Author Topic: Fairer Solutions to Excess Investor Demand  (Read 82590 times)

New Jersey Guy

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Re: Fairer Solutions to Excess Investor Demand
« Reply #60 on: August 21, 2013, 05:06:22 PM »
"Create a new loan grade, say 'H', for people that are turned away and charge them 24% interest."

Ummm, how do you suggest they do that when we can't even get a decent supply of "G's" approved?
Opening the floodgates to hard-up's isn't the answer.

It comes down to consumer awareness.  Despite the mailers and advertising by LC, most normal people still don't know about P2P.  Personally, I don't think the concept has even saturated but a small percentage of the population.  Even if they are aware of it doesn't mean that they need a loan today.  They may next year, but not today.

Lending Club may be posting record loans, but personally I think the whole concept is still evolving.
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Rob L

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Re: Fairer Solutions to Excess Investor Demand
« Reply #61 on: August 21, 2013, 05:15:24 PM »
Core, it seems we agree much of the time but not here. I freely admit I do not have the skill to determine the proper grade or set the appropriate interest rate for a loan. I am completely dependent on LC to do that job, and do it well. I further depend on P2P-Picks to recommend loans that have an edge on random selection, but I would rather have no loans at all than those poorly underwritten by LC. It's good to know what you don't know, and what you suggest is something I know don't know how to do.

core

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Re: Fairer Solutions to Excess Investor Demand
« Reply #62 on: August 21, 2013, 05:22:27 PM »
Despite the mailers and advertising by LC, most normal people still don't know about P2P.

You are probably correct.  I know LC has a referral bonus program for investors, but what about one for borrowers?  (I haven't yet checked.)  It may be a small step but if I knew I could make a percentage of these origination fees by doing some "creative marketing", I'd sure invest some of my time in it.

It's good to know what you don't know, and what you suggest is something I know don't know how to do.

I have no clue how to do it either.  But I guarantee you by the time it's all done I'll either be good at it with the returns to prove it, or I'll go insane trying.  I personally would rather have the chance to excel than stagnate watching my returns dwindle because the "experts" can't keep up.  I believe it was Zig Ziglar who said "If you aim at nothing, you'll hit it every time."

thezinfan

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Re: Fairer Solutions to Excess Investor Demand
« Reply #63 on: August 21, 2013, 05:34:24 PM »
I'm not trying to be  a jerk here, but do you guys not trust your filters? Today at both 10am and 2pm PST i was able to pick up 10 notes (20 total), each with a $100 share. If it meets my filter, it goes in the cart.

kitono

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Re: Fairer Solutions to Excess Investor Demand
« Reply #64 on: August 21, 2013, 06:24:13 PM »
Here's a CRAZY Idea.
Let's take my initial idea early and implement it as part of a three step process.
1. My Earlier Idea
2. Stop registration for new investors (atleast, on the retail level)
3. Increase advertising and awareness for Lending club to increase the amounts of notes generated.

2 of those three Ideas will benefit institutional investors more than their current average joe (e.g. me)

Sounds like a "fair" plan for all current investors.

Currently we are in a situation where we have too much supply and not enough demand, wouldn't common sense be to stop increasing supply?
2ndly, If I were lending club, I would contact a social media manager to devise a solid strategy for increasing brand awareness. I know the perfect person too!

core

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Re: Fairer Solutions to Excess Investor Demand
« Reply #65 on: August 21, 2013, 06:41:26 PM »
2. Stop registration for new investors (atleast, on the retail level)

"Sorry, Lending Club is currently not accepting new investors"

Right before the IPO?  Even during it?  You're right about one thing... that would be CRAZY.

TonySaunders

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Re: Fairer Solutions to Excess Investor Demand
« Reply #66 on: August 21, 2013, 09:46:33 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.)

An auto-invest tool would meet this requirement.

rawraw

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Re: Re: Fairer Solutions to Excess Investor Demand
« Reply #67 on: August 21, 2013, 10:36:08 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".
did you copy paste this from prosper 1.0?

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core

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Re: Re: Fairer Solutions to Excess Investor Demand
« Reply #68 on: August 21, 2013, 10:46:40 PM »
did you copy paste this from prosper 1.0?

Yeah, I knew somebody was going to call me out on this eventually.  Notice I didn't mention bidding down interest rates though.

The difference here is that I'm only talking about giving investors the opportunity to snag loans that otherwise would have been rejected.  So this wouldn't affect returns on their normal loans at all.  Business as usual on those.  You could even limit it so you had to sign a disclaimer to get access to them, jump through some other hoops, and perhaps LC could treat these for marketing purposes as a whole separate sub-prime deal, whatever they wanted.

But hey, since I make most of my returns based solely on the fact that people have to go to Folio if they want a good selection of notes, I'm probably arguing myself right into the poor house.  I changed my mind... let's keep everything just the way it is.  You guys got me all confused.  :)

berniemadeoff

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Re: Fairer Solutions to Excess Investor Demand
« Reply #69 on: August 22, 2013, 01:08:05 AM »
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.

This pro rata allocation would apply to loans with multiple bidders.  Investors would get any loan they order but may only receive a $25 share. Loans that are less desirable for whatever reason (and wouldn't be filled for days anyways under normal circumstances) could be purchased in whole - in other words during the order period  a sole bidder for 100% of the loan would receive the whole loan. 

Under this arrangement, the "hot loans" get allocated to mostly everyone who wants it.  Maybe the loan would appear "sold out" within the order period if it were fully allocated to investors at $25 a piece (for a $35,000 *white* hot loan you would end up with worst case 1,400 investors with $25 a piece and then it would be marked "sold out"). This would still create something of a race, but it still seems more rational than a 2 investor 70%/30% split that we get now.  Even a $10,000 loan would have 400 owners, even if all 400 investors tried to order 100% of the loan.

I believe this type of a system is better for investors and LC in the long run. I think under this kind of arrangement, institutional investors would be forced to select loans with lower potential return than they do now under the current feeding frenzy process.  I think the excess demand issue for low rated loans would be somewhat alleviated if the large institutions realized they could not count on sweeping up all the E,F and G in the first few milliseconds, and had to get in line with everyone else.  They would be forced to relax their filters and could actually have the effect of lowering the IRR of P2P lending for large investors that have a lot of capital to deploy because they would have to "settle" for C and D loans when they currently may only target E,F and G loans. 

I really doubt these institutions would allocate less capital to P2P lending because returns would be 6-8% vs. 8-10% on a low duration fixed income investment.  Where else are they getting these kinds of returns?

Anyways, I'm sure all of this will never be implemented because the whole P2P concept is pretty much dead.  I think that's pretty short sighted though, because it waters down the potential of P2P and likely reduces LC and Prosper to ultimately become online underwriting platforms for a bunch of hedge funds and insurance companies.  I think Lending Tree did something like this for Mortgages in the late 90's... big whoop-de-doo.  Also, nobody will read this post because most people think this is an idiotic idea from an idiot...I'm fine with that too.   ;)



« Last Edit: August 22, 2013, 01:12:47 AM by berniemadeoff »

Fred

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Re: Fairer Solutions to Excess Investor Demand
« Reply #70 on: August 22, 2013, 01:35:18 AM »
Opening the floodgates to hard-up's isn't the answer.

+1

Besides, LC claims to lend money to prime and super-prime borrowers (https://www.lendingclub.com/public/lending-club-press-2013-02-07.action).  There is not much room  for these borrowers beyond the G5 grade (which already charges 26% interest rate).

It comes down to consumer awareness.  Despite the mailers and advertising by LC, most normal people still don't know about P2P.  Personally, I don't think the concept has even saturated but a small percentage of the population.  Even if they are aware of it doesn't mean that they need a loan today.  They may next year, but not today.

I wonder if it's a good idea for LC to pay $MM for a few 30-second ads at the Super Bowl.

TonySaunders

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Re: Fairer Solutions to Excess Investor Demand
« Reply #71 on: August 22, 2013, 03:47:45 AM »
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".

I understand the spirit of what you are suggesting. I don't think there's any real benefit to be found there because we already have plenty of access to less desirable notes at any time. There are plenty of B notes and C notes. Why get a 10% return from volatile H notes when you can get a 10% return from reliable C notes? The problem isn't that there aren't enough loans, the problem is that we all want fair access to the best ones, adding an H category won't fix that.

TonySaunders

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Re: Fairer Solutions to Excess Investor Demand
« Reply #72 on: August 22, 2013, 03:58:05 AM »
I see a lot of responses that suggest ways to increase the supply of loans. More loans is always good, but it will never solve this problem. Institutional lenders are like endless bottomless pits of money that can suck up industries that are much larger than all of lending club. If we had 100 times more loans, they'd still buy them all up and lament that there wasn't more. They probably don't even take LC seriously, it's probably a trivial endeavor that only exists so they are prepared for the case that LC explodes as a hot new way to borrow money.

TonySaunders

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Re: Fairer Solutions to Excess Investor Demand
« Reply #73 on: August 22, 2013, 04:09:58 AM »
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.
...

Under this arrangement, the "hot loans" get allocated to mostly everyone who wants it.  Maybe the loan would appear "sold out" within the order period if it were fully allocated to investors at $25 a piece (for a $35,000 *white* hot loan you would end up with worst case 1,400 investors with $25 a piece and then it would be marked "sold out"). This would still create something of a race, but it still seems more rational than a 2 investor 70%/30% split that we get now.  Even a $10,000 loan would have 400 owners, even if all 400 investors tried to order 100% of the loan.

...

That's an interesting way of resolving the caveats of this strategy. One primary reason to use this formula is so that lenders who are willing to fund more of a loan (or all of it) can get a bigger piece of the loan. I think your solution violates that, and ends up divvying up a hot loan evenly among everyone who invests. It cuts big lenders out. As attractive as that is for small lenders like me, it's not any more fair than what we already have to deal with.

thezfunk

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Re: Fairer Solutions to Excess Investor Demand
« Reply #74 on: August 22, 2013, 10:01:05 AM »
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.
...

Under this arrangement, the "hot loans" get allocated to mostly everyone who wants it.  Maybe the loan would appear "sold out" within the order period if it were fully allocated to investors at $25 a piece (for a $35,000 *white* hot loan you would end up with worst case 1,400 investors with $25 a piece and then it would be marked "sold out"). This would still create something of a race, but it still seems more rational than a 2 investor 70%/30% split that we get now.  Even a $10,000 loan would have 400 owners, even if all 400 investors tried to order 100% of the loan.

...

That's an interesting way of resolving the caveats of this strategy. One primary reason to use this formula is so that lenders who are willing to fund more of a loan (or all of it) can get a bigger piece of the loan. I think your solution violates that, and ends up divvying up a hot loan evenly among everyone who invests. It cuts big lenders out. As attractive as that is for small lenders like me, it's not any more fair than what we already have to deal with.

But it is fair.  Institutions get the same chance as anyone else to get the same size of note.

This 'fair' topic has bothered me since I started reading about it.  True, you can argue that 'fair' is subjective.  I get it.  So then look at 'fair' as how would 'most' people feel about the issue.  I think most people would agree that fair means everyone (within reason) gets a chance at the same size chunk of the loan. 

Maybe it isn't a loan but a cookie.  We're all kids fighting over cookies.  How do you fairly divide a cookie four ways (as an arbitrary amount example)?  Cut it into four quarters (25%) and hand it out.  Say one of the kids is bigger than the other three.  Now, should the bigger kid get a larger share because he is bigger?  Should he get a larger share because he can bully the person handing out the cookie?  I doubt anyone besides the bully would view that as fair.

So back to loans.  The institutions might want whole loans or 70% or 75% of every loan they want.  There are more investors than chunks of any one loan (cookie) because Lending Club says that the minimum loan amount is $25 (which is fair because nobody can get a smaller chunk).  If there are more investors than available chunks of $25 notes then you hand out those notes (first come first serve, I imagine.  More on that in a bit).  Those investors (kids) go to the back of the line and the next loan (cookie) comes up for grabs.  Investors can pass on their chunk of the loan (cookie) if they don't like it (maybe you aren't a fan of oatmeal raisin, you want that next chocolate chip).  You don't have to go back to the end of the line until you get your $25 chunk.  Now, if a loan goes all the way through the line and nobody wants the rest of it, then let the big kid (investor/institution) have it.  The rest are satisfied and had their fill.  If all the loans get eaten before a big chunk becomes available then, too bad.  Everyone got an equal share or at least had the opportunity at an equal share.  If they run out of loans (cookies) that day, then you are just closer to the front for the next day.

To address the first come, first serve issue.  It's not fair to have an API that only some are allowed access to.  To make it fair, everyone should have the same access or the same process in which to buy loans.  If you want to use the API to analyze notes, that's one thing.  But to allow an automated process (that others don't have) a quicker way than the four clicks it takes me on their webpage, is not fair.  Either you provide an automated way to grab chunks of loans to everyone, or no one.

I think the only realistic way for this to happen is have filters set up that Lending Club can run your available chunk against.  If you want that personal once over, maybe you have the ability to choose that.  You get an email or some other notification (maybe even through the API) that you have X amount of time to look at this loan before it gets passed through the next investor filter.  This can all happen rather quickly and transparently.

I don't mean to steal any ones idea.  This may be exactly what others in this thread have described.  I have been reading through this thread but I forget where I see what sometimes.  I just liked the cookie example because everyone loves cookies  :)