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Lending Club Discussion => General Lending Club Discussion => Topic started by: Rob L on December 07, 2017, 07:44:01 PM

Title: Lending Club Exists for the Profits of Whom?
Post by: Rob L on December 07, 2017, 07:44:01 PM
I've been an unrepentant LC pessimist over the past two years, should anyone be unaware (few are I'm sure).
Each quarter shareholder equity is diluted by non-GAAP compensations to management (big time). Hey, it's not cash so why worry?
When all that money the exuberant IPO buyers gave the company has been distributed to management what will be LC's fate? My guess is that it isn't pretty.
I will leave it up to the optimists to counter. Strong language, but is thinking LC is a dead man walking ...  If not dead zombie like.

http://www.insider-monitor.com/trading/cik1409970.html (http://www.insider-monitor.com/trading/cik1409970.html)

Title: Re: Lending Club Exists for the Profits of Whom?
Post by: rawraw on December 07, 2017, 07:50:04 PM
I personally think we need to be careful on this forum to keep several items separate.  LendingClub the stock investment, LendingClub the platform,and LendingClub notes. A lot of the newer people have trouble understanding how they are different and yet related.  I agree with you about the LendingClub stock.  But dead man walking may be a bit much, I think they probably could be profitable if they just stopped spending as much.  Didn't they say in an email couple years ago they could function just based off of the servicing income if they gutted the place?  At any rate, I think LC is similar to a mortgage broker - and that's not necessarily a very attractive business to invest in.
Title: Re: Lending Club Exists for the Profits of Whom?
Post by: Rob L on December 08, 2017, 10:47:20 AM
Yeah, I agree this thread is in the wrong place.
Should be in the General Lending Club Discussion Topic. Most of the stock related posts are there.

Hey Zach -- If you happen to see this post would you move the whole thread as above?

And yeah I guess dead man walking was a bit over the top. I'm sure there are plenty of companies with troubles far worse than LC that have come back, survived and done very well.

Title: Re: Lending Club Exists for the Profits of Whom?
Post by: Zach on December 09, 2017, 12:00:41 AM

Hey Zach -- If you happen to see this post would you move the whole thread as above?


Sure thing - done!
Title: Re: Lending Club Exists for the Profits of Whom?
Post by: dr.everett on December 09, 2017, 02:00:40 AM
I personally think we need to be careful on this forum to keep several items separate.  LendingClub the stock investment, LendingClub the platform,and LendingClub notes. A lot of the newer people have trouble understanding how they are different and yet related.  I agree with you about the LendingClub stock.  But dead man walking may be a bit much, I think they probably could be profitable if they just stopped spending as much.  Didn't they say in an email couple years ago they could function just based off of the servicing income if they gutted the place?  At any rate, I think LC is similar to a mortgage broker - and that's not necessarily a very attractive business to invest in.

I'm your huckleberry... :)

I'll answer this from a couple of perspectives. First as a (former) notes investor. Taxable account is gone, all that's left are 50% late notes waiting for their turn to die, and 50% notes that still haven't/won't sell. These are the "dead men walking", I just have to wait them out. Not fun, but hey- we'll see what happens. IRA has a lot more to go but the discount to continue selling has risen from .5% discount to 1.5% and will slowly continue to rise until the IRA gets to the same point as the taxable account. Maybe it comes back- maybe it doesn't. I will certainly watch and if it does, I "might" reinvest- but not at the level I did before.
Fundrise has better returns with a lot less effort and risk. Yes the money is stuck for 5 years, but at 10% a year, oh noes... ;D

Now I'll answer as the stock investor- when we lost 15% percent on the earnings call a few weeks back, I said "Damn", and invested more to lower my cost. When we lost another 15% yesterday I said "Sh.." and invested again. Some will say why, that's stupid, etc. My net cost on my shares is $4.37 a share, not counting today's purchasing, and possibly Monday's purchasing. If I can get it closer to $4 a share I'll be happy.

I have done very well in the past with distressed stocks and price swings. One stock in particular- Had close to 100,000 shares of it in the .25 a share range. Managed to catch a $1 swing on it 2x, once on acquisition rumors with a tight trailing sell trigger attached to it, the other time when the company was actually bought. Paid for a lot of things with those swings.

If/When LC gets back to the $6.80 peak it was at before, I'll make about $30K. Anything less than that, but more than it is now, I'll keep a close eye on, set a trailing trigger, and patiently wait. Just like I'm doing while my notes sell.
Title: Re: Lending Club Exists for the Profits of Whom?
Post by: AnilG on December 09, 2017, 07:16:38 AM
So you have decided that LC notes are not good investment but LC stock is a good investment. Interesting juxtaposition. I wonder what part of LC business you are excited about to put more money into LC stock.


I'm your huckleberry... :)

I'll answer this from a couple of perspectives. First as a (former) notes investor. Taxable account is gone, all that's left are 50% late notes waiting for their turn to die, and 50% notes that still haven't/won't sell. These are the "dead men walking", I just have to wait them out. Not fun, but hey- we'll see what happens. IRA has a lot more to go but the discount to continue selling has risen from .5% discount to 1.5% and will slowly continue to rise until the IRA gets to the same point as the taxable account. Maybe it comes back- maybe it doesn't. I will certainly watch and if it does, I "might" reinvest- but not at the level I did before.
Fundrise has better returns with a lot less effort and risk. Yes the money is stuck for 5 years, but at 10% a year, oh noes... ;D

Now I'll answer as the stock investor- when we lost 15% percent on the earnings call a few weeks back, I said "Damn", and invested more to lower my cost. When we lost another 15% yesterday I said "Sh.." and invested again. Some will say why, that's stupid, etc. My net cost on my shares is $4.37 a share, not counting today's purchasing, and possibly Monday's purchasing. If I can get it closer to $4 a share I'll be happy.

I have done very well in the past with distressed stocks and price swings. One stock in particular- Had close to 100,000 shares of it in the .25 a share range. Managed to catch a $1 swing on it 2x, once on acquisition rumors with a tight trailing sell trigger attached to it, the other time when the company was actually bought. Paid for a lot of things with those swings.

If/When LC gets back to the $6.80 peak it was at before, I'll make about $30K. Anything less than that, but more than it is now, I'll keep a close eye on, set a trailing trigger, and patiently wait. Just like I'm doing while my notes sell.
Title: Re: Lending Club Exists for the Profits of Whom?
Post by: dr.everett on December 09, 2017, 04:36:13 PM
So you have decided that LC notes are not good investment but LC stock is a good investment. Interesting juxtaposition. I wonder what part of LC business you are excited about to put more money into LC stock.


I foresee two potential possibilities right now. In the experience I had with the other stock- it got to a point where it was a cheap acquisition for the buyer. It's stock value popped and I made money on it. I think there's the potential here- that someone with deep pockets may say it makes more sense to buy LC and have a ready-made business needing minor tweaks vs. building their own from scratch.

My second thought is that LC will turn around their existing issues on their own and over the next quarter or two, will return to the price level they were at before. If they do, I also make money.

To your question about why I think the notes are not a good investment right now: The amount of manual work required (lack of automation, tax reporting), lack of return, and stability are the main reasons. In the last year, the main tools I used to ease the workload have drastically changed, or have stopped innovating. The tax reporting requirements are so vague it's ripe audit material, and requires a ton of manual entry. Returns have gone in the tank as many others have seen and reported, and many, many chargeoffs/defaults. I know I'll sound like a Fundrise fanboy saying this, but I'm getting 10% a quarter for no effort at all. I've had no losses, no chargeoffs, nothing. Put the money in- let it sit for 5 years, and watch the interest accrue.

Anil- I would have loved to give PeerCube a try to replace my other tools, but given the other things going on with LC right now, I just don't want to get back into the notes side of things. It's not worth it to me for all the reasons above. I had $250K in notes at my peak and was spending several hours a night doing all the things I felt were necessary to be a successful LC investor. I have that time back now, and the associated stress is gone as well. I'm happier with where I am and the path ahead.
Title: Re: Lending Club Exists for the Profits of Whom?
Post by: rawraw on December 09, 2017, 05:24:04 PM
Fundrise has better returns with a lot less effort and risk. Yes the money is stuck for 5 years, but at 10% a year, oh noes... ;D

I feel like I have the same disagreement on this forum over and over again about how people do not think about investing rationally.   You could have made the exact same statement about LC a few years ago but now it's too risky to hold notes (but fine to buy stock?).  Why invest in X when I'm getting 12% returns at LC... oh noes.  For me, it was virtually riskless because I could see the late notes before they showed up as late.  Despite this, I commonly posted on this forum that people shouldn't buy such risky LC notes without understanding risk.  I suspect you don't understand the risk of Fundrise.  But at any rate, good luck.
Title: Re: Lending Club Exists for the Profits of Whom?
Post by: Rob L on December 09, 2017, 05:44:00 PM
We are blessed to live in interesting times. A cursory but by no means serious look at insider buying and selling (see link above) appears to suggest that the last round of nearly free stock options to corporate management have not been sold after this last downturn into the mid $3's. Not one share. There's even some buying by insiders on the open market, but it's very small money. Seems there is a lot of stock held with a cost basis in the $4.25 range (including the Chinese investor Chen). Not many sellers in the mid $3's, but maybe the $4.25 level will be hard to break on the upside. Anybody want to get out even? The market will tell us in due time.
Title: Re: Lending Club Exists for the Profits of Whom?
Post by: dr.everett on December 09, 2017, 07:11:55 PM
For me, it was virtually riskless because I could see the late notes before they showed up as late. 

I "thought" I was doing okay at filtering for bad notes, between my manual work, automation and selling strategy. I found out as others did, I wasn't seeing bad notes as well as I thought. That's ultimately why I stopped lending.

I respect your thoughts rawraw and would ask what you see as the risk in sites like Fundrise. I know no investment is risk free. To me, an investment like Fundrise that's backed by actual property that can be foreclosed if not paid and some return received seems like a much safer bet than what I personally experienced at LC. I've been in Fundrise now for 2 years- haven't lost any money yet- and about 12 of the properties they invest in for me have completed and paid off. What am I not seeing or considering that you think are key, and that I should be?

As said in my previous post, the time, effort and returns work better for me at Fundrise. Less time to manage, daily effort to maintain, and good returns.
Title: Re: Lending Club Exists for the Profits of Whom?
Post by: AnilG on December 09, 2017, 08:14:34 PM
+1. I remember in 2013/2014 when I talked about risk with LC lending, people laughed at me as they were consistently getting 8-10% return for several years and couldn't believe someone will think LC lending is risky. Even on this forum, people were discussing borrowing from other sources to lend on LC. How times have change. I am pretty sure same will happen to the next new shiny investment people are excited about. It is behavioral investing 101. Common-sense is not common enough. For majority, "return" tail seem to wag the dog.

I feel like I have the same disagreement on this forum over and over again about how people do not think about investing rationally.   You could have made the exact same statement about LC a few years ago but now it's too risky to hold notes (but fine to buy stock?).  Why invest in X when I'm getting 12% returns at LC... oh noes.  For me, it was virtually riskless because I could see the late notes before they showed up as late.  Despite this, I commonly posted on this forum that people shouldn't buy such risky LC notes without understanding risk.  I suspect you don't understand the risk of Fundrise.  But at any rate, good luck.
Title: Re: Lending Club Exists for the Profits of Whom?
Post by: pourts on December 09, 2017, 09:59:23 PM
Fundrise has better returns with a lot less effort and risk. Yes the money is stuck for 5 years, but at 10% a year, oh noes... ;D

For me, it was virtually riskless because I could see the late notes before they showed up as late. 

Are you still able to do this?  If so, how?
Title: Re: Lending Club Exists for the Profits of Whom?
Post by: Half Right on December 13, 2017, 01:59:50 PM

"Fundrise has better returns with a lot less effort and risk. Yes the money is stuck for 5 years, but at 10% a year, oh noes... ;D
For me, it was virtually riskless because I could see the late notes before they showed up as late. 
Are you still able to do this?  If so, how?"


Fundrise will gladly take your money. However please note that the Net asset value for the Income Fund is now $9.80 as opposed to $10 when the fund started. A loss of 2% in the past year. Take that off your 10% distribution and you are inline with most other crowdfunded real estate loans. However your liquidity is restricted and comes with a penalty for early withdrawal.
IMHO better deals exist
Title: Re: Lending Club Exists for the Profits of Whom?
Post by: jrr6415sun on December 18, 2017, 03:12:18 AM

"Fundrise has better returns with a lot less effort and risk. Yes the money is stuck for 5 years, but at 10% a year, oh noes... ;D
For me, it was virtually riskless because I could see the late notes before they showed up as late. 
Are you still able to do this?  If so, how?"


Fundrise will gladly take your money. However please note that the Net asset value for the Income Fund is now $9.80 as opposed to $10 when the fund started. A loss of 2% in the past year. Take that off your 10% distribution and you are inline with most other crowdfunded real estate loans. However your liquidity is restricted and comes with a penalty for early withdrawal.
IMHO better deals exist

what are some better deals?
Title: Re: Lending Club Exists for the Profits of Whom?
Post by: Half Right on December 18, 2017, 12:40:47 PM
Not to say that the biggest is always the best but i like these 2 the most and they are some of the biggest:

1) Cadre- it doesn't hurt to have the current President as a family member (through marriage and blood). At least you get the Tax Code  changed for your benefit.
2) Lending Home- Although they have become way too aggressive in terms of "Loan to Cost" while attempting to retain some some restraint in terms of "Loan to Value", I think this has been caused as a result of their ENORMOUS growth. IMHO the best fix and flippers use them because of their super quick loan funding which gets the properties completed quickly and out on the market in the shortest time possible. What I most appreciate is that if the borrower is late or in default, they will not waste a second foreclosing and auctioning off the property.

Either way as they say in the Real estate biz Caveat Emptor
Title: Re: Lending Club Exists for the Profits of Whom?
Post by: rawraw on December 19, 2017, 07:34:04 PM
For me, it was virtually riskless because I could see the late notes before they showed up as late. 

I "thought" I was doing okay at filtering for bad notes, between my manual work, automation and selling strategy. I found out as others did, I wasn't seeing bad notes as well as I thought. That's ultimately why I stopped lending.

I respect your thoughts rawraw and would ask what you see as the risk in sites like Fundrise. I know no investment is risk free. To me, an investment like Fundrise that's backed by actual property that can be foreclosed if not paid and some return received seems like a much safer bet than what I personally experienced at LC. I've been in Fundrise now for 2 years- haven't lost any money yet- and about 12 of the properties they invest in for me have completed and paid off. What am I not seeing or considering that you think are key, and that I should be?

As said in my previous post, the time, effort and returns work better for me at Fundrise. Less time to manage, daily effort to maintain, and good returns.
Unfortunately I'm not as familiar with Fundrise.  I tried reading their website but it is all marketing stuff and no real detail.  Can you describe the type of lending they do?  Also, what legal structure are the loans offered to you.  I can tell you broadly the risks.  Historically, banks don't fail by doing consumer lending.  But they frequently fail from real estate lending.  Collateral can only go so far, especially the typical type of real estate deals I see the P2P sites doing. 
Title: Re: Lending Club Exists for the Profits of Whom?
Post by: dr.everett on December 21, 2017, 03:33:57 PM
For me, it was virtually riskless because I could see the late notes before they showed up as late. 

I "thought" I was doing okay at filtering for bad notes, between my manual work, automation and selling strategy. I found out as others did, I wasn't seeing bad notes as well as I thought. That's ultimately why I stopped lending.

I respect your thoughts rawraw and would ask what you see as the risk in sites like Fundrise. I know no investment is risk free. To me, an investment like Fundrise that's backed by actual property that can be foreclosed if not paid and some return received seems like a much safer bet than what I personally experienced at LC. I've been in Fundrise now for 2 years- haven't lost any money yet- and about 12 of the properties they invest in for me have completed and paid off. What am I not seeing or considering that you think are key, and that I should be?

As said in my previous post, the time, effort and returns work better for me at Fundrise. Less time to manage, daily effort to maintain, and good returns.
Unfortunately I'm not as familiar with Fundrise.  I tried reading their website but it is all marketing stuff and no real detail.  Can you describe the type of lending they do?  Also, what legal structure are the loans offered to you.  I can tell you broadly the risks.  Historically, banks don't fail by doing consumer lending.  But they frequently fail from real estate lending.  Collateral can only go so far, especially the typical type of real estate deals I see the P2P sites doing.

They do several different types of real estate loans. Looking at what shows in my investments, I see Construction Loans which typically acquire property to build upon, in one case 11 small lot homes in Los Angeles. I see an Acquisition loan, in this case they bought a property with a retail space that is currently leased, and will be adding to it a 140 unit apartment building by going through a zoning change. They also have a couple of Condo projects doing similar building along with some Townhome and Hotel projects- the hotel one is interesting- it's a 63 room hotel and 15K sq ft. property in Pennsylvania.
 
The loans are offered as an EREIT (electronic Real Estate Investment Trust), at the end of the year we'll get a 1099-DIV and a K-1 if invested in one of their EFunds. I think the way I'm invested I'll only get a 1099-DIV. (We'll see- this is the end of my first year doing this...)

If there's specific things you want me to look for as a member let me know and I'll see what I can find behind the "glossy shiny stuff".
Title: Re: Lending Club Exists for the Profits of Whom?
Post by: rawraw on December 21, 2017, 07:30:49 PM
I figured it was C&D or ADC lending, which is one of the riskiest loan types that exist (outside of subprime stuff).  There are a few things that you need to think about.  First, why is a loan with collateral yielding the same as an unsecured consumer loan?  There is only two answers to this.  The first is that even with the collateral, the risk is similar to the unsecured consumer.  The second is that it is an inefficient loan category that will disappear as the risk is priced more effectively.   While both are likely at play, I suspect the first explanation is the majority.

The second is  what is your actual collateral?  How do they measure the loan to value?  I could get a loan to build a golf course.  I spend $500k to buy the land and the appraisal says that when it is completed, it is worth $10 mil.  What value should I use in my loan to value?  In an ADC loan, what if I'm buying over valued real estate.  If I sell you swamp land for $50 mil. and you get a $10 mil. loan against it.  Is that a safe loan because it is 20% LTV? 

What is the legal structure of the loans?  Do the loans have recourse against the developer or is the project the sole source of repayment? 

The other question is what determines real estate value?  Well its a combination of the income produced and the multiple paid for that income.  Why do real estate values drop?  It is typically because the success of the projects and their cash flow no longer look as attractive as expected.  So the collateral's value and the borrower's ability to pay (assuming the loans are recourse, which may not be the case given they are construction yielding such high levels) are directly correlated.  So when things go poorly,  it all happens at once.

Hope this helps.
Title: Re: Lending Club Exists for the Profits of Whom?
Post by: dr.everett on December 21, 2017, 09:28:37 PM

What is the legal structure of the loans?  Do the loans have recourse against the developer or is the project the sole source of repayment? 


I see this on one of the loans- does it answer the legal structure question?

     Senior Secured Loan with Carve-Out and Full Recourse Guarantees
     The Borrower has provided customary bad boy carve-out guarantees as well as full recourse completion guarantees.

I also see this in terms of the valuation question for the same loan:

     The maximum principal balance of the loan commitment is $10,000,000, which is equal to roughly 72% the CBRE appraised value of the property from April 2017. The remaining portion of the project costs will be provided by the borrower.

If that doesn't answer the questions you raised- what would be a couple of the types/terms I should look for?

Title: Re: Lending Club Exists for the Profits of Whom?
Post by: rawraw on December 22, 2017, 06:56:08 PM
Does it give you the definition of the full recourse completion guarantees? If they guarantee, the question then becomes what the financial strength the borrower has outside of the project. Just to give you some frame of reference, these loans at a bank cost 5% or so. Why isn't these borrowers going to a bank? It may be they actually aren't sources of financial strength.

The appraised value is too broad to be useful. In our golf course example, that appraisal says we are fine too. The first thing is to find out what loan to value is that? Value as completed, value as is, loan to cost, etc. In our golf course example, loan to cost will be much different than loan to value.

I think you are looking at the right places. It's just we need more details to understand what's going on
Title: Re: Lending Club Exists for the Profits of Whom?
Post by: dr.everett on December 22, 2017, 11:02:23 PM
Does it give you the definition of the full recourse completion guarantees? If they guarantee, the question then becomes what the financial strength the borrower has outside of the project.

I can't find anything beyond what was stated about the full recourse and carve outs- looking a bit deeper, this particular project has five guarantors according to the Investment Summary. As to the strength of the company acquiring this loan, the summary states that they have deployed more than $50M in development in LA where this construction loan is located.

In one of the other loans in the same general area, LA, it's also a Sr. Loan, secured by the property, full recourse guaranties from the sponsor's principals. The loan amount is $4.9M, equal to 75% of the projected cost, with the remainder provided by the loan recipient. I don't see further specifics.
Title: Re: Lending Club Exists for the Profits of Whom?
Post by: rawraw on December 23, 2017, 10:27:13 AM
Prior development does that let us know much about financial strength, since real estate people are often highly leveraged. But it does give insight into experience.

Another area that is important to understand is how loan proceeds are disbursed. Does it address their process for draws at all?
Title: Re: Lending Club Exists for the Profits of Whom?
Post by: dr.everett on December 23, 2017, 12:58:30 PM
Another area that is important to understand is how loan proceeds are disbursed. Does it address their process for draws at all?

Not that I saw or could find.
Title: Re: Lending Club Exists for the Profits of Whom?
Post by: rawraw on December 23, 2017, 04:16:26 PM
At any rate, my broader point is that the things you need to know and think about when there is collateral is much more complex than unsecured consumer credit. You are trusting that these guys are doing it all right. But I think that's a risky proposition given the characteristics of the loans. They may be all star lenders, or they could be structuring things so poorly that you are making virtually unsecured loans without realizing it. This is why I suspect many of the people in real estate lending don't understand the risks they are taking. I still fear real estate peer lending is going to be what blows up and results in the sector getting regulated (and potentially kicking people out if they aren't accredited investors).