Author Topic: Fairer Solutions to Excess Investor Demand  (Read 82587 times)

DanB

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Re: Fairer Solutions to Excess Investor Demand
« Reply #45 on: August 21, 2013, 01:22:52 AM »
Move this thread crapping to a different thread. I posted my rules up front--off topic posts get deleted!


I was not aware that topic starters now had the power to delete posts,  or to threaten deletions. I was under the impression that only the owner or moderator of the site had that type of authority. Am I mistaken or are you now a part owner of Lend Academy?  If that is the case then congrats are in order!

Rob L

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Re: Fairer Solutions to Excess Investor Demand
« Reply #46 on: August 21, 2013, 09:30:09 AM »
One point that has not yet been mentioned on this thread is that institutional investors are also complaining about the lack of supply. They face the same problems we face just on a larger scale.
That's exactly why I'm afraid some of them (particularly  the smaller ones) would skirt the 75% rule for access to more supply; and it is "skirtable".

rlv99

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Re: Fairer Solutions to Excess Investor Demand
« Reply #47 on: August 21, 2013, 10:40:29 AM »
One point that has not yet been mentioned on this thread is that institutional investors are also complaining about the lack of supply. They face the same problems we face just on a larger scale.
That's exactly why I'm afraid some of them (particularly  the smaller ones) would skirt the 75% rule for access to more supply; and it is "skirtable".

I fail to see why we need to concern ourselves with the institutional investors complaints.  All we are asking for is a level playing field. 

Bryce, can you move this along to LC?   

Peter

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Re: Fairer Solutions to Excess Investor Demand
« Reply #48 on: August 21, 2013, 10:49:01 AM »
Peter,

Thanks for sharing.  However, in my world, what Scott shared with you may be considered an MNPI (Material Non-Public Information). 

The rule about MNPI is: SEC regulation FD ("Fair Disclosure") requires that if a company intentionally discloses material non-public information to one person, it must simultaneously disclose that information to the public at large. In the case of an unintentional disclosure of material non-public information to one person, the company must make a public disclosure "promptly."  (http://en.wikipedia.org/wiki/Insider_trading#SEC_regulations)

Fortunately, LC is not a public company yet.  Once it becomes public, it must be wary of selective disclosures of MNPI.

While I am not a securities lawyer I can't imagine that discussing potential ideas and soliciting feedback with one person could possibility violate SEC rules. Scott wasn't telling me what Lending Club is going to do and to keep it to myself, it was more of a brainstorming session. Surely that is above board.

But anyway, we should stick with Bryce's request and stay on topic now.
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p2p2p2p2p

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Re: Fairer Solutions to Excess Investor Demand
« Reply #49 on: August 21, 2013, 01:12:13 PM »
I noticed that rates or return dropped this month at the institutional level also. I and others are starting to see opportunities elsewhere becoming almost if not more attractive than LC. Before totally bashing the "Institutions" bear in mind that they are the ones primarily enabling this entire system. Without someone to hoover up all the unfilled notes across the board ( especially A-B) this site would not be able to exist.

TonySaunders

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Re: Fairer Solutions to Excess Investor Demand
« Reply #50 on: August 21, 2013, 02:56:52 PM »
A LendingClub implemented auto-investment tool that distributes notes in a "fair share" sort of way before the remainder of the loan is posted for sale.

"Fair share" is the hard part. Very hard. More on that below.

I have some comments on previous proposals and other considerable thoughts:

  • The crux of the problem is that some investors are getting elbowed out of getting their reasonable share of the best notes.
  • There will never be "enough" for everyone to have as much as they want.
  • Therefore, the only successful solution that can exist, MUST make some kind of "fair share" judgement.
  • Stricter whole and fractional pools and/or the 70% rule simply changes the nature of the race and the identity of one's opponents.
  • The shopping cart could be abused, sort of, but I bet that on the balance it is a force for good in this matter. I think it's better to keep it, and I think a successful solution would be entirely independent of the shopping cart anyway.
  • Funding notes starting with the smallest investing gives total priority to small investors. It's just as unfair as what happens now. (Would be great for me!)

The real difficulty is deciding what a "fair share" means (and if it can even be ethical to make such a judgement). I think:
  • A large institutional lender can/should/would expect a bigger portion.
  • A small lender can/should/would expect to get access to his portion before someone eats it.
  • Nobody will get quite as much as they are wanting, we cannot expect a note from every loan.
  • I think it's unethical to give proportional access to loans based on some independent metric about a lender. Divvying up opportunity according to one's status? Yuck. I don't think we should be separating lenders into institutional and/or not-institutional (for example). Or by how big their bankroll is.
  • I think it is acceptable to award notes according to the proportion of a particular loan that a lender is WILLING and ABLE to buy.

After considering all the points above, I propose that "fair share" means (ideally):
  • You will receive a note proportional to your share of all the offers to buy notes for a loan.
  • In other words: (Percentage of the loan you get) = (Amount you offer to buy)/(Amount everyone offers to buy)
  • Applied like a purist, this strategy is open to abuse by lenders who offer to buy more than they REALLY want. (But you can't offer to buy more than 100%, or more than you have cash for, and there's always the risk that you GET IT). My thoughts are that these limiting factors would be sufficiently effective on both ends of the spectrum (institutions vs small lenders).
  • This strategy is open to abuse by large lenders who create multiple accounts. (Aren't they all?)
  • Additional caveats apply. What happens when your note would be less than $25? Who knows, but good/easy solutions exist.

So, someone figure out how to approximate that outcome without the abuse. My brain is starting to hurt, I'll come back to it later.

EDIT:
Actually, processing lenders so that they take turns, one at a time, buying a note, seems like a pretty good approximation, and easy. I have to think it through more.

The main problem with auto-investing, I think, is that I don't get to review my notes and reject the ones I don't want. So as a related but separate issue I'd like to see a feature in such a tool so I can do some manual screening (which I haven't thought through very carefully yet, but sounds good prima facie).

Allow the auto-invest tool to be used to put notes into your shopping cart.
« Last Edit: August 21, 2013, 03:07:46 PM by TonySaunders »

core

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Re: Fairer Solutions to Excess Investor Demand
« Reply #51 on: August 21, 2013, 03:12:22 PM »
Quote
In other words: (Percentage of the loan you get) = (Amount you offer to buy)/(Amount everyone offers to buy)

Since notes cannot be written for less than $25 (at present, and they are unlikely to decrease that), this will have one of the following side effects depending on how it's implemented.

1. Your $3.67 "share", for example, will be rounded down to zero and you'll get nothing.  Every time.
-- or if you round up to $25: --
2. The small investors will get the lion's share at $25 each, quite probably leaving no large notes. Institutions cry like little girls.


TonySaunders

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Re: Fairer Solutions to Perpetual Excess Investor Demand
« Reply #52 on: August 21, 2013, 03:14:30 PM »
Solution: Round Robin.
Loans are released and investors have 24 hours (or longer) to choose the loans in which they want to invest.  If there are more investors than possible fractions after a set time period, a randomized system leaves the investor with their "fair share" of notes for their loan selections of the day.
 

This is really good and doesn't require an auto-invest tool like I was thinking. But instead of a randomized system I'd prefer to see:

(Percentage of the loan you get) = (Amount you offer to buy)/(Amount everyone offers to buy)

or an approximation thereof.
« Last Edit: August 21, 2013, 03:19:59 PM by TonySaunders »

TonySaunders

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Re: Fairer Solutions to Excess Investor Demand
« Reply #53 on: August 21, 2013, 03:17:26 PM »
Quote
In other words: (Percentage of the loan you get) = (Amount you offer to buy)/(Amount everyone offers to buy)

Since notes cannot be written for less than $25 (at present, and they are unlikely to decrease that), this will have one of the following side effects depending on how it's implemented.

1. Your $3.67 "share", for example, will be rounded down to zero and you'll get nothing.  Every time.
-- or if you round up to $25: --
2. The small investors will get the lion's share at $25 each, quite probably leaving no large notes. Institutions cry like little girls.

I mentioned this caveat but didn't offer any solutions, which I think there are many good ones. I propose that the $25 and less notes are pooled together and distributed in $25 notes randomly (or roundly) to the investors who wanted them. Some lenders get left out (which we know must happen one way or another). This particular solution doesn't mess with the ratios, but has some caveats of it's own.

EDIT: Also, such a strategy needn't be implemented in this purist mathy manner. I think... but I don't have details hashed out.
« Last Edit: August 21, 2013, 03:23:34 PM by TonySaunders »

thezfunk

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Re: Fairer Solutions to Excess Investor Demand
« Reply #54 on: August 21, 2013, 03:37:02 PM »
I think one point that is missing here is something the platforms seemed to be talking about at the Lendit conference.  I wasn't able to watch the whole thing but I caught good portions of much of it.  One thing the platforms were talking about, especially for future, was the ability for anyone to 'instantly' get a loan. 

For example, I am at the store and need a new appliance.  In seconds or minutes I can apply and receive my loan all from a mobile device.  In that idea or model there is no 'time' for these time frames or limits that are being suggested in this thread.  They don't want people to have to wait 24 hours or 6 hours or whatever.  They would like this to be as instantaneous as possible.  I think it will be real hard to sell the platforms on these time frame ideas.

(I am not saying they are bad ideas just hypothesizing on how the platforms might view these ideas.)

nonattender

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Re: Fairer Solutions to Excess Investor Demand
« Reply #55 on: August 21, 2013, 03:51:10 PM »
Yes, any "solution" will have to be easy to code, easy to understand, and, most importantly, not retard LC's growth trajectory by
impacting the ultimate goal of "realtime" approval/fulfillment...  So, any "auction-like algorithmic solution" must be instantaneous.

If you look at how Goog's adwords auctions are run in real-time that's the sort of speed that they're ultimately trying to hit here.
So, no matter what, you're going to have to have your orders in before the notes are posted so that the algo can fulfill very fast.
A little nonsense now and then is relished by the wisest men.

GS

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Re: Fairer Solutions to Excess Investor Demand
« Reply #56 on: August 21, 2013, 03:56:44 PM »
I think one point that is missing here is something the platforms seemed to be talking about at the Lendit conference.  I wasn't able to watch the whole thing but I caught good portions of much of it.  One thing the platforms were talking about, especially for future, was the ability for anyone to 'instantly' get a loan. 

For example, I am at the store and need a new appliance.  In seconds or minutes I can apply and receive my loan all from a mobile device.  In that idea or model there is no 'time' for these time frames or limits that are being suggested in this thread.  They don't want people to have to wait 24 hours or 6 hours or whatever.  They would like this to be as instantaneous as possible.  I think it will be real hard to sell the platforms on these time frame ideas.

(I am not saying they are bad ideas just hypothesizing on how the platforms might view these ideas.)

It would be quite an adjustment for LC to get to "Instant Loan" territory.  The reports from the borrowing side is that they are very slow and inefficient.    That said,  it could be that in the future you may have an option to put your money into "blind pools" where "instant loans" are granted.  Last Christmas I opened a Home Depot Credit Card  and HH Gregg Credit card, which were granted on the spot, (to take advantage of no interest for 6 months, or whatever), and they were both 29% APR, so maybe it's worth it.  It would be pretty cool if a P2P lender struck a deal with a major retailer to issue instant credit.

But really, this is an example of a solution to the overall problem.  The real problem is that LC needs to find a way to expand the lending side of the their business.  In the past, they've talking about $50,000 personal loans, $200,000 business loans, and getting into secured loans (Helocs, car loans?).  If they don't do it, someone else will. 

Peter

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Re: Fairer Solutions to Excess Investor Demand
« Reply #57 on: August 21, 2013, 03:57:54 PM »
Bryce et al,

I have just got off the phone with a senior manager at Lending Club and they wanted me to convey to everyone here that all the ideas here have been read and noted. They appreciate all the creative thoughts and some of the ideas are under active consideration.
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core

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Re: Fairer Solutions to Excess Investor Demand
« Reply #58 on: August 21, 2013, 04:16:24 PM »
We wouldn't even be having this discussion if there were plenty of borrowers.   End the 4 days of interrogation, the 15+ minute phone interviews, and let the market decide which loans deserve to be funded.  I have no problem with FICOs under 660.  Create a new loan grade, say 'H', for people that are turned away and charge them 24% interest.

Enough people would be all over that, even with the increased risk, that the whining would be lessened.  Maybe the whining would instead shift to defaults on these, but hey then it turns into a game of SKILL rather than sitting here waiting for someone to hand you what you perceive is your "fair share".

Rob L

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Re: Fairer Solutions to Excess Investor Demand
« Reply #59 on: August 21, 2013, 04:51:50 PM »
Glad to hear it!