, it's some of the best around! I'm mostly re-investing in B-C notes right now (all sub grades), though the composition of my total portfolio is heavier on the lower grade notes from several years back. I began shifting towards higher quality notes in an attempt to minimize the tax consequences of charge-offs because my larger account is not an IRA.

I was thinking today of the statistics that LC started posting on the login page a few months ago:

Solid Returns Since 2008

99.8% of investors who own 100+ Notes of relatively equal size have seen positive returns.

89.6% earn 5%+
10.2% earn between 0-5%
0.1% earn below

This may be stating the obvious, but investor returns are the golden egg that LC needs to be vigilant about protecting. As soon as investors decide that the risk/return proposition doesn't make sense, they will leave, and it will be difficult -- perhaps impossible -- to coax them back. The best way to continue to keep capital on the platform is to make sure interest rates are high enough (and underwriting standards tight enough) to keep investor returns sufficiently high. LC has two sets of customers: borrowers and lenders. Both need to be happy.

I hope with all the discussion and strategizing around attracting more capital that LC execs don't forget what keeps capital on the platform: returns. Returns have always been and will always be the key to keeping capital at work.
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: Fred93 on October 15, 2016, 06:05:17 PM
You are right to compare LC to the industry, but unfortunately those industry data sets are not vintages.  I'm sure you understand the difference, so not so sure why you are alarmed they are diverging.  The vintages will show weakness way before an aggregate level will show weakness.

I've posted a lot of charts, showing different things. 

I started a few years ago keeping a chart of the aggregate delinquency of my portfolio vs LC's broad-based fund (essentially an index fund of LC loans).   When both started moving up a few months ago, I started looking around for  any other way of viewing the data I could find.

Look at this comparison of aggregate delinquency of LC's broad-based fund (essentially an index fund of LC loans) vs aggregate delinquency reported by the Fed.  (For presentation, I took my portfolio out of the chart.) 
http://www.lendacademy.com/forum/index.php?topic=4113.msg37951#msg37951
The suddenness of the upswing in the broad-based fund's aggregate delinquency is shocking, and seems impossible.  It is possible that there is something I don't know about this fund which is driving this. 

Rob L just now added a companion chart showing aggregate delinquency in his account.  It matches the shape of the LCBB fund delinquency curve quite well.  This would argue that the abrupt bend upward in May2016 is not something unique about the BB fund, but something going on across LC's loans. 
http://www.lendacademy.com/forum/index.php?topic=4113.msg38006#msg38006

Quote
Also, not so sure if lower grade LC notes are comparable to the industry metrics you are choosing.  The subprime ABS market is experiencing increases in delinquencies.  Surely LC falls in between the two, with the high grades being closer to subprime than bank credit IMO.


I'm open to this being part of the answer.

I've looked around for (free) loan statistics, and have found many sources of credit card & consumer loan statistics (amounts, delinquency, defaults, etc) at the Federal Reserve banks.  However, I have not found any that would help me see what is happening in the lower FICO ranges.  Any ideas?  Free data would be my first choice.

Quote
And like I've posted about ad nasuem, consumer credit can't get much better.  These things go in cycles and everything isn't always the underwriters fault.  I follow these markets pretty closely given my job and there is a lot of concern about near-term trends in consumer credit, especially low FICO.  Which seems consistent with LC

Sure.  Every cycle begins somewhere.  I'm open to the possibility that the coming upswing in defaults is beginning now at LC and Prosper.  In other words, we're viewing a fundamental change in consumer behavior, and adapting to it.  However, if this is right, we won't have confirming data until other folks sink with us, and that just isn't in any of the data.
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: rawraw on October 15, 2016, 06:08:15 PM
You are right to compare LC to the industry, but unfortunately those industry data sets are not vintages.  I'm sure you understand the difference, so not so sure why you are alarmed they are diverging.  The vintages will show weakness way before an aggregate level will show weakness.

I've posted a lot of charts, showing different things. 

I started a few years ago keeping a chart of the aggregate delinquency of my portfolio vs LC's broad-based fund (essentially an index fund of LC loans).   When both started moving up a few months ago, I started looking around for  any other way of viewing the data I could find.

Look at this comparison of aggregate delinquency of LC's broad-based fund (essentially an index fund of LC loans) vs aggregate delinquency reported by the Fed.  (For presentation, I took my portfolio out of the chart.) 
http://www.lendacademy.com/forum/index.php?topic=4113.msg37951#msg37951
The suddenness of the upswing in the broad-based fund's aggregate delinquency is shocking, and seems impossible.  It is possible that there is something I don't know about this fund which is driving this. 


Quote
Also, not so sure if lower grade LC notes are comparable to the industry metrics you are choosing.  The subprime ABS market is experiencing increases in delinquencies.  Surely LC falls in between the two, with the high grades being closer to subprime than bank credit IMO.


I'm open to this being part of the answer.

I've looked around for (free) loan statistics, and have found many sources of credit card & consumer loan statistics (amounts, delinquency, defaults, etc) at the Federal Reserve banks.  However, I have not found any that would help me see what is happening in the lower FICO ranges.  Any ideas?  Free data would be my first choice.

Quote
And like I've posted about ad nasuem, consumer credit can't get much better.  These things go in cycles and everything isn't always the underwriters fault.  I follow these markets pretty closely given my job and there is a lot of concern about near-term trends in consumer credit, especially low FICO.  Which seems consistent with LC

Sure.  Every cycle begins somewhere.  I'm open to the possibility that the coming upswing in defaults is beginning now at LC and Prosper.  In other words, we're viewing a fundamental change in consumer behavior, and adapting to it.  However, if this is right, we won't have confirming data until other folks sink with us, and that just isn't in any of the data.
I think sink is a bit of a hype there.  There are securitization data that should be able to construct vintage

Sent from my SAMSUNG-SM-G935A using Tapatalk

Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: Fred93 on October 15, 2016, 08:47:47 PM
I think sink is a bit of a hype there.

My apologies.  It was shorthand.

Quote
There are securitization data that should be able to construct vintage

Having vintage data is not essential.  Could start with SOME data from somewhere outside marketplace lenders that shows some aggregate delinquency rates are going up.  So far all data I have says they're going down elsewhere.  Once we can see some data that is moving up, like the LC and Prosper data, then we can begin to build a story that something broader than marketplace lending is happening.

Agreed that there must be some performance data from some securitizations somewhere that might help, but I know zero about securitizations, so have no idea where to look.

In the name of full disclosure, I did find one Fed delinquency data series that started moving up mid-2015.  That's the "commercial and industrial loans" series. 
https://fred.stlouisfed.org/series/DRBLACBS

I've been ignoring data that isn't consumer installment or credit card, but this series has been moving up for several quarters, so its trend is real.  There must be a reason the C&I loan delinquencies are moving up, and its possible this is part of the picture.  On the other hand, in the 2002 recession, C&I loan delinquencies went up significantly, but consumer installment & credit card never did, so it is quite possible for C&I to go up on its own.  Every cycle is different.


Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: jz451 on October 15, 2016, 09:01:37 PM
I wouldn't be too worried about looking at that chart because you can see that currently the curve is on the bottom end where the slope is not as steep as the big spikes where it shows a recession has occured.

Having vintage data is not essential.  Could start with SOME data from somewhere outside marketplace lenders that shows some aggregate delinquency rates are going up.  So far all data I have says they're going down elsewhere.  Once we can see some data that is moving up, like the LC and Prosper data, then we can begin to build a story that something broader than marketplace lending is happening.

Agreed that there must be some performance data from some securitizations somewhere that might help, but I know zero about securitizations, so have no idea where to look.

In the name of full disclosure, I did find one Fed delinquency data series that started moving up mid-2015.  That's the "commercial and industrial loans" series. 
https://fred.stlouisfed.org/series/DRBLACBS

I've been ignoring data that isn't consumer installment or credit card, but this series has been moving up for several quarters, so its trend is real.  There must be a reason the C&I loan delinquencies are moving up, and its possible this is part of the picture.  On the other hand, in the 2002 recession, C&I loan delinquencies went up significantly, but consumer installment & credit card never did, so it is quite possible for C&I to go up on its own.  Every cycle is different.
Title: LC raises rates 10/2016 and updates loss forecast #s
Post by: rawraw on October 15, 2016, 09:02:32 PM
C&I is up because of weakness in energy lending, such as oil, gas, coal.

Example of weakness in abs market.

http://www.autoremarketing.com/subprime/sp-global-ratings-spots-more-abs-deterioration

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Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: Fred93 on October 15, 2016, 10:06:03 PM
C&I is up because of weakness in energy lending, such as oil, gas, coal.

That makes sense.  I've been expecting all the layoffs in energy to impact LC loans, which is why I've excluded the big fracking states over the past year. 
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: Fred93 on October 15, 2016, 10:29:43 PM
I am finding more articles on growing subprime auto delinquency, such as
http://www.bloomberg.com/news/articles/2016-10-11/more-americans-falling-behind-on-car-loan-payments-s-p-says
...
Quote
Subprime borrowers are falling behind on their car loan payments at the highest rate in more than six years, and some bonds backed by these loans are vulnerable to getting downgraded, according to S&P Global Ratings.

Competition has spurred lenders to loosen standards and resulted in more delinquencies and default by people with weak credit, the ratings firm said. Subprime borrowers were behind by more than 60 days on about 4.85 percent of auto loans in August, the highest level since January 2010. The rate was 4.14 percent in August of last year, S&P said. For prime loans, delinquencies in August rose to 0.5 percent from 0.41 percent in the same month in 2015.
...
Losses on risky subprime loans rose to 8.35 percent in August, the highest since 2010. That takes into account the amount lenders are recovering by repossessing and reselling...  Losses may "pierce" 10 percent by year-end, [Fitch] said last month.

The rising delinquencies and losses come even as the U.S. economy is relatively strong. ...
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: rawraw on October 16, 2016, 05:11:05 AM
C&I is up because of weakness in energy lending, such as oil, gas, coal.

That makes sense.  I've been expecting all the layoffs in energy to impact LC loans, which is why I've excluded the big fracking states over the past year.
In bank credit, most are saying they aren't seeing weakness in consumer. Zion Bancorp has a slide comparing consumers in their oil areas to non oil. But there is a difference in abs market. There were some journalists covering it in the first half of the year

http://www.businessinsider.com/auto-delinquencies-in-the-oil-patch-2016-5

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Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: nonattender on October 16, 2016, 06:23:03 AM
think you're looking for a macro trend that doesn't exist / think this is still localized to p2p/mpl...  peeriq.com keeps lists of securitizations.
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: rawraw on October 16, 2016, 12:13:16 PM
think you're looking for a macro trend that doesn't exist / think this is still localized to p2p/mpl...  peeriq.com keeps lists of securitizations.
I disagree that P2P / MPL is only experiencing this.  As I've stated, bank credit (the FRED graphs) is more conservative than low grade LC notes, which the effect is most pronounced.  This is consistent with the weakness in subprime more broadly.  Now I cannot tell whether LC is outperforming / underperforming this trend, since I haven't done the work.   

Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: Fred93 on October 16, 2016, 06:51:01 PM
In my search for the answers to life's persistent questions (ie whether the rise in delinquency at LC is localized to P2P or is broader), I've been searching for statistics for non-P2P loans which show recent degradation vs time.  Hard to find, as most credit statistics show pretty steady improvement over past several years.  Well, I found some today.  S&P has a set of consumer credit default indeces.  (These are default rather than delinquency, but I'll take what I can get.)

(https://forum.lendacademy.com/proxy.php?request=http%3A%2F%2Ffred93.com%2Ffbi%2FSandPConsumerCredit-2016-10-16.png&hash=d5e2ab4d88b14d9daa01ed9f75b37af2)

These do show an uptick in the last few months.  Not big, but it is consistent direction over last 3 months.  Note that these indeces are monthly, and have been updated thru August, whereas the Fed stats I showed earlier are quarterly, and have only been updated thru June.  So maybe these upticks are simply not visible yet in the Fed data, but will be soon.

These upticks are small in size, much smaller than the move up in LC delinquencies.  I don't have an explanation for that.  In fact, one could argue that they are about the same size as ordinary ripples that have occurred in the past without signalling a trend.

This doesn't settle anything of course.  Its just more data.  All the theories are still possible.
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: nonattender on October 16, 2016, 06:59:57 PM
I'm not saying you won't see trickle-up effect of fico inflation into other areas (any company, whether credit card, installment loan poachers (otherp2p/disc/gs/etc), or mortgage providers will become to some degree infected by the fico inflation, as this population moves around the financial ecosystem with their overly inflated ficos - but i do think it originates (pardon the pun) w/p2p originators pushing CC debt into installment lines...  if you find a big macro trend, you can then argue for backwards correlation, but i don't think that's what you're gonna find...  think we're at critical saturation point where there are enough "fico zombies" w/inflated scores (due consolidation into installment lines/multiple installment lines - where else can you get 5 digits of cash into your chking account?) that macro trends will be micro-driven, and not the other way around...  for now...

Sub-prime auto I kinda toss out, btw - Jamie Dimon called that bubble, in public, like six months ago now - expect major deterioration.

eta:  anyway, i'm busy getting myself on some kind of watchlist for reading wikileaks... so my mind's not really in the p2p discussion...
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: Fred93 on October 16, 2016, 11:04:02 PM
Sean Murray of Debanked.com had a reaction to LC's announcement which was similar in its skepticism to my reaction.  I think I may start checking his blog more often.  (I believe he's a member here, under a different name.)

http://debanked.com/2016/10/for-lending-club-aint-nothing-but-a-ef-and-g-thang/
Quote
Investing in a G-grade Lending Club note is projected to earn 313 basis points less than what was projected six months ago. The company published new projected investor returns in their 8-K filed on Friday that showed an expected return of 9.06% on G-grade notes. That’s down from the 12.19% figure they published in an April filing. F-grade note projections decreased by 155 basis points. For Es, it’s down 28 basis points.

“Rate increases are concentrated in Grades F and G with marginal changes in other grades,” the company announced on Friday while reporting a weighted average 26 basis point interest rate increase. But will rate increases save the Fs and Gs from plummeting returns?

As G is the most risky grade, that means the most risky borrowers on Lending Club are projected to earn investors only 9.06%. Is all that risk worth it? Or perhaps more importantly, is that projection even realistic? Six months ago, the riskiest class was projected to earn 12.19%. Nothing has really changed from a macroeconomic standpoint since then, so it’s difficult to even pinpoint why investors should expect a 25% lower return on the riskiest borrowers all of the sudden or why they should be confident that it won’t get worse.

In response to the "all of a sudden" question... Delinquencies have been rising since since May. 

In response to "nothing has really changed from a macroeconomic standpoint"... That is precisely my present quandary.

He talks about the G grade, and I don't particularly care about the G grade, as I don't invest in it, but I know for sure that the C and D loans in my portfolio feel this change, and I don't know why it is happening.
Title: LC raises rates 10/2016 and updates loss forecast #s
Post by: rawraw on October 17, 2016, 10:52:57 AM
How can there be a bubble in auto? Are you suggesting car prices are too high and will fall in the future?

You want to toss out Subprime, but a large percentage of these defaults on LC are Subprime. They start marginally above the line in the sand, but are still impacted by similar things. Indirect auto will not be a risk because of a bubble (maybe you can make this claim on used, but bubble is a bit much) . The collateral is not speculated on, but the borrowers seem to be experiencing heightened levels of stress. Who knows why, maybe it's energy, ag or something else.  Both are impacted by the borrowers willingness or ability to repay. Collateral has little to do with it.

Sent from my SAMSUNG-SM-G935A using Tapatalk
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: Lovinglifestyle on October 17, 2016, 11:28:27 AM
I'm thinking the rise in health insurance premiums is one of the stressors for borrowers.  That is enough to throw off the ability to pay loans for some people.  But it doesn't explain the May 2016 effect.
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: newstreet on October 17, 2016, 12:14:23 PM
I hate to say this but the first time I ever saw Scott Sanborn speak in person was a few weeks ago at a conference and my impression was that he is in way over his head. Compared to the confidence that Laplanche used to exude, I don't think Sanborn has what it takes to even pretend that there is a bright future. I walked away thinking the company's best days were well behind it.

Always has been....this potential Renaud buyback fraud is crazy.  Is LC paying these legal bills?  How bad is their cash position now?
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: LonghornSF on October 17, 2016, 01:51:19 PM
I hate to say this but the first time I ever saw Scott Sanborn speak in person was a few weeks ago at a conference and my impression was that he is in way over his head. Compared to the confidence that Laplanche used to exude, I don't think Sanborn has what it takes to even pretend that there is a bright future. I walked away thinking the company's best days were well behind it.

Sanborn was always more the behind the scenes guy / thinker while Renaud was the PR guy. I wouldn't be surprised if operations improved under Sanborn as Laplanche was much more interested in hitting the media circuit and sailing than the nitty gritty. Unfortunately, LC's current crisis is 90% confidence driven and Sanborn's skillset is probably weakest at dealing with this type of external, media-driven problem.
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: Rob L on October 17, 2016, 07:22:15 PM
Unfortunately, LC's current crisis is 90% confidence driven and Sanborn's skillset is probably weakest at dealing with this type of external, media-driven problem.

I dunno... there's more than media confidence in play here. Sure LC needs to shore up the media's view of confidence in its lending base but it (we) are facing a real erosion of yield. Confidence ("playoffs ... playoffs!! are you kidding me???" quote Marc Levy  :-\ lol). With 20/20 hindsight it seems very (very) clear that LC way over did the interest rates cuts over the past couple of years in the high yield loans. Reminds me of Prosper 1.0 (or whatever it was called) where investors did the "underwriting" for lack of a better term. I'm told that was a freakin disaster. LC is compelled to originate, originate, originate ... If I sound like LC should protect me from myself, okay I'll go with that. If I diversify sufficiently I should earn what LC claims. Either LC blew it, they became overconfident in their underwriting model, or what they are attempting is impossible. Maybe they don't have a crystal ball. Can't please everyone (John Fogerty told me so).
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: lascott on October 19, 2016, 01:50:32 PM
Sean Murray of Debanked.com had a reaction to LC's announcement which was similar in its skepticism to my reaction.  I think I may start checking his blog more often.  (I believe he's a member here, under a different name.)

Fourth poster in this thread I think.  SeanMCA = http://debanked.com/about-us/

(https://forum.lendacademy.com/proxy.php?request=http%3A%2F%2Fi.imgur.com%2FtH6n1mN.png&hash=ed69ac6c9692a3a2288424832910608c)
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: TheLittleDuke on October 19, 2016, 02:18:45 PM
As soon as investors decide that the risk/return proposition doesn't make sense, they will leave, and it will be difficult -- perhaps impossible -- to coax them back.

In part that is what's happening now over on Prosper -- with the end of the Folio relationship we're stuck with our notes until discharged.   I've already stopped buying 5-yr notes on them because of the illiquidity they've created by eliminating the secondary market.

In reality our only option would be to start setting up multiple accounts and then selling off the usernames/passwords to the whole portfolio if we wanted to liquidate (disconnecting bank account obviously)

Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: Rob L on October 19, 2016, 04:16:17 PM
Couldn't help but notice the recent drop in A3, A4 and A5 interest rates in lascott's table above. (Maybe because they're red). :)
Were these in LC speak "pockets of over performance"??
Or possibly a "Marcus" effect? I know it's a real stretch, but my theory is that Marcus will primarily target "A" grade borrowers.
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: AnilG on October 19, 2016, 04:23:13 PM
Accounts are associated with SSN. The IRS tax information filed by Prosper will still be associated with same SSN. I doubt you can sell usernames/passwords to whole portfolio to achieve liquidity. If you want more liquidity, this investment is not for you. One component of higher return with this investment is illiquidity premium that you receive as a compensation in lieu of not able to sell your investments readily. Once liquidity rises, the illiquidity premium will go away, i.e. lower returns.


In part that is what's happening now over on Prosper -- with the end of the Folio relationship we're stuck with our notes until discharged.   I've already stopped buying 5-yr notes on them because of the illiquidity they've created by eliminating the secondary market.

In reality our only option would be to start setting up multiple accounts and then selling off the usernames/passwords to the whole portfolio if we wanted to liquidate (disconnecting bank account obviously)
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: fliphusker on October 19, 2016, 06:57:26 PM
Fraud is a mighty strong word.  Why would LC pay anything LP related?
Q2 was not as bad as I expected with my limited knowledge.  The question will be how much under that $70M loss will Q3 be?  I am not worried one bit about LCs cash reserves, not for a few years at least. 
I hate to say this but the first time I ever saw Scott Sanborn speak in person was a few weeks ago at a conference and my impression was that he is in way over his head. Compared to the confidence that Laplanche used to exude, I don't think Sanborn has what it takes to even pretend that there is a bright future. I walked away thinking the company's best days were well behind it.

Always has been....this potential Renaud buyback fraud is crazy.  Is LC paying these legal bills?  How bad is their cash position now?
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: TheLittleDuke on October 20, 2016, 10:06:47 AM
Create LLC's with their own EIN's and then sell the company off ;-)

Accounts are associated with SSN. The IRS tax information filed by Prosper will still be associated with same SSN. I doubt you can sell usernames/passwords to whole portfolio to achieve liquidity. If you want more liquidity, this investment is not for you. One component of higher return with this investment is illiquidity premium that you receive as a compensation in lieu of not able to sell your investments readily. Once liquidity rises, the illiquidity premium will go away, i.e. lower returns.


In part that is what's happening now over on Prosper -- with the end of the Folio relationship we're stuck with our notes until discharged.   I've already stopped buying 5-yr notes on them because of the illiquidity they've created by eliminating the secondary market.

In reality our only option would be to start setting up multiple accounts and then selling off the usernames/passwords to the whole portfolio if we wanted to liquidate (disconnecting bank account obviously)
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: rj2 on October 23, 2016, 12:18:08 AM
I think what's driving this is fraud. The grifters have figured out how to get a loan from LC and they are binging.

Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: Fred on October 25, 2016, 03:49:36 AM
I think what's driving this is fraud. The grifters have figured out how to get a loan from LC and they are binging.

Any data to back this up?  Or, is this just an assumption?
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: Amusant42 on October 25, 2016, 07:35:04 PM


My software is reinvesting every day. 

I am shocked that you're still re-investing right now, especially after the admission on the 8K that the problem is across loan grades.  Can you briefly explain the reason for your decision?  I am just letting cash accumulate
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: Fred93 on October 25, 2016, 08:57:11 PM
My software is reinvesting every day. 
I am shocked that you're still re-investing right now, especially after the admission on the 8K that the problem is across loan grades.

Well, I don't make my investment decisions on what they admit!  Although the effect can be seen in all grades, it is definitely much bigger in the lower quality grades, as you can see in this chart from insikt.  I've shown grades B thru E, each in its own color.  Three curves for each grade, representing different vintages.  For B grade, you can see a change vintage to vintage, but it is tiny.  For E grade, the difference between vintages leaps right off the page at you.  Therefore, you can distance yourself from this effect, whatever the  cause, by shifting some toward the low-risk grades.
(https://forum.lendacademy.com/proxy.php?request=http%3A%2F%2Ffred93.com%2Ffbi%2FLC-delinquency-vintage-insikt-2016-10-11.png&hash=46845d4d64ae5e586881018f69ce1738)


Quote
Can you briefly explain the reason for your decision?  I am just letting cash accumulate

I don't see a need for panic at this point.  The loans I bought in 2015 are not providing as much return as I had hoped.  That is a disappointment for sure, but it isn't the end of the world.  (I invested conservatively enough so that I should not suffer losses even when defaults more than double -- at least so say my backtesting results.) 

I have spent a lot of time making sure I have the latest info on the economy, so I can at some point understand whether we are seeing changes in economic conditions or changes in LC.  The jury i still out, but I expect it will become clear within a few months.  (And I wouldn't be surprised if the answer is some of each.)  I have moved my filters down a couple of subgrades (toward the low-risk end) while we wait.

I look forward to LC's release of data for the Q3 vintage a few days from now.  I want to know if it is yet worse than Q2, or just the same, or what.  We will only get a couple of months of data at that time, but as you can see, the effect on delinquency has shown up quite early in recent vintages, so seeing those first 2 months will reveal quite a bit. 

Meanwhile I am happy that LC has been increasing interest rates.  I don't yet know if their response is adequate.

I think you're choice to let cash accumulate is also a reasonable one.
Title: Re: LC raises rates 10/2016 and updates loss forecast #s
Post by: RT45 on October 26, 2016, 01:57:01 AM
Quote
I think what's driving this is fraud. The grifters have figured out how to get a loan from LC and they are binging.

Any data to back this up?  Or, is this just an assumption?

I'm in agreement with him on this and have anecdotally heard of this occurring.