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Lending Club Discussion => Investors - LC => Topic started by: Fred93 on April 07, 2017, 06:43:46 PM

Title: When will LC next raise rates?
Post by: Fred93 on April 07, 2017, 06:43:46 PM
I'm gonna run this for 23 days, which I presume makes it end on Apr 30.  I will end it sooner if LC raises rates before then.
Title: Re: When will LC next raise rates?
Post by: Rob L on April 08, 2017, 09:41:37 AM
I replied June 16-30, just after the FOMC meeting June (13-14).
If I remember the last time LC raised rates was just after a FOMC meeting when they raised the Fed Funds rate.
Title: Re: When will LC next raise rates?
Post by: rawraw on April 08, 2017, 09:46:32 AM
Did they raise rates after the most recent rate hike?
Title: Re: When will LC next raise rates?
Post by: JohnnyP on April 09, 2017, 01:05:05 AM
I think raising rates will have little to do with the Fed and more to do with supply/demand competition, etc.

Title: Re: When will LC next raise rates?
Post by: rawraw on April 09, 2017, 07:11:10 AM
I think raising rates will have little to do with the Fed and more to do with supply/demand competition, etc.
This is not historically true, given their pricing relies on a market benchmark plus a spread.  But I don't recall them repricing after the most recent one, like they have done historically.
Title: Re: When will LC next raise rates?
Post by: Rob L on April 18, 2017, 06:37:02 PM
I'm having a case of "poll respondent's remorse" not unlike "buyer's remorse" without any real money involved.
Sure, the Fed has raised it's funds rate, but Treasury bills, notes and bonds of all duration's have dropped to pre-election yields.

For interesting reads see:
https://www.advisorperspectives.com/dshort/updates/2017/04/17/treasury-snapshot-yields-down-to-november-levels (https://www.advisorperspectives.com/dshort/updates/2017/04/17/treasury-snapshot-yields-down-to-november-levels)
https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldYear&year=2017 (https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldYear&year=2017)

We live in interesting times and this seems to be one of those moments.
Animal spirits appear to be dying. The Fed seems to be "pushing on a string" (a phrase from days gone by).
I'll be surprised if LC raises rates before 10 Year Treasury Notes close at a new 2017 high (yield that is).
However, I'm also surprised LC is able to find lenders at current rates so go figure. I'm not one of them.

Title: Re: When will LC next raise rates?
Post by: Triplell on April 19, 2017, 11:58:07 PM
I think raising rates will have little to do with the Fed and more to do with supply/demand competition, etc.
This is not historically true, given their pricing relies on a market benchmark plus a spread.  But I don't recall them repricing after the most recent one, like they have done historically.

Did you just make that up? Yes. Lending club raised the rates after the fed hike in Dec '15. But that's not really enough historical data to say "as they've done historically", as the fed rate hadn't changed prior to that since 2008. They also raised the rates again in April '16, June '16, and Oct '16. They, they didn't change rates after the Dec '16 rate hike, or the March '17 rate hike.

So what JohnnyP says seems to be more accurate. Not a lot to do with the fed, more to do with staying competitive.
Title: Re: When will LC next raise rates?
Post by: rawraw on April 20, 2017, 03:06:07 AM
I think raising rates will have little to do with the Fed and more to do with supply/demand competition, etc.
This is not historically true, given their pricing relies on a market benchmark plus a spread.  But I don't recall them repricing after the most recent one, like they have done historically.

Did you just make that up? Yes. Lending club raised the rates after the fed hike in Dec '15. But that's not really enough historical data to say "as they've done historically", as the fed rate hadn't changed prior to that since 2008. They also raised the rates again in April '16, June '16, and Oct '16. They, they didn't change rates after the Dec '16 rate hike, or the March '17 rate hike.

So what JohnnyP says seems to be more accurate. Not a lot to do with the fed, more to do with staying competitive.
No, lending Club used to disclose step by step how your grade and rate was determined. And there was a market index in the rate calculation

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Title: Re: When will LC next raise rates?
Post by: rawraw on April 20, 2017, 03:44:27 PM
I spent a few minutes on the wayback machine to try to find the index, but couldn't.  Perhaps I am misremembering or just can't locate the right historical page.
Title: Re: When will LC next raise rates?
Post by: Fred93 on April 20, 2017, 04:37:20 PM
No, lending Club used to disclose step by step how your grade and rate was determined. And there was a market index in the rate calculation

Its in the prospectus for the notes.  More recent prospecti have had fewer words about this.  If you go back several years tho it is more explicit.  They start with a "base rate" set by committee.  Its not quite a market index, tho that is part of it.

From the June 2008 prospectus...
https://www.sec.gov/Archives/edgar/data/1409970/000089161808000318/f41480orsv1.htm
Quote
The interest rates are assigned to borrower loan grades in three steps. First, the Lending Club base rates are determined. Second, an assumed default rate is determined that attempts to project loan default rates. Third, the assumed default rate is used to calculate an upward adjustment to the base rates, which we call the “Adjustment for Risk and Volatility.”
 
The base rates are set by the interest rate working group. This group generally meets on a weekly basis and includes our Chief Executive Officer; Chief Operations Officer; Director, Credit; Vice President, Collections; and Director, Product Strategy. The working group’s objective in setting the Lending Club base rates is to allocate the interest rate spread that exists between the cost of credit for borrower members and the return on bank deposits we understand are available to lender members. To make this calculation, the working group calculates the average between the interest rate for unsecured consumer credit published by the Federal Reserve, “commercial banks; all accounts,” in Federal Reserve Statistical Release G19, and the interest rate for 6-month certificates of deposit, “secondary market; monthly,” published by the Federal Reserve in Federal Reserve Statistical Release H15. By calculating this average, the working group determines an initial allocation of the spread between lender members and borrower members.
 
Next, the working group modifies this initial allocation, based on the following factors:
    
     •     general economic environment, taking into account economic slowdowns or expansions;
 
     •     the balance of supply and demand on the Lending Club platform, taking into account whether borrowing requests exceed lender member commitments or vice versa; and
 
     •     competitive factors, taking into account the rates set by other social lending platforms and the rates set by major financial institutions.
 
The working group adjusts the Lending Club base rates from time to time based on this methodology. In applying the adjustment to the base rate, the working group has established a different base rate for A grades than for other loan grades.

When the working group set our current base rate on June 3, 2008, effective June 17, 2008, the interest rate for unsecured consumer credit published by the Federal Reserve, “commercial banks; all accounts,” in Federal Reserve Statistical Release G19 was 13.71%, and the average interest rate on 6-month certificates of deposit, “secondary market; monthly,” published by the Federal Reserve in Federal Reserve Statistical Release H15 was 2.84%. The average of these two interest rates was 8.27% (calculated as (13.71% + 2.84%)/2 = 8.27%). Applying the adjustments described above, the working group determined an adjustment of -0.97% for A loan grades and -0.47% for other loan grades. Therefore, the working group set the Lending Club base rate as 7.30% for A loan grades and 7.80% for other loan grades.
 
After the working group sets the Lending Club base rates, we determine assumed default rates. The assumed default rate reflects Lending Club’s attempt to project the default rate for member loans of the loan grade.
 
Lastly, the working group adjusts the base rates upward to reflect an adjustment correlated to the assumed default rate, which we call the “Adjustment for Risk and Volatility.” Currently, the working group has set this adjustment as an interest rate equal to twice the assumed default rate. Accordingly, to determine the final interest rates that apply on the Lending Club platform, the working group adds twice the assumed default rate to the base rates.

So that pretty much covers all the possible bases.  You have some indexes, then economic conditions, supply & demand, and competitive factors.  This covers both extremes of methodology.  The mechanical (ie indexes) at one extreme, and the discretionary (supply & demand, competitive factors) at the other.

We have no idea what changes may have been made between 2008 and 2017, but I'll guess that there's still a committee, and they still consider the same range of factors (because like ...what else is there?).
Title: Re: When will LC next raise rates?
Post by: rawraw on April 20, 2017, 04:48:23 PM
That is it! Thanks for finding it. I know I've noticed anecdotally Lightstream and other bank consumer lenders increased their rates. But bank deposits haven't moved much yet


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Title: Re: When will LC next raise rates?
Post by: Lovinglifestyle on April 20, 2017, 06:36:13 PM
That is it! Thanks for finding it. I know I've noticed anecdotally Lightstream and other bank consumer lenders increased their rates. But bank deposits haven't moved much yet


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My short term treasuries went from .01 to .20, a raise from $6/mos to $114/mos between Dec. 1 '16 and March 31 '17. Yay!  The fund charges .48% fee, which they waived or partially waived during the interest drought, so I don't know how much fee they are charging now.  Couldn't find that info any place I looked.
Title: Re: When will LC next raise rates?
Post by: Fred93 on April 20, 2017, 06:41:37 PM
My short term treasuries went from .01 to .20, a raise from $6/mos to $114/mos between Dec. 1 '16 and March 31 '17. Yay!  The fund charges .48% fee, which they waived or partially waived during the interest drought, so I don't know how much fee they are charging now.  Couldn't find that info any place I looked.

WSJ quotes today...
1 month T-bills at 0.731% yield
3 month T-bills at 0.785% yield 

I've been buying T-bills rather than putting more money into short term bond funds lately, as the yields are higher going directly into T-bills.
Title: Re: When will LC next raise rates?
Post by: jheizer on April 20, 2017, 09:38:05 PM
This may be a stupid question, but for the "average" person where FDIC limits are not an issue, is there any reason to look at T-Bills vs the 1.05-1.25% online savings accounts?  I'm assuming there is nothing really that could really happen to the trade value in 1-3 months that would make them a selling opportunity right?  I've been shifting more money out of stocks lately as I've been taking some profits and I just haven't be able to get myself to put them in any bond funds and nothing else seems worth it over the online savings rates lately.
Title: Re: When will LC next raise rates?
Post by: Fred93 on April 20, 2017, 09:48:10 PM
This may be a stupid question, but for the "average" person where FDIC limits are not an issue, is there any reason to look at T-Bills vs the 1.05-1.25% online savings accounts?

Not much.  T-bills are easier to find.   Just a couple of clicks at your broker's web site.  One of those online savings accounts will be a few more clicks, and you might need to fax a driver's license or something like that. 
Title: Re: When will LC next raise rates?
Post by: jheizer on April 20, 2017, 10:19:11 PM
Thanks. 
Title: Re: When will LC next raise rates?
Post by: AnilG on April 20, 2017, 10:39:00 PM
"The starting point for base interest rate is the middle of the spread between the interest rate for unsecured consumer credit as published in Federal Reserve Board Consumer Credit G.19 Release and the average interest rate for 6-month certificates of deposit as published in Federal Reserve Board Selected Interest Rate H.15 Release."

An old blog post detailing how Lending Club sets rate.
Lending Club Base Interest Rate - Excess Lending Capital Supply http://andirog.blogspot.com/2012/06/lending-club-base-interest-rate-excess.html
Title: Re: When will LC next raise rates?
Post by: Fred93 on April 20, 2017, 11:20:37 PM
"The starting point for base interest rate is the middle of the spread between the interest rate for unsecured consumer credit as published in Federal Reserve Board Consumer Credit G.19 Release and the average interest rate for 6-month certificates of deposit as published in Federal Reserve Board Selected Interest Rate H.15 Release."

An old blog post..

Funny!  G.19 no longer contains a series with the words "unsecured consumer credit" in its title, and H.15 no longer contains a series with "6-month certificates of deposit" in its title. 

G.19 does contain a series for 24-month consumer loans.  That's close.  Its presently at 10.05%  If we had data for all consumer loans it might be a little higher I'd think.

Bankrate shows 6 month CDs from 0.01% to 1.11%, midpoint is 0.55%  Hard to say more.  If the fed still tracked this they would average among all the banks.  I don't have that ability.  An average might be a little lower I'd think.

The middle of that spread is 5.3% 

LC's latest schedule shows A1 loans at 5.32%, so I'd say that methodology gets one pretty close.

This is a goofy formula tho.  If they wanted a riskless rate, T-bill rate would have been the thing.  CD rates have funky market forces in them.  (Right now, stickyness to historical near-zero rates that bank customers have grown to accept).  The consumer credit rate contains risk, which we are cutting by a factor of two when we average this with the CD rate.

Title: Re: When will LC next raise rates?
Post by: rawraw on April 21, 2017, 02:35:23 AM
"The starting point for base interest rate is the middle of the spread between the interest rate for unsecured consumer credit as published in Federal Reserve Board Consumer Credit G.19 Release and the average interest rate for 6-month certificates of deposit as published in Federal Reserve Board Selected Interest Rate H.15 Release."

An old blog post..

Funny!  G.19 no longer contains a series with the words "unsecured consumer credit" in its title, and H.15 no longer contains a series with "6-month certificates of deposit" in its title. 

G.19 does contain a series for 24-month consumer loans.  That's close.  Its presently at 10.05%  If we had data for all consumer loans it might be a little higher I'd think.

Bankrate shows 6 month CDs from 0.01% to 1.11%, midpoint is 0.55%  Hard to say more.  If the fed still tracked this they would average among all the banks.  I don't have that ability.  An average might be a little lower I'd think.

The middle of that spread is 5.3% 

LC's latest schedule shows A1 loans at 5.32%, so I'd say that methodology gets one pretty close.

This is a goofy formula tho.  If they wanted a riskless rate, T-bill rate would have been the thing.  CD rates have funky market forces in them.  (Right now, stickyness to historical near-zero rates that bank customers have grown to accept).  The consumer credit rate contains risk, which we are cutting by a factor of two when we average this with the CD rate.
I think those indexes are proxy for competitive levels of rates on both borrowing and investing side and  not meant to be risk free but who knows. Anil found what I remember

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Title: Re: When will LC next raise rates?
Post by: nonattender on April 21, 2017, 07:38:40 PM
I've been buying T-bills rather than putting more money into short term bond funds lately, as the yields are higher going directly into T-bills.

This might be a stupid question, but whenever I don't ask one I wind up feeling more stupid:

Why would you buy T-bills rather than doing brokered CDs?  3-mo CD yields are about 1%...

(Or are you going farther out in duration?  Maybe your definition of "short term" is different?)
Title: Re: When will LC next raise rates?
Post by: AnilG on April 21, 2017, 09:10:47 PM
G.19 never contained a series with words "unsecured consumer credit". You need to look for Credit Card Plans Account Assessed Interest line. H.15 discontinued CD Rates in December 2013.

IMO it was a genius move on the part of Lending Club to use midpoint between these two interest rates as starting point for the LC interest rate. At that time LC was marketing to attract people carrying credit card debt as borrowers and peoples saving in Banks/CDs as lenders. This strategy made LC interest rates more attractive to both groups and easy to understand.

As LC has moved on to primarily Banks and large Investment Funds as lenders, LC may have switched from CD Rates to 2-5 years Treasury Securities.

From https://www.federalreserve.gov/feeds/h15.html

Quote
December 05, 2013

Discontinuance of CD rates (secondary market)
As of the release on December 16, 2013, the H.15 will cease publication of the 1-month, 3-month, and 6-month CD rates. Recent attrition has reduced both the number and types of institutions that provide quotes creating a challenge to construct statistically robust estimates of CD rates, and it is not feasible to resume publication. The historical rates will remain available through the Federal Reserve Board's Data Download Program (DDP).


Funny!  G.19 no longer contains a series with the words "unsecured consumer credit" in its title, and H.15 no longer contains a series with "6-month certificates of deposit" in its title. 

G.19 does contain a series for 24-month consumer loans.  That's close.  Its presently at 10.05%  If we had data for all consumer loans it might be a little higher I'd think.

Bankrate shows 6 month CDs from 0.01% to 1.11%, midpoint is 0.55%  Hard to say more.  If the fed still tracked this they would average among all the banks.  I don't have that ability.  An average might be a little lower I'd think.

The middle of that spread is 5.3% 

LC's latest schedule shows A1 loans at 5.32%, so I'd say that methodology gets one pretty close.

This is a goofy formula tho.  If they wanted a riskless rate, T-bill rate would have been the thing.  CD rates have funky market forces in them.  (Right now, stickyness to historical near-zero rates that bank customers have grown to accept).  The consumer credit rate contains risk, which we are cutting by a factor of two when we average this with the CD rate.
I think those indexes are proxy for competitive levels of rates on both borrowing and investing side and  not meant to be risk free but who knows. Anil found what I remember

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Title: Re: When will LC next raise rates?
Post by: Fred93 on April 22, 2017, 01:58:28 AM
This might be a stupid question, but whenever I don't ask one I wind up feeling more stupid:
Why would you buy T-bills rather than doing brokered CDs?  3-mo CD yields are about 1%...

Actually, I have some of each.  I have nothing against CDs.

I am in a high tax state, 13.3% state income tax, and there's no state tax on treasuries, so that levels things a bit.  I get the full brunt of this when I hit fed AMT, as then additional $ of state tax are not deductible, so the payment of state tax is purely additive.

1% taxed by both state & fed is equivalent to 0.865% taxed by fed only.

Treasuries also more liquid.

You raise a good point tho.  I check from time to time, but probably haven't checked the relative yields every day I've bought.
Title: Re: When will LC next raise rates?
Post by: Half Right on April 22, 2017, 09:23:27 PM
3 month brokered CD's at Schwab running at .95% for Bank of China last week.
Moving alot of money out of Ally Bank Demand Notes as I am becoming concerned with their subprime auto loans and the declining value of used cars.
Not a total panic but I am moving money out
Title: Re: When will LC next raise rates?
Post by: jennrod12 on May 06, 2017, 06:26:45 PM
Looks like May 1-15 won the poll!