Author Topic: Fairer Solutions to Excess Investor Demand  (Read 82593 times)

Dennis

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Re: Fairer Solutions to Excess Investor Demand
« Reply #105 on: August 23, 2013, 08:00:24 PM »

There will never be enough borrowers. Ever. If you think that's possible then you don't understand how large investors work. Luckily, I think there are other solutions.

I'm not sure that's true.  I've been with Prosper and LC for 2 years now, and for at least the first year there were quite a few more borrowers than lenders.  In fact, not only did many loans routinely go unfunded but sometimes lender interest was so poor that incentives had to be given out by both Prosper and LC to attract more funding - those were the days.  Now we're on the other side of it, with too much lender interest (from a lenders perspective), and almost all notes are getting fully funded quickly.  Certainly the dynamics of P2P could change again at any time and there could be a dearth of lenders again.  A change in interest rates could easily achieve that.  So I'd never say never (LOL). 

TonySaunders

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Re: Fairer Solutions to Excess Investor Demand
« Reply #106 on: August 23, 2013, 09:56:08 PM »

There will never be enough borrowers. Ever. If you think that's possible then you don't understand how large investors work. Luckily, I think there are other solutions.

I'm not sure that's true.  I've been with Prosper and LC for 2 years now, and for at least the first year there were quite a few more borrowers than lenders.  In fact, not only did many loans routinely go unfunded but sometimes lender interest was so poor that incentives had to be given out by both Prosper and LC to attract more funding - those were the days.  Now we're on the other side of it, with too much lender interest (from a lenders perspective), and almost all notes are getting fully funded quickly.  Certainly the dynamics of P2P could change again at any time and there could be a dearth of lenders again.  A change in interest rates could easily achieve that.  So I'd never say never (LOL).

That's a pretty good point, I remember those days too. I'm still going to bet that p2p won't be in that situation again. We'll have to see if I eat my words.

cfb

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Re: Fairer Solutions to Excess Investor Demand
« Reply #107 on: August 23, 2013, 10:01:38 PM »
Lots of people apply for credit every day, and I'll bet the p2p portion is under a tenth of a percent.  The trouble is nobody I know has ever heard of LC, as a borrower or lender.

It also takes a bit of time and financial intelligence to grasp the concept.  I guess if people had those, they wouldn't be 35k in debt at 29% interest.

Ran

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Re: Fairer Solutions to Excess Investor Demand
« Reply #108 on: August 23, 2013, 11:19:55 PM »
I would think one way to address Excess Investor Demand is to increase supply. And to increase supply for C-G notes, they should
a) lower the interest rate on the note so LC will be more competitive against credit card companies and traditional banks
b) decrease or cap the application fee that borrowers pay. Consider that a borrower applies for $20k loan rated at D which is very typical, the borrower has to pay 5% * $20K = $1000 for origination fee out of pocket, not to mention ~18% interest rate. Just consider how much origination fee one pays for $200k mortgage and how much application fee one pays for credit card, 5% is simply insane. One could argue 5% for low loan amount, but not to cap the fee for high loan amount. How much paper work LC is doing compared to mortgage lender?
c) decrease service fee. The industry standard for servicing a loan is typically < .5%.

All these will effectively lower borrower's cost and help compete with traditional banks for personal loans & credit lines.

jkm1317

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Re: Fairer Solutions to Excess Investor Demand
« Reply #109 on: August 26, 2013, 11:22:05 AM »
Is there any push for LC to offer loans from other sources?  I own a used car dealership and we sell loans to investors all the time.  These are high interest loans sold at a discount to make the IRR  even higher. They are also secured so there is a higher degree of safety.  If LC considered purchasing other loans and selling them on their platform, they could cure a ton of the existing demand. 

rlv99

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Re: Fairer Solutions to Excess Investor Demand
« Reply #110 on: August 26, 2013, 01:09:59 PM »
a) lower the interest rate on the note so LC will be more competitive against credit card companies and traditional banks

No,no,no!  We are in a rising interest rate environment which will be with us for more than 3-5 years.  LC is already a more attractive "lender" to borrowers than credit cards and the traditional banks. 

As I have said several times on other threads,  LC has a marketing problem.  They are unknown to the vast majority of borrowers.  They need to expose themselves and get their message out if they want to get to the next level.

Or, maybe they are satisfied being a "wholesaler" to the institutional investor??

berniemadeoff

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Re: Fairer Solutions to Excess Investor Demand
« Reply #111 on: August 26, 2013, 02:32:37 PM »
If you guys haven't noticed, LC is "engineering" its growth rate by intentionally throttling loan growth.  Why on earth would they be throwing money at marketing when the growth potential already exceeds their desired growth rate?

rlv99

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Re: Fairer Solutions to Excess Investor Demand
« Reply #112 on: August 26, 2013, 05:48:48 PM »
If you guys haven't noticed, LC is "engineering" its growth rate by intentionally throttling loan growth.  Why on earth would they be throwing money at marketing when the growth potential already exceeds their desired growth rate?

They are not "throttling back" their growth rate.  At the end  of each month, they hold back from issuing loans during the last week/days and issue those loans into the next month; a cosmetic manipulation to make their Offering Prospectus look good, but it has nothing to do with "desired" growth rate. 

They will want to be able to project that they will make as much money in the future as they can based on past performance.  However, we just experienced a drop in new loans at a time when institutional investors are accelerating their position thereby creating the problem that this thread is supposed to address.

Unfortunately, the market leader must bear the cost of introducing new products/services to the national marketplace.  In this case, that's LC's burden.

 

core

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Re: Fairer Solutions to Excess Investor Demand
« Reply #113 on: August 26, 2013, 06:13:28 PM »
Yes, there is a big difference between throttling back and gaming the numbers in an effort to manipulate the IPO price.

I think there isn't any excess investor demand.  This illusion of a loan shortage has been carefully crafted for some sinister purpose.

Ran

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Re: Fairer Solutions to Excess Investor Demand
« Reply #114 on: August 26, 2013, 07:03:28 PM »
a) lower the interest rate on the note so LC will be more competitive against credit card companies and traditional banks

No,no,no!  We are in a rising interest rate environment which will be with us for more than 3-5 years.  LC is already a more attractive "lender" to borrowers than credit cards and the traditional banks. 

As I have said several times on other threads,  LC has a marketing problem.  They are unknown to the vast majority of borrowers.  They need to expose themselves and get their message out if they want to get to the next level.

Or, maybe they are satisfied being a "wholesaler" to the institutional investor??
I beg to disagree. The D-G grade loan are carrying a interest 10 times higher than comparable duration US Treasury bonds. So they do have a lot of room to lower the rate until investors are no longer fighting on the loans. LC had en edge back 2 yrs ago when banks are reluctant to issue consume credit, but no things are different and LC has to compete on rates. However, 5% application fee is prohibitive. No one pays application fees on credit card lines and no one pay 5% origination fee on mortgages.

storm

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Re: Fairer Solutions to Excess Investor Demand
« Reply #115 on: August 26, 2013, 07:27:28 PM »
a) lower the interest rate on the note so LC will be more competitive against credit card companies and traditional banks

We are in a rising interest rate environment which will be with us for more than 3-5 years.  LC is already a more attractive "lender" to borrowers than credit cards and the traditional banks.

The Federal Reserve Federal Funds Rate has been stuck at near 0% since December 2008.  Yes, interest rates has no where to go but up from here, but the Fed has signaled the rate isnít going to rise until well into next year or the year after that.  At two large credit unions I belong to (easy to join), you can get a new car loan starting at .74% and used car loan at 1.49%.  You would be crazy to finance a car through LC right now.  I see several borrowers with really good credit scores (mid to upper 700's) that could easily transfer their balance to a new credit card offering 0% transfer for 1 year.  Furthermore, I have a couple of credit cards that has a low variable interest rate less than what LCís scoring model gives the borrower.  I hate to say it, but LC is not all that competitive on interest rates especially with borrowers that have stellar credit.

rawraw

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Re: Fairer Solutions to Excess Investor Demand
« Reply #116 on: August 26, 2013, 07:59:18 PM »
a) lower the interest rate on the note so LC will be more competitive against credit card companies and traditional banks

We are in a rising interest rate environment which will be with us for more than 3-5 years.  LC is already a more attractive "lender" to borrowers than credit cards and the traditional banks.

The Federal Reserve Federal Funds Rate has been stuck at near 0% since December 2008.  Yes, interest rates has no where to go but up from here, but the Fed has signaled the rate isnít going to rise until well into next year or the year after that.  At two large credit unions I belong to (easy to join), you can get a new car loan starting at .74% and used car loan at 1.49%.  You would be crazy to finance a car through LC right now.  I see several borrowers with really good credit scores (mid to upper 700's) that could easily transfer their balance to a new credit card offering 0% transfer for 1 year.  Furthermore, I have a couple of credit cards that has a low variable interest rate less than what LCís scoring model gives the borrower.  I hate to say it, but LC is not all that competitive on interest rates especially with borrowers that have stellar credit.
Yea, you right.  Comparing secured borrowings to unsecured loans or credit card advances to LC is the way to go. . .

And have you been following the yield curve?  I'm pretty sure RLV99 has, as the yield curve has not stayed down.  There are more points on that yield curve than Federal Funds Rate.   Our investments aren't pegged to overnight risk free rates, anyway.  Check out the 10 year rate.

berniemadeoff

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Re: Fairer Solutions to Excess Investor Demand
« Reply #117 on: August 26, 2013, 08:07:48 PM »
Yes, there is a big difference between throttling back and gaming the numbers in an effort to manipulate the IPO price.

I think there isn't any excess investor demand.  This illusion of a loan shortage has been carefully crafted for some sinister purpose.

 ;D

Fred

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Re: Fairer Solutions to Excess Investor Demand
« Reply #118 on: August 26, 2013, 10:20:40 PM »
Is there any push for LC to offer loans from other sources?  I own a used car dealership and we sell loans to investors all the time.  These are high interest loans sold at a discount to make the IRR  even higher. They are also secured so there is a higher degree of safety.  If LC considered purchasing other loans and selling them on their platform, they could cure a ton of the existing demand.

LC is focused more on origination and servicing -- that's where most of their revenues come from.

So I think FOLIOfn, rather than LC, might be a better company to talk to about your situation.

storm

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Re: Fairer Solutions to Excess Investor Demand
« Reply #119 on: August 27, 2013, 12:52:02 AM »
Yea, you right.  Comparing secured borrowings to unsecured loans or credit card advances to LC is the way to go. . .

And have you been following the yield curve?  I'm pretty sure RLV99 has, as the yield curve has not stayed down.  There are more points on that yield curve than Federal Funds Rate.   Our investments aren't pegged to overnight risk free rates, anyway.  Check out the 10 year rate.

The rising yield curve doesn't make headlines on the mainstream media, and you would have a hard time convincing me with all this cheap credit at low fixed rates floating around.  Those are the offers sitting on my coffee table and in my e-mail.  That 6.78% + origination that LC is offering doesn't look so hot in comparison.  Consumers don't care about secured or unsecured loans (unless they intend to default).  They are just looking for the best deal much like investors look for the best returns.