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Messages - Edward Reid

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Investors - LC / Re: Take on debt and put it in Lending Club?
« on: May 02, 2018, 05:19:14 PM »
Yeah, borrowing to invest is almost always a bad idea unless you have a guaranteed return, and I mean like FDIC insured. IOW, at least as certain as the debt you owe.

Your 8.5% return is phantom, it is only true as long as you continue to reinvest the repayments. Once you decide to stop buying new loans and start liquidating your account, your return will start declining as interest amount in repayments received will decline and may not be enough to meet the losses resulting from defaults.

How do you figure this? The interest rate doesn't change as the principal declines. Are you saying there are more defaults late in the life of loans? Are you calculating the return on the assumption that you don't reinvest repayments anywhere, just leave the cash sitting there? Something else?


Investors - LC / Re: Worst Loan of the Day Thread, Grades A - C
« on: April 11, 2018, 07:15:14 PM »
Non-verified monthly gross income $1,667 per month, monthly loan payment $803.46.
Yep, that's right. Monthly payment is 48% of gross income.

Interesting. I would not invest in it due to only five years of credit history, and I don't even look at Business loans. However, I note that credit history is absolutely clean. No inquiries. Claims to own home (a pretty big deal for a MT since they often work out of their homes). I can see ways it could be reasonable. If I were opening a new business and applying for a loan, I would honestly list my current income even if I had a sound business plan to triple my income. Not that I'd consider investing in this one ... but compared with some of the others posted, this one doesn't look nearly as bad to me.

I've never been clear on whether the reported DTI includes the loan payment. This one makes it abundantly clear that it does not. When looking at Credit Card Payoff or Consolidation loans, it matters less IF the applicant is honest, since moving debts from a card to LC is likely to reduce payments. If.


if the market tanks, loan defaults would go up even more as people get demolished.

Before I started P2P investing, I dug through the LC stats. It was clear that during the 2008-2009 crisis, D+ loans tanked, but A-C loans did not. I'm sure that in a similar crisis, my investment (mostly C) would barely hold rather than continuing the consistent 8% I'm getting now. But it would take something even worse for me to lose money, and in that case just about anything but treasury bonds would be even worse. And 2008-2009 was a true economic crisis, not just the market tanking, which is unlikely to directly affect the great majority of LC borrowers.

And couple that with the fact that it takes forever to liquidate an account... imagine handling an estate where someone has 50k or more loans?

An estate with 50K notes is likely worth at least half a million dollars even if all notes are $25. (I'm assuming a steady state of investment, hence notes of average value around half the face value, and perhaps investment halted some time before death.) Anyone who has that much to invest should be putting it in notes of at least $1000 (that's still over 1000 notes, and the stats show that's far more than needed to spread the risk), so for an investor acting reasonably, the account is likely worth $20-25 million.

I could deal with managing that estate ... even if my fee were only 1%. And that size estate would likely take at least three years to unravel anyway, so I would just let it age out. Took almost that long to close my mom's estate, and it was simple by comparison.


Investors - LC / Re: Worst Loan of the Day Thread, Grades A - C
« on: February 05, 2018, 03:07:14 PM »
That's going to be a struggle.
yeah ... have to wonder what was on the application, or what the reviewer was on ... Based on what we see, I just cannot imagine a scenario where it's viable, implying there's likely significant info we don't see.

On track to be fully funded within six hours of release. Yet I often pick up notes on loans that actually look very good for grade C which have gone more than 24 hours since release.


Investors - LC / Re: What is Your Minimum Acceptable Return
« on: January 20, 2018, 09:56:20 AM »
No single number, because it's a trade-off between risk and return. I've picked a risk profile (accurately so far, but only so far) and I'm on about 8% ANAR with about 18 months average age. I'd be happy with a 4% return on that, because I think that would be better than I could get with other investments with similar risk. If I needed more safety, I'd be happy with a lower return. If it were pure play money, I wouldn't be happy with any level of return, because it wouldn't be as exciting as betting on horses.


Investors - LC / Re: Worst Loan of the Day Thread, Grades A - C
« on: January 20, 2018, 09:45:32 AM »
An absolute new low by far! The new super duper LC G5 model wants lenders to fund this??

C1,  12.62%  $29.76

I don't know what's going on with G5 but this is an amazingly bad loan as I see it.
There seems to be plenty of time to jump board. Only $625 of the $10,000 loan is funded at this time (21 hardy investor souls).
And 12 more as of this morning ...

A (self-described) accountant with black marks on their credit record. Of course, we don't know what was happening in someone's life six years ago, but they (claim to) have had the job for nine years. And it's a "business" loan.

Oh, two more people jumped on while I was writing ...


Investors - LC / Re: Worst Loan of the Day Thread, Grades A - C
« on: January 10, 2018, 09:24:56 AM »
Can't exactly remember, but near if not the absolute worst of the worst (so far):
C2,  13,59%,  $33.45,
Interesting. I would reject it for the major derogatory. (Obviously my approach is to try to pick C grade loans which are least likely to default.) Don't care for the rounded-off $30K amount. And perhaps I should be paying more attention to recent inquiries. If those aren't the reasons for the low model rating, then it's an example of why you can't pull the individual factors.


Investors - LC / Re: Worst Loan of the Day Thread, Grades A - C
« on: January 06, 2018, 10:50:31 AM »
Interesting indeed, both of them.

A new absolute worst of the worst, A, B and C: B5,  11.99%,  $36.30

I don't even look at "business" loans, and if I did, I'd be suspicious because the revolving balance is so close to the loan amount, so it may really be debt consolidation -- with which I have no problem when it's truthful. And the Public Record On File -- I avoid those even though I've never figured out exactly what it means. ::)  Oh, and three inquiries -- I haven't been looking at that number, though perhaps I should. Nothing obviously explains why the model dislikes it so strongly. Others seem to agree ... funding is going very slowly.

BTW, this interesting loan below scored very well. Typically a FICO of 810 merits a loan grade better than C3 so the LC model sees something that makes this loan much more risky than FICO indicates. C3,  14.08%,  $60.28

Apparently 107 people agreed with your model, since it was already fully funded by the time I looked. High DTI and loan purpose "other" (I would not have seen in in my normal scan because of the latter), but no reason to disagree with the model.


Investors - LC / Re: Worst Loan of the Day Thread, Grades A - C
« on: January 03, 2018, 03:17:49 PM »
There was an interesting thread a few years ago "What's This Best Note Selection Business Anyway" that goes back to a time when personally I was very skeptical regarding the very possibility of retail lenders picking best notes.,1953.0.html

It was pointed out by Emmanuel that LC's model may have a different objective than that of an individual lender and that made a lot of sense to me. It makes even more sense now that LC now only provides its model's PD over full letter grades rather than over sub-grades. Could be their objective is maximized originations

Thanks for the link -- interesting indeed. I actually like the formulation by neals384, which is basically what I bolded above. That does mean satisfying investors, but they don't have to outrun the bear, only the other guy. As long as enough investors (individual and institutional) are happy with the returns received for effort expended, improving the predictions might actually be detrimental to their goals by discouraging investment over a broad range of loan grades. And we already know that they claim investing in several grades is diversification, when I see it only as dilution of my goals.


Investors - LC / Re: Worst Loan of the Day Thread, Grades A - C
« on: January 03, 2018, 09:28:41 AM »
C4,  15.05%,  $30.11
What is wrong with this loan? I don't see anything that stands out. It is just someone going through divorce most probably. Is it just your model saying it is a bad loan?
From my manual-evaluation PoV ... I don't see why it would be worst-of-worst. I would reject it due to the past delinquency and major derogatory, but the great majority of C-grade loans have one or both of those. DTI is high and loan request is for over twice the revolving balance -- I don't consider those absolute disqualifications, but I consider that DTI very significant, the amount mismatch not very significant at this level.

I'd find it very interesting if Rob's model seriously downrates any C-grade loans which have no history of delinquency or derogatories. Those are two of my outright disqualifiers, the others being less than ten years credit history, no evidence of employment, and huge amount of revolving debt. Since my criteria are manual and untested (albeit so far apparently very successful), it's very interesting to compare with the statistical approach.


Many student loans cannot be discharged through bankruptcy. I assume that would give other loans lower precedence, and thus might be a negative factor.

I doubt there's any way to tell, but I don't know.


Investors - LC / Re: Worst Loan of the Day Thread, Grades A - C
« on: January 01, 2018, 07:57:14 PM »
The "wisdom of the crowd" at $91.86 per note seems to imply it might be ok.

94% of the crowd are getting lower returns than I am. 99% with similar age and WAIR.

Some coaches are paid an insane amount of money.

Them and CEOs ...

What a world.

To put it mildly.

Investors - LC / discount for current loans?
« on: January 01, 2018, 01:00:44 PM »
As discussed here previously, LC really should apply a discount even to loans which are current, since it's known that some of those will eventually charge off. But they don't, so ...

Has anyone figured out appropriate discounts? I doubt that a single number would suffice, but perhaps a matrix of major grade (ABCDE) vs age in quarters would suffice.


Investors - LC / Re: Worst Loan of the Day Thread, Grades A - C
« on: January 01, 2018, 12:49:51 PM »
Interesting. Your model's scores appear to correlate strongly with credit record and employment info (present or not), which is no surprise. I don't think I disagreed with any of the ones your model downrates.

Examples of loans that scored highly:
C4, 15.05%, $50.79
C5, 16.02%, $91.86

I agree on the first but would not touch the second.
  • Makes $500K/yr but has $80K revolving debt.
  • Why moving? Job offer or lost job?
  • Entered exactly $500,000 for income. I don't mind some rounding, but rounding to the nearest half million strikes me as suspect even though it's marked verified.
  • How many football coaches make $500K/yr? Some of course, but this person is in elevated status and needs a loan from LC?
  • Jumped for the $35K instead of calculating how much they needed.
Other signs are good of course -- clean credit record, and more than ten years of credit history. Still, I don't like it.


Final report. Thanks, Scott, for doing this. I agree with your reasons for winding it down. In its time, the thread helped me understand the variety of P2P investors, and where I fit (and don't fit) with other categories. It also got me starting tracking this relatively simple set of numbers, which I find useful since LC statements are poor at summarizing, and I intend to continue this collection for myself. Cheers!



Adjusted Net Annualized Return:     8.16%
Weighted Average Interest Rate:    13.82%
Weighted Average Age of Portfolio: 16.4 mos
Number of Notes:    555

Grade A (0.3%) B (1.4%) C (97.3%) D (1.0%) E (0.0%) F *** (0.0%) G *** (0.0%)
Term Payments  36 (52.5%) 60 (47.5%)

vs All Accounts: 93.96
vs Similar Age Accounts: 99.12
vs Similar Age and WAIR Accounts: 99.27

No folio

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