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Topics - anabio

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This is a contrast to the thread "what is your minimum acceptable return". In this case my MAXIMUM interest is 0%.

Yesterday I told my investment advisor to look for a way to ensure I made nothing or as little as possible on one of my investments, FOREVER.

A lesson in thinking outside the box...thought someone might be interested.

Just got done filing taxes for 2017 and it started me thinking of future years.

I am retired and live on social security, a work pension, ROTH withdrawals and the remnants of a "golden parachute". That remnant ends in 1 1/2 years so I will need to find some income to replace it.

There are a few reasons for purchasing an annuity (and a few more than a few to NOT purchase one). One of those reasons to purchase is to provide guaranteed income for the rest of your life. When I retired I opened an annuity for guaranteed income for the rest of my life to replace that parachute; to start when my parachute ended. This particular annuity is non-qualified (I funded it with after tax money).

Because of the way an annuity income stream works I have come to realize that I don't want that annuity earning any interest or gain, BECAUSE of taxes.

There are two values to this particular annuity. A current value and an income stream value. The current value is the initial investment plus any gain realized. The Income stream value is based upon the initial investment plus 6.5% interest each year. Once you turn on an annuity income stream that income value interest stops BUT the current value gains do not. The income stream value is basically meaningless except that it is used to determine the yearly income stream amount when starting the payments. You get that income for life even if your income payments eventually total more than that income stream value. 

Once the income stream starts the current value is essentially meaningless also; except for one condition in my case. That condition is why I don't want to earn money.

Once the income stream starts it doesn't end until you die. Also (for all practical purposes) your income payment WILL NOT increase in future years even if your current value increases. What WILL happen if there is a gain is that some (or all) of my income payment will be taxable. This is a non-qualified annuity. As such, if my annuity does not increase in value I have 15 years worth of non taxable income. (It will take 15 years of income to wipe out that inital investment.) Obviously when all the current value is wiped out my income stream payment will be fully taxable...but because of the annuuity I still HAVE an income stream. If the annuity gains 6% or more in one of those first 15 years, ALL of that year's income is taxable. There is NO benfit to me if this happens. I get the same amount of money...BUT I DO end up paying a good chunk of it to the IRS.

PLUS a larger part of my social security is taxed. Currently only 46% of my social security is taxable. (I purposefully set up my income for this...I know...I know...when RMD kicks in that will go up to 85%...but that's the way it goes...). If my income stream becomes taxable 85% of my social security is taxable.

Now you know why I don't want to earn anything on this particular investment.

By the way...for those of you who don't know...ROTH distributions are NOT taxable and also DO NOT count in the formula for determining how much of social security is taxable.

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Investors - LC / Winner of the "they really,really, REALLY tried" trophy
« on: December 14, 2017, 07:26:29 AM »
Had a loan just pay off that I had been sure for the past year that they would have defaulted. Loan id 28754440 was a loan for around $6000. This person has been late over 20 times since loan inception. FICO has been as low as 530. Currently  it is 555.  Loan was ostensibly meant for debt consolidation. I first said "uhohh" a few months after the loan originated when I noticed Fico did not jump up which signifies to me that the person really didn't use the loan to pay off credit cards. Loan never officially got into 30-120 days late although by my calendar there were times when it was 34-35 days late.

This person made their 36th payment on Nov 22 (24 days late) which should have paid off the  loan but since they had so many late payments additional interest must have been charged because after paying 36 payments they still owed 9 cents.

They paid 9 cents on Dec 13 (25 days late). This loan actually paid off! In and of itself I consider that a minor miracle...BUT...

As a radio host named Paul Harvey (anybody remember him?) many times said:

"The Rest of the Story?"

This person paid off the loan AFTER they declared bankruptcy.

The notes section says they declared bankruptcy on Dec 11. The final payment was on Dec 13. Two days after the bankruptcy...


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I've wondered about this for quite some time. I recently got a charge off for a loan who's stated purpose was credit card refinance.

When I started buying loans 3 years ago I let LC's auto investing choose my loans. The majority of loan purposes was to refinance / paydown debt. I also got a number of loans for other things (vacation, home remodel, medical, etc).

I re-invested proceeds for the next 9 months. When I re-invested I created my own filter to only invest in debt paydown type loans. When i focused on those loans I noticed that some of these loans requested much more money than their Info page showed they owed to revolving credit. I didn't buy those loans. However... LC's auto purchase did buy those loans for the first 3 months of my LC purchases.

Why would the borrower do this?

The revolving credit balance field would include all credit card debt of the borrower, right? I assume that is right so for someone to request more than double the amount of his credit card balance under the category of credit card refinance is (more than a little) bit suspicious, right?

What was he/she doing? ... asking for money for a spending spree?

When I noticed this I seriously thought of checking all my refinance loans and selling any I saw that didn't get a good fico jump (that would mean they obviously did not use the loan proceeds to pay down their debt). I didn't sell for two main reasons: I didn't want to take a Folio loss on a "maybe" and (more importantly) I didn't want to deal with the tax complexity of Folio sales.

This particular loan id is 15249524. This person obviously used some of the proceeds to pay down the credit card debt of around $4,000 because his FICO jumped up 50 points within two months of getting the loan. His fico score stayed that high for the next 10 months, then it started dropping. Was he using that extra $5,000 to finance his lifestyle and then when it ran out he resumed his credit card binge...showing he did not learn his lesson? Me thinks this was the case...which means that person never really intended to mend his ways.

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Investors - LC / 22 loans paid off HOWEVER 18 of those now in grace.
« on: April 01, 2017, 10:40:49 AM »
I'm  now at the point where my loans are paying off (not early). I see today that 22 of my loans paid off on time...actually their detail shows they paid the amount they have always paid each month BUT 19 of them now appear as IGP???

When I view the loans some of them show a 0 balance and some show a 1 cent balance. If I hover over the balance due I get between .004 cents and .008 cents due.

Has anyone else with loans paying off normally (not early) seen this? How long before LC "forgives" the partial cent owed and moves them to paid in full?

Maybe I'll call LC when they open Monday morning.

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Investors - LC / I thought the LC IPO was a good thing...boy was I wrong
« on: September 11, 2016, 02:19:26 PM »
I watched LC for over a year before I started investing because I wanted to wait until the IPO. The reason for the IPO wish was because I thought that LC would be less likely to go bankrupt/out of business if it was public. I still think that was a correct concept.

I now believe the IPO was not as good as I thought. I will provide a chart later that shows the detail but I have encountered "way more" defaults than LC estimated I would have when I first invested with them. The info below shows this.

Loan        LC's charge      My charge off
Grade      off rate             rate
        As of:mar 2014        Sept 11 2016
A             1.63%               6.31%
B             3.57%               7.23%
C             5.22%             13.99%

To be honest I no longer remember where I got that LC expected rate 3 years ago but I got it from somewhere on LC's web site and wrote it down for future use.

That begs the question: Why is my charge off rate so much higher than what LC estimated when I first started investing?

I guess some of you will say I had a "crappy" filter and invested in all the wrong notes. But that is not the case. For 84% of my note purchases I used LC's automated investing tool and went conservative: 40% A, 40% B, 20% C. No other filter except 36 month term. I did this because I assumed LC's expected charge off rate was based upon the "totality" of their loans in each rate category. So I assumed that is what I would get. If you use filters correctly you should get lower charge offs, but then there would be fewer loans available so money would sit idle for a long time.I was happy with the average so I did not filter. I only invested my "play money" and was content to invest and watch before investing my "non play money". I never got into the non play money pot because I turned bearish on LC as I started seeing how it really played out.

In March, April, May 2014 I invested $30,000. After that point I just re-invested the proceeds. When I started re-investing I used filters and mainly invested in C loans with some A/B. My filter was simple:

Only loans under $10,000, 3 years job, 1 or less inquiry, $24,000+ income, 3 year term, no California (I know...and I LIVE in CA).

I think the reason for my higher defaults is because when LC went public they HAD to show they would be profitable for their shareholders. That meant they HAD to increase their loan originations. I think LC loosened their loan rules in order to increase the number of loans and did not adjust their estimated default rates (until recently, supposedly...unfortunately for me). That is now playing out, causing a higher than estimated default rate.

I would REALLY be interested if someone who invested a couple years before the IPO and continued investing after the IPO would produce a chart like mine below. It would be interesting to see how the default rates compared pre IPO and after IPO.

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Last Thursday I had 7 of my 684 current loans go into grace. Two of those had made 27 payments, three had made 26 payments and two had made 21 payments. The two that had been in grace before Thursday had made 26 and 27 payments.

I have 8 loans 16-30 late all having made at least 24 payments.

I have 18 loans 31-120 late the majority of which have made at least 20 payments.

I have to believe that someone who has made so many payments and then falls behind has to have extenuating circumstances; loss of a job, unexpected medical payments, etc.

I'm not an expert at LC's rules but I don't believe I saw anything in their collection procedures that would allow them to modify loan conditions.

I would like to know what the consensus out there would be to allowing Lending Club’s collection department to modify the conditions of a loan for those people who have such extenuating circumstances and extend the loan payoff by let’s say another year or two. That would cut the loan payment down and hopefully provide a little relief to those borrowers.

I know that would mean locking up the investor’s funds for another year or two when they (you and I) did not intent to fund a 4-5 year loan but think about it…the majority of loans going 31-120 days late end up being charged off. What is the harm in seeing if some of those loans can be made whole just by the simple change of adding a year to the payback schedule? LC would not need to do that much more work…in fact their collection department might do less work because they might not have to call the borrower every few days for 4 months.

I don’t know where the cutoff should be as far as how many on time payments have been made but there should be some consideration given to those borrowers who have really tried but due to circumstances beyond their control have problems paying their monthly payment. Sure, nothing says the extended payback schedule would ensure all loans are paid back but you would still be ahead because you would get more payments than if the loan went charged off at the start.

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