Author Topic: Drastic change in LC projected returns  (Read 591 times)

JimGasperini

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Drastic change in LC projected returns
« on: April 23, 2020, 02:26:23 PM »
Hello--

I've noticed many changes at LC in the last six weeks: 

1. a dramatic drop in the number of notes that fit my criteria (and probably in the number available in general)

2. LC continues to list as "Current" many notes I own although the borrowers are not actually paying ("on Hardship Plan.")
  --As far as I can tell there is no way to sort out which notes are truly current and which are on Hardship Plan and so not really current. Is there such a way?
  --Also, the fact that many notes are no longer paying off does not seem to have been factored into what LC reports as my Adjusted Net Annualized Returns, which has continued to creep up over the last two months (from 5.81% to 5.87%). I wonder how much I should now trust this estimate.

3. A drastic drop in the projected return on notes for sale.
   --Two months ago a note offered at 13.33% would have had a Projected Return after Expeteted Chargeoff Rate and Estimated Fees of something like 4.9%, as I recall.
   --Today such a note has a much higher Expected Chargeoff Rate (9.43%) and Estimated Fees of 1.53% (also higher than before, I believe) resulting in a Projected Return of 1.96%. Similarly, a note offered at 17.30% that typically would have had a Projected Return in the 6-8% range now has a Projected Return of 2.29%.

I understand that many things have changed in the current situation, but some of this seems mystifying. I would appreciate any information that would help put these changes in context.
Thanks, Jim

Fred93

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Re: Drastic change in LC projected returns
« Reply #1 on: April 23, 2020, 06:23:46 PM »
   --Two months ago a note offered at 13.33% would have had a Projected Return after Expeteted Chargeoff Rate and Estimated Fees of something like 4.9%, as I recall.
   --Today such a note has a much higher Expected Chargeoff Rate (9.43%) and Estimated Fees of 1.53% (also higher than before, I believe) resulting in a Projected Return of 1.96%. Similarly, a note offered at 17.30% that typically would have had a Projected Return in the 6-8% range now has a Projected Return of 2.29%.

It seems reasonable and honest of them to project that there will be larger chargeoffs now that we're in this Covid19 shutdown/recession era. 

Nobody of course knows how bad the chargeoffs will be.  Various government officials are running around telling people it's ok to not pay! 

There are now emergency rules against evictions and foreclosures, even tho this is entirely redundant because existing laws already bend over backward to protect debtors in such situations.  And most recently the gov of California is doing something to block garnishments.  Amid all this, I expect many will not pay, because even if they can, they're being told they don't need to!  I was thinking about this as I paid my power, water, etc bills this month. 

Therefore these changes from LC seem appropriate and not surprising at all

LC publishes chargeoff data monthly, but they do it with a delay, so we can't see the chargeoff rates for March and April yet.  I think we get to see the March numbers in Mid-may, just after they file their quarterly earnings.  There should be increased cchargeoff in March, but I'm thinkin' it really kicks in for April payments.

MEANWHILE, LC just a few days ago, April 20th, filed a report with the SEC saying they were laying off 30% of their workforce citing reduced investor demand for their product.  You haven't been buying enough loans!