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« on: March 22, 2013, 07:46:52 PM »
Laslow,
The short answer to your question is "we don't know", because the IR01/IR04 criteria is known only to "rev" the developer of the site and a great contributor on here. All of the items you mention are bound to be considered by some as worthy of concern and many of them will have been previously discussed on Lend Academy blogs and elsewhere.
I'm fairly new to Lending Club (3 months) and Interest Radar (2 months). But I did LOTS of study before beginning my investing. Lend Academy blogs are one of the best sites to learn from and many experienced investors offer invaluable advice. Please remember there is a difference between an investment philosophy based on statistics vs. those based on intuition or gut feelings or personal preferences; and I think its best to use both.
I use Interest Radar exclusively as my analysis tool for its transparency (I can play with the data), ability to rate all loans on IR01, and then add IR04 for credit card and debt consolidation loans. Since I am so new, I can't vouch from personal experience for IR's long term realiability, but others on this blog have mentioned that their default rate is lower when choosing better rated IR01/IR04 notes, and IR's reports on their site show that as well.
All investors have their own personal feelings about what they will or won't invest in, and I certainly have those as well. You will find numerous conversations In Lend Academy blogs about those type of judgments and the experiences investors have with them. I find that using the analysis filters on IR and seeing what the actual data tells me about certain assumptions is very important to me. Of course there were new data elements added in December 2012 for which there is no history--and I will leave it to others with far more experience and other resources to comment on their reliability as appropriate filtering elements. With the custom filters on IR, you can filter out many items, but based strictly on the information on IR, we really don't know the statistical history of some of those criteria as necessarily being true indicators of reduced default or increased yield.
Personally, I put great stock in the underlying past experience of a borrower as reported on their credit report--what is their history of paying their bills, number and timing of defaults and delinquencies, etc. Another filter I use is that the monthly payment shouldn't be more than 15% of the monthly income. Interst Radar's data also tells me that people with mortgages have better returns with lower default rates (they have experience making monthly payments over a long period of time and someone was willing to loan them a big amount of money) as well as those with larger incomes (who can more easily service their debt payments). I also only invest in credit card and debt consolidation--that's the biggest loan purposes on LC and the only loans that have an IR04 score. I know I lose the opportunity to loan to non-mortgage holders and in loans for other purposes--that's ok with me, it's just a choice I've made.
When I use IR's analysis capabilties and really play around with multiple filters, I find combinations that don't make sense to me personally, but the results tell me they have better outcomes than others (just make certain you have a sufficiently large sample size.) I'm learning with every blog I read by more experienced investors why certain things make sense from the history of consumer borrowing, then I go try them out on IR and Nickel Steamroller. The more I play with data, the more I learn the great interrelatedness between all the variables, and I try to understand which variable is really driving a change in result (i.e., looking for causal relationship not just a casual one.)
Some investors are not looking strictly for low default rates, they are looking for the highest yields, and will let the sheer volume of their notes handle the effects of defaults for them. And there are those investors who hold their notes for some period of time and have their own process to sell them, capture the returns, reinvest and move on. Try and figure out the best strategy for you--or some combination of them.
I know this is a very long answer, but perhaps it will help you as you choose your own path. Lastly---read, read, and read some more. The more knowledge you gain about P2P, consumer lending risk characteristics, and macroeconomic conditions that will affect your return, the more confident you will be in your overall strategy and processes.
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